ZTE Corp., China's number-two maker of telecoms equipment, is expected to report its profit and revenue dropped in the second quarter, amid stiff competition on the global stage and slowing business at home. The former high-flyer, one of China's most successful homegrown exporters, suffered a setback in the first quarter, when profit tumbled 85 percent on reduced telecommunications spending in its home market.

ZTE, listed in China and Hong Kong, will report first-half results for its China-listed company on Aug. 25. Daiwa Institute of Research and BNP Paribas both forecast the company's profit declines would continue at a slower rate in the second quarter, with Daiwa predicting a 61 percent drop in first-half profit and BNP a 35 to 40 percent dip. The year-on-year declines should continue throughout the year, analysts said, as the company fights growing competition for overseas orders and waits for a new wave of spending in China.

As ZTE's fortunes have sagged, so has its stock.Its Hong Kong-listed shares are down about 11 percent so far this year, versus a 17 percent gain for the broader Hang Seng Index. Its China listed shares are down 9 percent, versus a 39 percent gain for the Shanghai index.

Many company watchers are on the verge of downgrading their annual profit and revenue forecasts for ZTE, on a growing belief that China won't issue third-generation (3G) mobile licences until next year, said BNP analyst Marvin Lo. Many had expected the licences to come out late this year, touching off a multibillion-dollar spending spree by China's major telecoms carriers building 3G networks. "3G will be a lifesaver, but it looks like it won't come in the second half of this year," Lo said. "And when it comes to overseas projects, we doubt they can improve profit margins since it's very competitive."

ZTE and its hometown arch-rival, Huawei Technologies [HWT.UL], rose to prominence as China's telecoms carriers spent billions of dollars to build wired and wireless networks starting in the 1990s. ZTE posted healthy double-digit revenue and profit gains during most of that period, adding exports to the mix in the last five years to keep its growth alive. But while Huawei has succeeded in tapping more lucrative Western markets, most recently scoring its first-ever deal in Japan, ZTE has remained confined to less lucrative and more competitive developing markets such as Africa and the Middle East.

In one of its limited successes in the West, the company signed a deal last year to sell cellphones to the British 3G unit of Hutchison Whampoa. But ZTE will have to wait for 3G in China to return to the heady days of previous years, said Daiwa analyst Joseph Ho, who forecast China would issue 3G licenses in the next six months. "We expect an influx of 3G equipment orders to lift ZTE's earnings in 2007, with overseas business partially filling the gap in 2006," Ho said in a research note.

Source:佚名