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ZTE profits crash 37 per cent in 2011

Chinese telecoms kit maker getting squeezed

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Chinese telecoms equipment maker ZTE has had a mixed 2011, with revenue surging by almost a quarter to 86.3bn yuan (£8.6bn), but profits were down by a whopping 36.6 per cent and concerns linger over its links to Iran.

The world’s fourth largest handset maker reported a revenue increase of 23.4 per cent from 2010, with a healthy growth in domestic operating revenue of 22.7 per cent to 39.5bn (£3.9bn) yuan thanks to large contracts for the deployment of 3G and fixed broadband networks.

The firm added that its international expansion continues strongly, with 54 per cent of overall operating revenue now coming from sales outside the People’s Republic - a part of the business which grew 24 per cent last year to 46.8bn yuan (£4.7bn).

This growth abroad was helped by ZTE’s success in partnering with local operators to sell infrastructure kit into emerging and European markets, while handset sales at home and abroad were also strong, propelling the Shenzhen company to second fastest growing smartphone vendor in the world according to Gartner.

Despite this strong growth, however, profits slumped by over a third to 2.1bn yuan, as handset sales margins were squeezed ever tighter and the market for its telecoms equipment, in Europe particularly, slowed down.

ZTE’s success or failure over the next 12 months then could depend on a few factors, not least whether contracts for 3G infrastructure in its home market continue to come in and whether it can build on the many TD-LTE trials it has conducted with operators around the globe.

On the domestic side at least its only real rival in the telecoms kit space is Huawei, whose own results will be posted in a few days, while the appetite for handsets in China will remain undiminished for the next year.

There are also serious question marks over whether the recent allegations that ZTE sold surveillance equipment to Iran alongside an extensive ‘packing list’ of hardware and software from US firms will have any impact on its attempts to expand abroad, especially in the States.

As Huawei has seen, the US is not afraid to play hardball if it feels its global interests or national security are being threatened. ®

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