ZTE Profit Drops 12.4% in H1ZTE Profit Drops 12.4% in H1

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763)'s net profit in the first half of 2011 declined 12.4 percent year-on-year to 768 million Yuan Renminbi (US$119 million), the Chinese vendor reported on Wednesday in its preliminary interim results. (See ZTE Reports H1.)

Revenues in the period were up 21.5 percent to RMB 37 billion (US$5.7 billion) compared to the same period last year.

The vendor attributed the drop in profit to its "market share expansion strategy, a change in product structure and pending software VAT refund subsidies."

ZTE explained that the drive to increase its share in markets outside China, as well as the move into higher-end smartphone devices, negatively affected the company's margins in the first half of this year. ZTE's gross profit margin in the period was 29.7 percent, which is 3.98 percent points lower than the margin reported in the same period last year. (See ZTE Ramps Global Device Shipments, ZTE Hits the UK High Street and Euronews: ZTE Opens London R&D Center.)

Specifically, the vendor said gross profit margin for its carrier network products business declined to 34.5 percent in the first half of this year from 38 percent last year. In the company's handset business, gross margin declined to 19.6 percent in the period from 22.7 percent last year.

Evidence of ZTE's international expansion can be seen in the geographic breakdown of ZTE's revenue in the reporting period. Half-year revenue from international operations increased 36.4 percent year-on-year to RMB 20.8 billion (US$3.2 billion) and accounted for 55.7 percent of ZTE's total revenue in the period. Meanwhile, revenue from China increased 6.9 percent to RMB 16.5 billion (US$2.5 billion) and accounted for 44.3 percent of the company's total revenue in the first half of this year.

— Michelle Donegan, European Editor, Light Reading Mobile