ZTE stock slides on weaker earnings, falling revenue

ZTE hiked Q3 earnings by 5.1%, despite a fall in revenue, but that wasn't enough to save it from investors, who drove down the stock by as much as 13% in Tuesday trading.

The share price closed 12% lower and has fallen 25% in the past month, which analysts say is a reaction to its lower revenue and profit growth and the weaker industry outlook.

The Shenzhen-based vendor reported net profit of 2.37 billion Chinese yuan (US$325 million) for the quarter, mostly on the back of tighter cost controls.

It stripped nearly CNY5 billion ($687 million) out of operating costs, cutting it by more than a fifth from last year, helping lift operating profit by 5.5%.

It hiked R&D spending by 5.3% to CNY6.3 billion ($865.8 million), maintaining it at 22% of total sales, one of the highest in the industry.

But revenue shrank 12.4% to CNY28.7 billion ($3.9 billion), partly because of late recognition of revenue from 5G network shipments, Dow Jones reported.

In its interim result in August, ZTE recorded a 20% rise in net profit on 1.5% lower revenue, also aided by cost-cutting that included a reduction in headcount of 2,000.

Global capex retreat

ZTE's third quarter filing did not include segment income, but in the first half, the company said 71% of revenue came from its home market, while carrier equipment remained its biggest single segment, accounting for 67% of sales.

Related:ZTE cuts 2,000 jobs and faces risk of China 5G slowdown

Like other vendors, ZTE company feels the chill of the global telco capex retreat. Operator capital spending worldwide fell 5.8% in Q2, according to MTN Consulting.

With most major markets outside India all but completing their 5G rollouts – and with telcos so far seeing tepid returns on their huge 5G outlays – capex appears unlikely to grow again soon, despite the higher demand for cloud and AI-related equipment.

Nokia last week announced it would cut 14,000 jobs after revenue slipped 15% and its mobile network business contracted by 24%. 

Ericsson's Q3 numbers showed a 16% fall in network sales and a 10% dip in total revenue. Privately-held Huawei has not yet issued its third-quarter numbers.