October 24, 2023
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.
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.
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