ZTE Surge Continues With 9-Month Profit up 37%

China's ZTE has said its net profit is up by more than a third over the first nine months of the year thanks to growth at its carrier networks and consumer divisions and the sale of a stake in a mobile phone subsidiary called Nubia Technology.

The vendor's net profit rose 36.58% compared with the year-earlier period, to 3.9 billion Chinese yuan ($590 million), while sales increased 7%, to about RMB76.6 billion ($11.6 billion). Its operating margin also soared to 6.9%, from just 1.3% in the first six months of 2016.

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) said it had recorded investment income of RMB426 million ($64 million) from selling a 10.1% stake in Nubia, generating another RMB1.75 billion ($260 million) in investment income from its remaining 49.9% stake in that business.

While providing few details about the drivers of sales activity, ZTE said that overall revenue growth was mainly down to a year-on-year increase at its carrier networks business, which sells network equipment and services to operators globally, as well as improvements at its consumer business, which makes and sells smartphones and other gadgets.

It is now forecasting a net profit of between RMB4.3 billion ($650 million) and RMB4.8 billion ($730 million) for the entire fiscal year, having suffered a net loss of $340 million for the 2016 fiscal year. (See ZTE Suffers $340M Net Loss on US Fine.)

ZTE has bounced back strongly from a clash with US authorities last year, when it was charged with breaching export restrictions by selling gear to Iran that included components made in the US.

The company agreed to pay a fine of nearly $900 million, decimating its profits for the 2016 fiscal year, but has in 2017 reported a sequence of impressive figures. (See ZTE to Pay $892M Fine to Settle US Trade Dispute.)

ZTE has made further inroads in Europe through deals in Italy with Wind Tre, a merger between 3 Italia and Wind, and is also working closely with emerging markets operator VEON (formerly known as VimpelCom), the world's seventh-biggest operator by customer numbers, on virtualization technology.

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Its recent results are in sharp contrast with those from Western rivals Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK), which have blamed a cyclical downturn in the network equipment market for setbacks this year.

While neither of those companies now maintains a handset-manufacturing division, Ericsson witnessed a 9% year-on-year fall in revenues for the first six months of the year, when its operating margin was just 1.4%, excluding restructuring charges. It is trying to boost that figure to 12% beyond 2018 through cost-cutting efforts including staff layoffs, and will report third-quarter results on Friday.

Nokia has fared better following a €15.6 billion ($18.4 billion, at today's exchange rate) takeover of Alcatel-Lucent but still reported a 2% year-on-year fall in sales for the first six months. Its operating margin stood at 8.3% for that period.

— Iain Morris, News Editor, Light Reading