ZTE expects recovery to pick up in Q3 on cost cuts

ZTE expects recovery to pick up in Q3 on cost cuts

Summary: The Chinese gear maker is forecasting to swing back into the black in its third quarter earnings, following cost cutting measures and shunning of low-margin contracts.

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TOPICS: Networking, Telcos, China
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ZTE is set to bounce back into the black in its third quarter results, following cost cutting measures and keeping away from low-margin contracts.

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The world's number 5 telecoms equipment maker forecasted a net profit of 500-750 million yuan (US$81-US$121 million) for the first nine months ending September, according to a press release. This would be a turnaround from the net loss of around 1.7 billion yuan (US$277.6 million) suffered in the same period last year.

For the three months ending September, this would translate to a net profit of 190 to 440 million yuan (US$31 to US$71.86 million), versus a 130 million yuan (US$21.2 million) net loss a year earlier, according to calculations by Reuters.

"The increase is primarily due to the reasons that the group has strengthened its management over contract profitability by strictly controlling the signing of low gross margin contracts," Hou Weigui, chairman of ZTE, said in the statement. He added cost controls were strengthened by increasing cost efficiency, such as in cuts in administrative, and research and development expenses.

The improvement will build on the momentum seen in the first half of the year when it posted a 310 million yuan (US$50.6 million) net profit, up 11.7 percent from the year before.

ZTE was hit last year by unprofitable telecoms projects in markets such as in Africa and pressure on margins in the increasingly competitive smarpthone sector, noted analysts cited by Reuters. Its bid to revive fortunes has included a pay cuts for senior executives and is banking on the rollout of 4G networks across Europe and Asia for orders.

Topics: Networking, Telcos, China

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Loves caption contests, leisurely strolls along supermarket aisles and watching How It's Made. Ryan has covered finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller "Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

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