ZTE records 5.3b yuan Q1 net loss after US ban

The export trade ban and $1.4 billion penalty aimed at ZTE by the US government has led to the Chinese tech company reporting a first-quarter consolidated net loss of 5.3 billion yuan or $778 million.
Written by Corinne Reichert, Contributor

Chinese technology giant ZTE has reported a consolidated net loss of 5.3 billion yuan ($778 million) instead of the 1.8 billion yuan net profit it was expecting for the first quarter of FY18, following the United States trade ban and $1.4 billion penalty.

ZTE also reported operating revenue of 27.5 billion yuan, down from the 28.9 billion yuan previously projected prior to the penalty, with operating profit of 1.1 billion yuan -- down from the 2.3 billion yuan predicted.

"Changes in the items of the financial statements of 2018 first quarterly report of the company set out above were mainly attributable to the provision for US$1 billion penalty ... and the combined effect of the advanced provision for adjusted matters resulting from the suspension of the major operating activities of the company," ZTE noted.

After ZTE was issued with an export ban by the US Department of Commerce, the Chinese company had said "the major operating activities of the company have ceased"; however, US President Donald Trump then said he would speak to the department on reversing this as a personal favour.

The US Department of Commerce then lifted its export ban on ZTE in mid-July after ZTE paid the penalty.

"While we lifted the ban on ZTE, the department will remain vigilant as we closely monitor ZTE's actions to ensure compliance with all US laws and regulations," Commerce Secretary Wilbur Ross said at the time.

ZTE had likewise been removed from the US trading blacklist at the start of last year by the US Department of Commerce's Bureau of Industry and Security following the company pleading guilty to illegally exporting products to Iran.

During the first quarter, ZTE also reported spending 2.7 billion yuan on research and development (R&D), significantly less than the predicted R&D spend of 3.4 billion yuan, after saying in August last year that it would be aiming to double its 5G-specific R&D spend.

Last year, ZTE said it is committed to pioneering 5G, with plans to enable mobile carriers to transition to the faster network standard worldwide by leading the industry in technology and commercialisation.

During Mobile World Congress (MWC) in February, ZTE said it will launch 5G devices in either late 2018 or early 2019, with smartphones, tablets, and customer premises equipment (CPE) already under development.

"Ready for commercialisation, ZTE's 5G solutions are going to be launched soon," the company said.

"As a pioneer in the 5G era, ZTE has made the rollout of its 5G solutions the core goal."

ZTE further stated that it will be deploying networking products across commercial 5G networks by the first half of next year, with the Chinese telecommunications technology provider also saying it is "well prepared to help operators deploy 5G".

The Chinese company earlier this year also launched its 5G end-to-end cloud-based network slicing solution across 5G radio access network (RAN), core network, and bearer network.

Read more: Paranoia will destroy us: Why Chinese tech isn't spying on Americans

However, Trump's administration has been cracking down on Chinese involvement in the American tech sphere, including with draft legislation barring the sale of national security-sensitive technology to China and blocking government or contractors from buying telecommunications equipment and services from ZTE and Huawei.

The heads of the CIA, FBI, NSA, and the director of national intelligence to the Senate Intelligence Committee had also recommended in February that Americans not use products from ZTE and Huawei.

ZTE in March announced a full-year net profit of 4.6 billion yuan, following the net loss of 2.4 billion yuan recorded in the year prior due to Iran sanctions.

For 2017, the company reported revenue of 109 billion yuan, up 7.5 percent year on year, and received 64 billion yuan from its carrier networks division, 35 billion yuan in the consumer segment, and 10 billion yuan from its government and enterprise business.

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