ZTE's 1H12 profit drops 68 percent

Chinese networking equipment maker sees revenue going up 15 percent in first six months but net profit slides 68 percent after exchange losses and delays in tenders from domestic carriers.

ZTE has seen a 15 percent jump in revenue to 42.7 billion yuan (US$6.7 billion) during the first half of 2012, but its net profit declined 68 percent due to delays in tenders from operators among other reasons.

In its interim report posted on Wednesday, the Chinese networking equipment vendor said its net profit for the six months ended Jun. 30, 2012, reached 244.9 million yuan (US$38.7 million), a sharp decline compared to 769.3 million yuan (US$121.4 million) generated during the same period in 2011.

It attributed the decline to factors such as reduced investment income, exchange losses, postponement of network contract tenders  of domestic carriers, and lower gross profit margin.

The company added there was "substantial increase in expenses" and attributed this to increased costs in marketing and research and development (R&D), which were both part of the company's expansion plans.

China continues to be ZTE's largest market by contributing 49 percent, or 20.9 billion yuan (US$3.3 billion), to its overall revenue. Europe, Americas, and Oceania region is the second-largest market at 9.8 billion yuan (US$1.6 billion) while Asia-Pacific, excluding China, raked in 8 billion yuan (US$1.3 billion).

The role of the Europe, Americas, and Oceania region in generating the second-largest revenue share is significant given the scrutiny ZTE continues to face by regulators there.

In Europe, for example, European Union regulators said in May ZTE and another Chinese telecom vendor Huawei Technologies may have to pay extra to their imports as they are suspected to receive illegal subsidies by the Chinese government, which artificially depresses the prices of their products.