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ZTE looks to turn its losses into profits

A company spokesperson said that ZTE has formed an "expert group" to seek profitability, after it warned of registering net losses of up to US$467 million in 2012.
Written by Cyrus Lee, Contributor

ZTE, the world's fourth-largest mobile phone manufacturer by shipments, said that it has adopted various initiatives since the fourth quarter of 2012, with the aim to turn the company's deficits into profits.

The company said (PDF) on Sunday that it expects to report a net loss of 2.5 billion yuan to 2.9 billion yuan (US$402 million to US$467 million) for its fiscal 2012, a sharp decline from positive gains of 2.06 billion yuan (US$331 million) in 2011.

A company spokesperson told First Financial Daily that ZTE, which had been relatively "steady and moderate" in its operation in the past, had "adjusted the corporate style" to adapt to the increasingly severe market competition, which hurt its gross profit and resulted in losses last year.

Over the past few years, ZTE committed to enhance its market position with efforts focused on making breakthroughs on fighting for major telecom rivals, regions, and customers, to lay a solid foundation for the 4G upgrade. "ZTE has achieved the goal over the past two years," said the spokesperson, who added that group's profitability met great challenges and resulted in the company having to take on these contracts with historical low profit margins in 2012.

The extended losses in the second half of last year dragged the group revenue in 2012 down "slightly" over last year, which also led the overall gross profit margin to drop by approximately 7 percentage points from a year earlier, ZTE said in the release on Sunday. In 2011, the company's overall gross profit margin stood at 28 percent, which was 3 percentage points lower from 2010 due to the margin shrinking in terminals sales, according to its 2011 annual report (PDF), released earlier.

Led by its executive vice president, the company set up an "expert group" during the past three to six months, which eased losses or optimized some money-loss projects on "the full understanding and support" from these customers, said the spokesperson.

By the end of 2012, the company had cut about 20 percent of the four-tier sales arms, according to the report. Products that were not likely to turn into profits would be spun off by specified deadlines.

ZTE started to apply a strict appraisal system with a 5 percent staff elimination rate. Total employment in 2012 dropped by about 9 percent in 2012, according to the company spokesperson.

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