| HONG KONG, April 25
HONG KONG, April 25 China's ZTE Corp
, the world's fifth-biggest
telecommunications equipment maker, reported
weaker-than-expected first-quarter profit following sluggish
telecoms spending and price wars.
ZTE and its domestic rival Huawei Technologies Co Ltd
have cut prices to grab market share in a slowing
global telecoms equipment market, a strategy that has hit
profitability, analysts said.
To boost margins, the Shenzhen-based telecoms equipment
vendors are now aiming to offer value-added services, focus on
network upgrading projects and increase sales of consumer
devices such as smartphones and tablet PCs, they said.
Unaudited net income was 150.87 million yuan ($23.92
million) in January to March, compared with 127.29 million yuan
a year earlier, ZTE said on Wednesday. That missed an average
forecast of 183 million yuan by three analysts polled by
Earlier this week, Huawei reported a 53 percent decline in
its 2011 profit, even as sales grew 11.7 percent. ZTE said in
March that full-year profit had dropped by a third.
"Western vendors would welcome Huawei and ZTE putting
greater emphasis on margins," Daryl Schoolar, principal analyst
for network infrastructure at research firm Ovum, said in
"Probably one of the biggest complaints I get when talking
to their competitors is that they win business on low prices on
very favourable financial terms backed by Chinese banks."
Chinese telecoms equipment makers have received support from
policy banks, such as China Development Bank, in the
form of low interest rate loans for network infrastructure
projects in emerging economies, according to analysts.
They have also relied on preferential taxes instead of
focusing on boosting profitability, analysts say.
Huawei is the world's No.2 vendor, with revenue just a tad
behind Sweden's Ericsson. Alcatel-Lucent SA
, Nokia Siemens Networks and ZTE come next.
In 2011, Huawei's overall gross profit margin fell 6.5
percentage points to 37.5 percent, while ZTE saw a drop of 2.03
percentage points to 30.26 percent with handset margins taking
the biggest hit. ZTE did not specify the company's margins in
its unaudited first-quarter results.
"It will be better for the overall industry if vendors
compete more on services and product development, rather than
prices," said George Sun, ZTE's vice president of corporate
($1 = 6.3073 Chinese yuan)
(Reporting by Lee Chyen Yee; Editing by Ryan Woo)