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ZTE Profit Falls 37% on Higher Research, Marketing Expenses

ZTE Corp. (763), China’s second-biggest maker of phone equipment, said full-year profit fell 37 percent, missing analysts’ estimates, as research and marketing costs surged.

Net income fell to 2.06 billion yuan ($327 million), from a restated 3.25 billion yuan a year earlier, the Shenzhen-based company said in a statement to the Hong Kong stock exchange yesterday. That missed the 2.78 billion yuan average of 10 analysts’ estimates compiled by Bloomberg.

ZTE increased spending and offered discounts to boost sales of mobile-phones to compete with rivals including Huawei Technologies Co. ZTE’s shipments of smartphones surged fivefold to more than 12 million units last year, bolstered by the popularity of low-cost models such as the V880 Blade, the company said in January.

“Handset revenues should continue to grow driven by strong smartphone sales,” Alan Hellawell, a Hong Kong-based analyst at Deutsche Bank AG (DBK) who rates the shares buy, wrote in a report March 27. China’s interest rate increases last year also pushed up ZTE’s borrowing costs, he wrote.

Research and development costs rose to 8.5 billion yuan from 7.1 billion yuan a year earlier, ZTE said. Selling and distribution costs climbed to 11.1 billion yuan from 8.9 billion yuan.

ZTE rose 0.7 percent to HK$20.05 at the close in Hong Kong trading yesterday, before the earnings announcement. The shares have declined 18 percent this year, even as the benchmark Hang Seng Index climbed 13 percent.

Revenue jumped 23 percent to 86.3 billion yuan from 69.9 billion yuan last year.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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