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ZTE Falls Most Since 2008 as Net Income May Decline 80%

Cisco Ends Sales Partnership With ZTE Amid Spying Concerns
Cisco Systems Inc., the largest maker of networking equipment, ended a partnership with ZTE Corp. amid concerns over the Chinese company’s alleged sale of equipment to an Iranian company. Photographer: Adam Dean/Bloomberg

ZTE Corp., China’s second-biggest maker of telecommunications equipment, slumped the most in more than three years in Hong Kong trading after the company said first-half profit may have declined as much as 80 percent.

ZTE fell 16 percent to close at HK$10.46, the biggest drop since October 2008. The equipment maker’s Shenzhen-traded shares declined by the daily limit of 10 percent to 11.72 yuan.

First-half net income may be between 154 million yuan ($24 million) and 308 million yuan, sliding from 769.3 million yuan a year earlier, ZTE said in a Hong Kong stock exchange filing on July 13. The company based in Shenzhen, southern China, was expected to post profit of 683.7 million yuan, according to the average of three analysts’ estimates compiled by Bloomberg.

Credit Suisse Group AG cut its recommendation for ZTE’s Hong Kong-traded shares to neutral from outperform, and reduced the stock price estimate to HK$11.50 from HK$22, according to a report from the brokerage today.

“Our cuts mainly reflect softer equipment orders in EU and intensifying competition in smartphones and optical networks,” Yan Taw Boon and Manish Nigam, Hong Kong-based analysts at Credit Suisse, wrote in the report.

The smaller first-half profit is a result of reduced investment income, foreign-exchange losses and delayed network contracts, ZTE said in its filing.

Investment income in the first half declined from a year earlier, when the company realized a gain on the disposal of a stake in Nationz Technologies Inc., ZTE said.

The company also fell short of its targeted growth rate as certain domestic carrier network contracts weren’t recognized in the first half of this year due to “postponement of the tender activities,” the equipment maker said, without giving details on which orders were delayed.

ZTE’s overall gross profit margin also declined, the company said, without providing details.

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