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ZTE Slumps on Probable Loss in Third Quarter: Hong Kong Mover

ZTE Slumps on Probable Loss in Third Quarter
The ZTE Corp. logo is displayed on networking equipment in Beijing. ZTE received fewer new contracts in Africa, where the market is undergoing a “transitional stage,” the company said in separate statement on its website. Photographer: Nelson Ching/Bloomberg

ZTE Corp., China’s second-largest maker of telephone equipment, fell the most in three months in Hong Kong trading after the company said it probably posted a loss for the third quarter.

ZTE dropped 16 percent to close at HK$10.56 in Hong Kong trading, the largest decline since July 16. The shares have fallen 57 percent this year, compared with a 15 percent gain for the city’s benchmark Hang Seng Index.

The third-quarter net loss was probably as much as 2 billion yuan ($319 million), compared with profit of 299.3 million yuan a year earlier, Shenzhen-based ZTE said when reporting preliminary results in a statement yesterday. A delay in overseas projects, a change in the procurement system of domestic operators, and a larger number of low-margin contracts in Europe and Asia including China led to the loss, ZTE said.

“While we are not surprised to see the disappointing 3Q12 results as we have been cautious on the company’s margin pressure, the magnitude of loss was much worse than expected,” Jones Ku, a Hong Kong-based analyst at Barclays Plc, wrote in a report today. “We believe the worst may not be over yet.”

ZTE received fewer new contracts in Africa, where the market is undergoing a “transitional stage,” the company said in separate statement on its website. It didn’t provide more details on which overseas projects were delayed or how domestic operators have changed their procurement system.

David Dai, a spokesman for ZTE, said he didn’t immediately have additional information to provide.

Shenzhen Stock Drops

Shares of ZTE traded in Shenzhen fell 10 percent to 9.45 yuan, the lowest level since Nov. 28, 2008.

The company held a conference call with analysts yesterday, during which executives said ZTE hopes to break even this year, according to Barclays’s Ku and Shenyin Wanguo Securities Co. analyst Jim Tang, both of whom said they were on the call. ZTE’s Dai said he didn’t have information available on data the company supplied during the call.

On the call, ZTE forecast sales of 90 billion yuan to 93 billion yuan this year, Ku and Tang said. ZTE will probably post sales of 100.6 billion yuan, based on the average of 28 analyst estimates compiled by Bloomberg.

ZTE also cut its smartphone sales target to 25 million units during the call, from a previous forecast of 26 million to 28 million, Ku and Tang said.

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