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China Unicom Profit Misses Estimates on Phone Subsidies

China Unicom Profit Misses Estimates as Smartphones Boost Costs
Employees wait for customers at a China Unicom Hong Kong Ltd. store in the Wangfujing shopping district of Beijing. Unicom’s total revenue rose 15 percent to 70.6 billion yuan in the quarter. Photographer: Tomohiro Ohsumi/Bloomberg

China Unicom (Hong Kong) Ltd., the nation’s second-largest wireless company, reported profit that missed analyst estimates as efforts to rein in smartphone subsidies fell short.

Net income in the first quarter rose 89 percent to 1.9 billion yuan ($308 million), from 1.01 billion yuan a year earlier, the Beijing-based company said in a filing yesterday. That lagged behind the 2.58 billion-yuan median estimate of four analysts surveyed by Bloomberg News.

Chairman Chang Xiaobing lured new subscribers with low-cost smartphones priced at 999 yuan, including ZTE Corp.’s V956, helping trim reliance on subsidies for pricier devices such as Apple Inc.’s iPhone5, which sells for about six times the price. Still, the company said it spent 2.23 billion yuan on such subsidies in the period.

“Results were lower than the market’s and our expectations, which was due to higher than expected handset subsidies,” Ricky Lai, a Hong Kong-based analyst with Guotai Junan International Holdings Ltd., said in an e-mail yesterday. He had projected such costs for the period would total 2.1 billion yuan, or 6.2 percent less than the actual.

Alen Lin, a Hong Kong-based analyst with BNP Paribas Securities Asia estimated China Unicom had 2.6 billion yuan in subsidy expenses for the first half of this year, he wrote in a note to clients yesterday.

“Handset subsidy expenses were significantly higher than our estimate,” Lin wrote.

As smartphones encouraged users to download more games and videos on third-generation services, the handset subsidies fell to 11.6 percent of 3G revenue for the period, from 15.8 percent a year earlier, China Unicom said.

Revenue Growth

Unicom’s total revenue rose 15 percent to 70.6 billion yuan in the quarter. The company was expected to report sales of 66.7 billion, according to the median estimate in the Bloomberg survey.

Unicom fell 0.2 percent to close at HK$10.80 in Hong Kong trading before the announcement. The shares have dropped 13 percent this year, compared with a 1.1 percent decline for the city’s Hang Seng Index.

Unicom had 87.8 million 3G subscribers at the end of the first quarter, lagging behind the 114.4 million for market leader China Mobile Ltd., according to data the companies released this month.

China Mobile this week reported its weakest profit growth in three quarters as higher costs eroded gains from an increase in users of high-speed network services. Third-ranked China Telecom Corp. is scheduled to report results today.

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