Bloomberg News

ZTE Wants to Boost Handset Profit Margins in 2012, CEO Says

March 29, 2012

ZTE Corp. (763), China’s second-largest maker of phone equipment, is seeking to improve margins for handsets this year after profitability for the business declined in 2011.

ZTE will work on product innovation and marketing of its smartphones to boost profitability, Chief Executive Officer Shi Lirong told reporters in Hong Kong today. The Shenzhen, southern China-based company plans to restore margins for the handset business to 2010 levels, he said, without specifying figures.

Sales of cheaper smartphones such as the V880 Blade helped ZTE to post a 23 percent gain in 2011 revenue amid competition from rivals including Huawei Technologies Co. The low-cost strategy partly contributed to a 37 percent decline in full-year profit for the company, which generates most of its earnings from selling telecommunication networks to carriers.

“There was a transition in the handset market toward smartphones last year, and we were adjusting our business and trying to grapple with issues such as the supply chain,” Shi said. “Our handset revenue grew very fast, but our gross profit margin dropped.”

ZTE rose 3 percent to HK$20.65 as of 2:38 p.m. in Hong Kong trading, after gaining as much as 8.5 percent. The shares have declined 15 percent this year. The company’s Shenzhen-traded stock (000063) advanced 1.3 percent to 16.29 yuan.

ZTE’s terminals division posted a gross profit margin, or the percentage of sales left after deducting production costs, of 15.2 percent in 2011, narrowing 3.8 percentage points from a year earlier. The company doesn’t break out margins for handsets, which is part of the business along with tablet computers and other portable devices.

Net income fell to 2.06 billion yuan ($327 million) from a restated 3.25 billion yuan in 2010, ZTE reported yesterday. That missed the 2.78 billion yuan average of 10 analysts’ estimates compiled by Bloomberg.

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

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


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