ZTE confirmed its anticipated loss for 2012, as it was hit by delayed projects at home and overseas as well as the impact of lower profit deals.
The company reported a loss of CNY2.84 billion ($456.9 million), compared with a prior-year profit of CNY2.06 billion, on revenue of CNY84.22 billion, down from CNY86.25 billion.
It attributed the decline in revenue to various factors, including postponed execution of some contracts and reduced device sales in its home market. Delayed progress in certain international projects were also cited.
It also noted that its gross profit margin, down 6.36 percentage points to 23.9 per cent, had been impacted by a “larger number of low-margin contracts in Africa, South America, Asia and the domestic market” during the year.
Net cash flows from operating activities, however, jumped from a loss in 2011 (CNY1.81bn) to a positive CNY1.55 billion. The reason for the turnaround, said ZTE in a statement, was that it “exercised effective cost controls and secured new network contracts that offer higher profit margins”.
During the twelve months, the company said that 47 per cent of its total operating revenue came from its domestic market, where it has worked with operators in areas including 3G network build and 4G pilot rollouts.
In its international unit, it said that it “continued to focus on in-depth business development and operation in major populous nations and with mainstream global carriers to enhance the capabilities for long-term sustainable development”.
It also noted that it is “vigorously establishing its presence in the market for government and enterprise networks”.
The company said that CNY41.60 billion of operating revenue was attributable to carriers’ networks (down 10.57 per cent), CNY25.84 billion from terminals (down 4 per cent), and CNY16.78 billion gleaned from sales of telecom software systems, services and other products (up 31 per cent).
In the mobile space, ZTE said it had reinforced its strategic cooperation with existing customers on “traditional 2G/3G products such as GSM/UMTS/CDMA, etc”, while also “vigorously exploring new market niches”. It noted slowed sales of CDMA infrastructure internationally.
It continued: “Against intense competition in the global marketplace, the Group strengthened its in-depth operation of wireless products and achieved sustainable development for wireless products, while assuring compliance with network performance benchmarks and delivery schedules.”
With regard to devices, it said that while operating revenue fell in line with weaker demand for feature phones and data cards, it continued to sustain growth in the smartphone market, “with smart terminals accounting for an increasing percentage of the Group’s revenue of terminals, giving rise to a more reasonable product mix, a more balanced market distribution, and more diversified sales channels”.
The gross profit margin in this unit was 16.6 per cent, compared with 15 per cent in the prior year, due to the shift to more profitable smart devices.
Looking forward, it said that it will “make dedicated efforts in product innovation and solution operations, with an emphasis on mainstream products, while endeavouring to enhance its R&D efficiency, implement in greater depth the strategy on populous nations and mainstream carriers, focus on markets in which it claims dominance, and vigorously develop business in the government enterprise and services sector”.