ZTE overseas push dents profits

12 Apr 2005

Shares in ZTE, China’s second largest telecoms equipment manufacturer, slipped 5.8% to HKD24.30 (USD3.12) in the wake of its announcement that operating expenses have risen sharply as a result of the company’s aggressive international expansion drive. In 2004 ZTE more than doubled its sales abroad to CNY4.56 billion (USD551.6 million), representing 22% of the total turnover of CNY21.2 billion – up 24.5% year-on-year. Gross profit margins rose to 34.9% from 34.1% in 2003, but would have been far higher if not for a squeeze on margins in the company’s handset business. Analysts believe that ZTE’s aggressive international expansion strategy and the introduction of 3G technology in its home market will place an even greater strain on future gross margins.