Chinese telecom equipment maker ZTE recently published its performance guidance report, stating that due to investment income declines, exchange losses, and the network contract tender postponement of Chinese carriers, the company expected a year-over-year net profit drop by 60% to 80% in the first half of 2012.

According to ZTE, the company's net profit in the first half of 2011 was CNY769 million; while its net profit for the first half of 2012 is expected to decrease by 60% to 80% to between CNY154 million and CNY308 million. The poor performance prediction caused last week an A-share price dive and the company's H-share price decreased by 16.32% to HKD10.46, a record low over the past 52 weeks.

The report said that during the first half of 2012, the Euro and the currencies of many emerging market countries saw a sharp depreciation due to the European debt crisis, and it led to the exchange losses at ZTE. In addition, though ZTE's overall income maintained growth, some Chinese carriers postponed their network contract tenders, which caused the failure of revenue recognition during the reporting period. Meanwhile, the company's overall gross margin also decreased compared with the same period of previous years.

Since 2012, ZTE's expansion in overseas market has been poor too. An insider from the company revealed to local media that starting from this year's Spring Festival holiday, ZTE has been recalling its expatriate employees. Rumors are also swirling the Chinese company plans to cut about 10,000 employees by the end of 2012.


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