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China's ZTE to post third quarterly profit due to cost cuts

A ZTE phone is displayed at a mobile phone retail shop in Beijing, March 25, 2013. REUTERS/Kim Kyung-Hoon
A ZTE phone is displayed at a mobile phone retail shop in Beijing, March 25, 2013. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters) - ZTE Corp, the world's No. 5 telecom equipment and smartphone maker, expects to post a third quarterly net profit for the July-September period.

The result was thanks to cost-cutting measures and as the company shunned the low-margin contracts that led to it posting losses last year.

ZTE, which was plagued last year by unprofitable telecom projects in markets like Africa and thinning margins in the highly competitive smartphone sector, is banking on cost cuts - such as a self-imposed 50 percent pay cut by senior executives - and Chinese mobile carriers laying 4G networks for its turnaround this year, analysts said.

Since late last year, the Shenzhen-based company has also sold stakes in several non-core units to help it turn profitable.

On Wednesday, ZTE, which competes with Huawei Technologies Co Ltd in the telecom gear and smartphone sectors, flagged a net profit of 500-750 million yuan ($81-$121 million) for the first nine months ending September, in a statement on the Hong Kong stock exchange - a move back into the black from a net loss of some 1.7 billion yuan in the same period last year.

That meant that its third-quarter net profit would likely amount to 190-440 million yuan, versus a 130 million yuan net loss a year earlier, according to Reuters' calculations based on company data.

"The increase is primarily due to the reasons that the group has strengthened its management over contract profitability by strictly controlling the signing of low gross margin contracts," ZTE said.

ZTE added that costs for the first nine months were expected to fall significantly due to cuts in administrative, and research and development expenses.

In a separate statement on Wednesday, ZTE said its first half net profit came in at 310.0 million yuan, higher than a preliminary 302.3 million yuan the company flagged in July.

Its second quarter net profit therefore amounted to 105.0 million yuan, up 11.7 percent from the same period a year earlier, according to Reuters' calculation.

(Reporting by Lee Chyen Yee in SINGAPORE and Twinnie Siu in HONG KONG; editing by Ron Askew)

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