ZTE shares log biggest fall in 5 months on slew of rumors

HONG KONG Thu Jan 19, 2012 5:35am EST

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HONG KONG (Reuters) - Shares in ZTE Corp 000063.SZ (0763.HK), China's second-largest telecommunications equipment maker, fell sharply in Hong Kong and Shenzhen with traders attributing the plunge to rumors ranging from its lawsuit with Ericsson (ERICb.ST) to expected disappointing 2011 results.

ZTE, which competes with the likes of Ericsson and Huawei Technologies Co Ltd HWT.UL in selling telecoms gear, and Samsung Electronics Co Ltd (005930.KS) and Nokia Oyj (NOK1V.HE) in handphones, has been embroiled in a slew of lawsuits in the telecoms sector.

ZTE's Hong Kong-listed shares fell as much as 12 percent to an intraday low of HK$20.85, the lowest level since October 27. The stock ended 7.2 percent lower, logging its biggest single-day fall in five months and in more than 10 times its average 30-day traded volume.

Its shares in Shenzhen had fallen by its daily limit of 10 percent to 15.03 yuan, an intraday low not seen since June 2009.

Traders said they had heard that ZTE had lost a patent lawsuit with Ericsson (ERICb.ST) and had to pay a penalty of 500 million euros ($640.83 million), although a ZTE executive told Reuters that the outcome of the lawsuit was not out yet.

"Our initial assessment shows that a 500 million euro loss in the patent lawsuit sounds too high, if we can fully quantify the risks in the lawsuit," Huang Leping, an analyst at Nomura Securities, said in a report.

Huang said a figure in the range of 70 million euros was more likely.

ZTE, which rose from selling bulky telephone switches to rural China to become one of China's best-known export brands, said the market rumors that its share price plunge was due to the outcome of the lawsuit with Ericsson were unfounded.

"Our company does not have any major announcements to make. There are rumors that the company's unusual share move was due to our lawsuit with Ericsson. This information is not accurate," ZTE said in a statement.

EARNINGS AND BLACKBERRY?

Traders also said the share fall was due to expectations that ZTE would announce worse-than-expected fourth quarter and full-year 2011 results due to foreign exchange losses due to Europe's economic doldrums.

ZTE's results are due in the first quarter of 2012.

However, analysts said ZTE's forex hedging should be able to weather much of that blow.

ZTE is expected to post net profit of 2.32 billion yuan ($357 million) in the fourth quarter, according to Thomson One I/B/E/S, up 23 percent from 1.89 billion yuan a year earlier.

Samsung Securities forecast in November that ZTE's fourth quarter net profit will likely be 2.16 billion yuan, with no plans to adjust that figure after the rumors during the day.

"For Europe, there are more concerns with demand this year, especially in telecom equipment spending," said Zona Chen, an analyst at Samsung Securities.

Other rumors in the market include a fund manager cutting its holdings in ZTE's A shares, causing both A and H shares to plunge.

Traders said there was also market talk that ZTE might purchase Blackberry maker Research in Motion RIM.TO or license its software for the Shenzhen-based company's smartphones, both of which a ZTE executive denied.

"I haven't heard of such plans. We are focusing on Android and Windows for now," said the executive, who declined to be identified as he was not authorized to speak to the media.

($1 = 0.7802 euros)

(Additional reporting by Vikram Subhedar and Huang Yuntao; Editing by Matt Driskill)

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