UPDATE 1-ZTE posts record first-half profit on China's 4G growth

Wed Aug 20, 2014 6:21am EDT

* First-half net profit hits $184 mln

* ZTE will benefit from 4G capex in China-analysts

* Competition taking a toll on consumer business

By Yimou Lee

HONG KONG, Aug 20 (Reuters) - Chinese telecom equipment maker ZTE Corp on Wednesday posted a record first-half net profit thanks to improving margins in its global business and revenue from new contracts to build China's next-generation telecom network.

The Shenzhen-based company said its first-half net profit rose 263 percent year-on-year to 1.13 billion yuan ($184 million), up from 310 million yuan a year earlier.

The result was in line with a preliminary first-half net profit of 1 billion yuan ($161.1 million) to 1.15 billion the company flagged in July.

"The group continued to assume a leading position in 4G product tenders, with effective growth in market shares," the company said in a statement to the Shenzhen stock exchange after the market closed on Wednesday.

In May, China Mobile, the world's largest carrier by subscribers, awarded a significant portion of its 4G next-generation telecom equipment contracts to ZTE and rival Huawei Technologies.

Analysts said ZTE will continue to benefit from higher 4G capital expenditures in China, which will drive development of the mobile Internet over the next few years.

The company's 4G revenue is expected to receive a further boost after China Telecom Corp and China Unicom Hong Kong in June received high-speed 4G mobile network test licences for the FDD-LTE standard in China.

But analysts said strong competition from Chinese handset competitors - including Huawei, Lenovo Group and Xiaomi - is taking a toll on ZTE's consumer business, which ranked No.9 in global smartphone shipments in the second quarter.

The company's operating revenue for terminal products - including smartphones and tablets - dropped 16.49 percent in the first half from a year earlier due to declining 3G cellphone revenue in China, ZTE said in the statement.

ZTE shipped around 19.2 million smartphones globally in the first half, the only Chinese brand among the global top 10 vendors that recorded a flat year-on-year growth during the period, according to IDC.

"While ZTE should maintain its growth in smartphone units, the risk is rising due to competition, especially from Xiaomi which has expanded its overseas markets," Barclays analyst Dale Gail wrote in a report.

Barclays in August trimmed its forecasts on ZTE's 2014 smartphone shipments to 48 million from 55 million. The company plans to ship 60 million smartphones globally this year.

The company has been pushing aggressively into the high-end smartphone and tablet market, in response to rising competition from low-cost, low-margin handset makers emerging in China.

(1 US dollar = 6.1395 Chinese yuan) (Reporting By Yimou Lee; Editing by Matt Driskill)

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