April 27, 2018 / 2:43 PM / 3 months ago

China's ZTE posts record first quarter profit, but U.S. sales ban dims outlook

HONG KONG (Reuters) - China’s ZTE Corp (000063.SZ) (0763.HK), the target of U.S. sanctions imposed last week, posted a 39 percent rise in first-quarter net profit on Friday due to improved sales in its telecom equipment and consumer businesses.

FILE PHOTO: The logo of China's ZTE Corp is seen on a building in Nanjing, Jiangsu province, China April 19, 2018. REUTERS/Stringer/File Photo

The results, showing ZTE’s highest first quarter net profit on record, are the company’s first since the United States banned American companies from selling components to the Chinese firm for seven years.

The U.S. government said ZTE had broken an agreement to punish employees after the company shipped U.S. goods to Iran in violation of U.S. sanctions. ZTE said the ban was unacceptable and threatened its survival.

ZTE said on Friday that it was difficult to assess the impact of the U.S. sales ban on its latest financial result.

“The board of directors and the directors of the company are unable to ensure the truthfulness, accuracy and completeness of the contents of the 2018 first quarterly report,” ZTE said without giving details.

January-March profit reached 1.69 billion yuan ($267 million) from 1.2 billion yuan in the same period a year earlier, ZTE said in a statement to the Shenzhen stock exchange.

ZTE, China’s second-biggest telecom equipment maker after Huawei Technologies Co Ltd [HWT.UL], postponed its earnings release from last week as it studied the impact of the U.S. ban.

The ban also led to a suspension in trading of ZTE’s mainland- and Hong Kong-listed shares, which remains in effect.

Chinese mutual fund managers have since cut the value of ZTE stock in their portfolios by 20 to 30 percent.

U.S. firms are estimated to provide 25 to 30 percent of components used in ZTE products such as smartphones and telecommunication network equipment.

Within days of the ban, sources told Reuters that New York prosecutors have been investigating whether Huawei had violated U.S. sanctions on Iran.

The U.S. action is likely to further exacerbate tensions with China over trade at a time when the pair have threatened each other with tens of billions of dollars in tariffs, fanning concern of a trade war that may impact global supply chains.

($1 = 6.3358 Chinese yuan renminbi)

Reporting by Anne Marie Roantree and Hong Kong newsroom; Editing by Alexander Smith and Adrian Croft

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