ZTE posts a first quarterly loss, margins bleed

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HONG KONG (Reuters) - ZTE Corp, the world's fourth-biggest maker of mobile phones and fifth-ranked telecommunications equipment manufacturer, reported a $310 million net loss for July-September, its first quarterly loss, as margins thinned, overseas projects were delayed and it made accounting changes at home in China.

Shenzhen-based ZTE, led by Shi Lirong, had previously warned its quarterly loss could be as much as 2 billion yuan - eight times the size of its profit in the first half of this year - triggering a 16 percent drop in its stock price on October 15, a self-imposed 50 percent pay cut by executives, and warnings from Fitch ratings agency.

Following that warning, most analysts did not give precise forecasts for ZTE's third-quarter results. In the third quarter of last year, ZTE made a profit of 299 million yuan.

"Things should move up from here, in terms of profitability and margins. We have to watch whether their telecom equipment business overseas picks up," said Michael Li, an analyst with Everbright Securities in Hong Kong.

ZTE was cited with local rival Huawei Technologies Co Ltd by a U.S. Congress committee report this month as a potential cyber security threat. Both ZTE and Huawei have denied the U.S. committee's allegations.

ZTE, which employs some 87,000 people and generates more than half its revenues outside China, recently sold a majority stake in ZTE Special Equipment Co (ZTEsec), a business that sells surveillance systems to governments and law enforcement agencies.

An investigation by Reuters earlier this year found that ZTE had sold to Iran's largest telecoms firm a powerful surveillance system capable of monitoring landline, mobile and internet communications. [ID:nL3E8EM4QW] Reuters also reported that ZTE had sold or agreed to sell Iran embargoed U.S. computer equipment. The company said later it was curtailing its business in Iran and had stopped looking for new customers there.

Earlier this month, ZTE blamed its forecast third-quarter loss on delays in some international telecom projects and a large number of low-margin contracts in Europe and Asia, but said it expected to be profitable for the full year.

ZTE shares have more than halved this year, dropping the firm's market value to below $5 billion. The benchmark Hang Seng stock index has gained almost 18 percent over the same period, while the CSI 300, made up of leading Shanghai and Shenzhen shares, is down 2 percent.

(Reporting by Lee Chyen Yee; Editing by Ian Geoghegan)

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