Chinese telecom firm ZTE books 9.3 percent rise in first half profit on 4G growth

August 25, 2016 5:14 AM EDT

The company name of ZTE is seen outside the ZTE R&D building in Shenzhen, China April 27, 2016. REUTERS/Bobby Yip/File Photo

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HONG KONG (Reuters) - Chinese telecom equipment maker ZTE Corp on Thursday booked a 9.3 percent rise in first-half net profit as China's adoption of fourth-generation (4G) mobile technology offset the impact of restrictions on its U.S. operations.

Profit reached 1.8 billion yuan ($270 million) in January-June, the firm said in a filing at the Shenzhen Stock Exchange.

Revenue rose 4.0 percent to 47.8 billion yuan. That compared with the 49.17 billion yuan average of analyst estimates compiled by Thomson Reuters SmartEstimates.

"The development of traditional telecommunication industries will be subject to stronger challenges in the second half of 2016, given the slowdown in global economic growth and increasing uncertainties," ZTE Chairman Zhao Xianming said in a statement.

Such industries, however, would benefit from the rapid growth of global data flow and other factors such as the construction of smart cities, he said.

In March, the U.S. Commerce Department imposed export curbs on the Shenzhen-based company for alleged violation of U.S. sanctions against Iran, causing a temporarily halt of component shipments. The agency has since offered a reprieve to Nov. 28.

On Thursday, ZTE reiterated it would continue to cooperate with U.S. authorities on their investigation. So far it is difficult to assess the financial impact stemming from the investigation, ZTE said.

Analysts said the export curbs add uncertainty to ZTE's business outlook, and that a negative ruling from the U.S. government could tarnish its image.

Also of concern is slowing Chinese demand for 4G telecom infrastructure over the next two years, industry watchers said.

As China's 4G coverage nears completion, capital expenditure at the country's three biggest telecom network providers is likely to fall 18 percent this year from last, said Bank of Communications' International Securities analyst Chris Yim.

The Hong Kong-listed shares of ZTE have fallen more than 10 percent since trading resumed in April after a temporary halt.

(Reporting by Yimou Lee and Lee Chyen Yee; Editing by Christopher Cushing)

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