updated 06:37 pm EDT, Fri July 13, 2012
Iran sales, currency worries top ZTE concerns
Twin reports today brought a wave of bad news for ZTE, China's second-largest telecom equipment maker. Reuters reports that the company has issued a warning forecasting a drastic drop in profits for the first half of this year. Meanwhile, BBC News has discovered that the Chinese company is currently under investigation by the US Federal Bureau of Investigation over alleged shipments of embargoed equipment to Iran.
For the first half of this year, ZTE's profits are expected to drop as much as 80 percent. This is due in large part to the lower gross margins the company is securing selling low-end handsets primarily to the prepaid segment of the mobile market. Foreign currency losses also play a role in ZTE's profit loss, as the debt crisis in the euro zone has trimmed the income bonus the company gets from selling phones in Europe.
ZTE's profit woes are in some manner indicative of larger trends in the Chinese economy. As the economic downturn has lowered spending in developed consumer economies, China has found itself with a massive manufacturing base but fewer customers for whom to manufacture. Other Chinese companies have also recently issued profit warnings, as the global slowdown appears to have finally come to affect the world's second largest economy.
In the United States, the FBI is investigating ZTE over allegations that the company sold banned computer gear to Iran. ZTE is said to have sold servers from IBM, switches from Cisco, and a host of other materials to Telecommunication Company of Iran, which is controlled in part by the Iranian regime.
ZTE has continually maintained its innocence in the matter, claiming at first that it would curtail its business with Iran and later that it would no longer seek new customers in the country. ZTE eventually abandoned multiple sales arrangements with the country.
The US Department of Commerce is probing ZTE over these same allegations.