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ZTE eyes network, smartphone growth to stay profitable

The ZTE company logo is seen as a guest delivers a speech during the company's 15th anniversary celebration in Beijing April 18, 2013. REUTE
The ZTE company logo is seen as a guest delivers a speech during the company's 15th anniversary celebration in Beijing April 18, 2013. REUTE

HONG KONG (Reuters) - ZTE Corp, China's second largest telecoms gear maker in revenue terms, expects an increase in smartphone sales and an expansion in 4G networks to keep it in profit this year after posting its first-ever annual loss in 2012.

After two quarters of losses, ZTE on Friday posted a 35.9 percent increase in its first-quarter 2013 net profit, lifted by gains from selling assets late last year.

ZTE now expects network growth, especially within China, and higher smartphone sales to keep it in the black. He Shiyou, executive vice president in charge of handsets, told Reuters in Beijing ZTE expects sales of its mobile devices to exceed 50 percent of revenue by around 2028 from 31 percent in 2012.

"At ZTE, we hope that in the future, mobile devices will account for more than one-third of revenue," He said. ZTE is currently the world's sixth largest smartphone maker in terms of shipments.

ZTE was plagued by project delays and thinning margins in emerging markets last year, but analysts expect it to turn a profit this year.

"ZTE's major profit drivers in 2013 include China Mobile's capex, Africa market and smartphone business," BOC International said in a report prior to the earnings release. The brokerage expects ZTE to turn a 2013 net profit of 562 million yuan compared to a 2.84 billion yuan loss last year.

ZTE and larger rival Huawei Technologies Co. Ltd are expected to benefit the most from plans by China Mobile Ltd to spend 41.7 billion yuan on developing 4G technology this year.

In the quarter ended March 31, ZTE reported a net profit of 205.0 million yuan ($33 million), up from 150.9 million yuan in the same year-ago period, the company said in a stock exchange filing.

The figure was below the 220 million yuan quarterly profit forecast by three analysts polled by Reuters, and included around 800 million yuan of gains from the sale of stakes in several units last year.

The quarterly results came after the market closed. ZTE's Hong Kong shares, which have fallen by about 5 percent since the beginning of this year, ended down 0.5 percent, lagging the main Hang Seng Index's 0.7 percent gain.

(Reporting by Lee Chyen Yee in HONG KONG and Megha Rajagopalan in BEIJING; editing by Miral Fahmy)

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