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Profit warning and FBI probe hit ZTE


Profit warning and FBI probe hit ZTE


Chinese telecommunications equipment maker ZTE’s shares have been hammered by a profit warning and word of an FBI investigation into possible sales of banned US computer equipment to Iran.

The stock slumped 16.3 percent on Monday in the largest decline since October 27, 2008. Trading volume was nearly seven times that of its 30-day average.

It said last week that first-half profit could slide as much as 80 percent.

ZTE, which is the world’s fifth-biggest manufacturer of telecoms equipment, is suffering from a fall in global spending on networking gear, something which is also hitting its rivals’ profits.

It denied any wrongdoing over sales to Iran following a report that the FBI has opened a criminal investigation into ZTE over sales to Iran and its alleged attempts to cover it up and block a Department of Commerce probe.

“The FBI probe would adversely affect ZTE’s ability in bidding for overseas projects, and it’s a major negative,” said Lou Zhen, a fund manager at Shanghai Anode Industrial Investment Co, which does not own ZTE shares.

“Investors have reason to be concerned about the company’s growth prospects and there’s still room for the stock to fall.”

The Chinese company could face steep fines and restrictions on its US operations if it is found to have broken the law on sales to Iran.

An investigation by the European Union Commission on whether ZTE and its rival Huawei have accepted illegal subsidies from the Chinese government has also pressured ZTE’s shares in the past month.

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