A Comeback For The Ages: ZTE Expects Profits In Q1 2019

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Chinese electronics and telecom equipment manufacturer ZTE is expecting to announce an official return to the black as part of its consolidated financial report for the first quarter of 2019, the company said Wednesday.

While the worst has already been over for the Shenzen-based firm last year, not many industry watchers expected such a swift comeback after the United States government pushed ZTE to the verge of bankruptcy.

The three-month period ending March 31 should see ZTE report the equivalent of at least $120 million in net income.

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A year to forget

ZTE announced the imminent comeback as part of its financial report for the fiscal year 2018, by far the worst period for its operations in modern times, especially from the perspective of lost opportunities and neverending fines.

The firm posted a net loss equivalent to $1 billion after reporting a $680-million bottom line in 2017. And while that change doesn't appear to be devastating in the context of profit margins, one look at its turnover paints a clearer picture of how close the U.S. Department of Commerce came to putting it out of business for good. Namely, the company's revenues dropped by nearly 21.5-percent annually, reaching just over $12.5 billion. Losing a fifth of one's businesses in a single year is obviously a doomsday indicator, especially at a time when one's sector is undergoing drastic changes, which is what's currently happening in telecommunications.

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Instead of entrenching itself with long-term supply contracts with wireless carriers looking to prepare their infrastructure for 5G deployment, ZTE was left fending off stateside probes and charges of trade embargo violations. And while a full-fledged "ZTExit" scenario has apparently been avoided, the fate of the firm's American arm remains highly uncertain. The low-end segment of the market that helped it grab the title of the fourth-largest handset vendor in the country a year and a half ago is now mostly free of its devices as prepaid operators opted for partners with less political baggage and fewer regulatory risks attached to their products.

A difficult look ahead

Despite its return to profitability, it's difficult to anticipate what's in store for ZTE next, especially as the manufacturer's previous imports to Iran and North Korea, subsequent inability to stick with the terms of settlements meant to put those episodes to rest, and repeated public clashes with American regulators apparently also crossed a line drawn by Beijing, i.e. China's communist government that controls it by proxy.

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Namely, the state-backed majority owner of ZTE just announced it will be divesting a significant portion of its shares that will see it lose control of the tech company, sending its shares plummeting earlier this month. While Zhongxingxin Telecom will remain an investor in ZTE, the loss of state influence at the firm is also expected to momentarily reflect on its loan rates, i.e. its ability to access "cheap money."

ZTE's future is hence still full of uncertainty and not even its newly confirmed return to financial stability guarantees the company will be able to restore the entirety of its operations to their pre-2018 level anytime soon.