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Companies

ZTE springs back to profit, in rebound from US ban

But sales sag 20% as mainstay equipment and smartphones perform poorly

People walk pass the ZTE booth at the Mobile World Congress in Barcelona, Spain. The Chinese telecom giant reported a net profit of 862.6 million yuan ($128 million) for the first quarter on Monday.    © Reuters

GUANGZHOU -- ZTE, China's second-largest supplier of telecommunications equipment, reported net profit of 862.6 million yuan ($128 million) for the first quarter on Monday, rebounding from the loss sustained a year ago due to U.S.-imposed trade restrictions.

The company attributed the profit jump to the absence of the loss incurred a year ago due to a U.S. supplier ban that has now been lifted.

Despite the profit rebound, uncertainty remains. Sales for the January-March quarter sank 19.3% on the year to 22.2 billion yuan. The company did not release results by region and business segment, but its core telecom equipment and smartphone operations appear to have slumped.

Last April, the U.S. Commerce Department banned American businesses from selling components to ZTE, citing violations of sanctions against Iran and North Korea. Unable to procure semiconductors, the Chinese company was forced to suspend operations. 

The embargo was lifted three months later in exchange for the Chinese company paying a $1 billion fine to the U.S. and placing another $400 million in escrow.

The company initially reported a net profit for the first quarter of 2018, but the U.S. prompted a downgrade to a 5.4 billion yuan loss for that period. 

Going forward, ZTE plans to bolster its 5G telecom equipment and smartphone businesses. The Chinese supplier inked 5G equipment agreements with 40 telecom companies internationally, and its 5G handsets are due to debut in China early next month.

But the company faces strong competition on both fronts from Samsung Electronics in South Korea and Huawei Technologies, China's leading telecom device heavyweight. The U.S. continues to lobby other countries to block ZTE and Huawei from their 5G markets, creating another headwind.

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