Shares in China's ZTE slump after profit warning

Posted at 10/15/2012 7:18 PM

HONG KONG - Shares in Chinese telecom firm ZTE, accused by US lawmakers of posing a security threat, tumbled 15.9 percent in Hong Kong on Monday after it released a third-quarter profit warning.

The stock closed at HK$10.56 a day after it projected a net loss between 1.9 billion yuan ($303 million) and 2.0 billion yuan for the three months to September 30, while the benchmark Hang Seng Index ended flat.

Operating revenue fell 13 percent in the same time period due to the "effect of delayed progress on certain international projects", ZTE said in a filing to the Hong Kong stock exchange late Sunday.

In Shenzhen, where ZTE is also listed, the stock closed down 10 percent, its daily limit, at 9.45 yuan ($1.50).

"We see ZTE's disappointing (third-quarter) performance as not solely due to company-specific issues," British bank Barclays said in a report, according to Dow Jones Newswires.

The bank said it believed the poor network operating environment would also apply to other Chinese companies in the sector, warning that the "worse may not be over yet".

ZTE said Wednesday that US network giant Cisco Systems had ended a 2005 strategic cooperation agreement, after it was accused by US lawmakers of doing business with Iran and posing a security threat.

The US congressional investigation said ZTE and another Chinese telecom firm, Huawei, should be barred from US contracts and acquisitions.

The report by the House Intelligence Committee, officially released last Monday, said the two firms "cannot be trusted" to be free of influence from Beijing and could be used to undermine US security.

Beijing has urged Washington to "set aside prejudices" in response to the probe findings.

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