One can have a clue to the answer in the announcement statement of the corporation itself which attributed the loss to mainly global economic environment and a recognition of lower-margin contracts.

The announcement of the preliminary financial results on October 14th, 2012, also stated that the loss is mainly attributed to four factors: the current global economic and industry trend, the recognition of low-margin contracts in the third quarter, a delay in some projects of overseas clients, and a change in the procurement mode of domestic operators. The company’s top management not only apologized for such operating results, but also has agreed to cut their own compensation collectively.

The Corporation, a publicly-listed global provider of telecommunications equipment, network solutions and mobile devices, while explaining the results said, 'In the domestic market, a change in the operators’ procurement mode affected the revenue recognition of the company. Simultaneously, the company’s revenue scale decreased significantly because of a change in the structure and cyclicality of investments by operators. In the international market, overseas operators slowed down their pace of investments because of a weakening global economy. In addition, the company’s gross profit decreased significantly due to the recognition of some lower-margin contracts in the period. In Africa, where the company was previously able to achieve higher-margin business, the overall market was undergoing a transitional stage, resulting in fewer new contracts.'

Although these results may be surprising to some, several industry analysts believe them to have been inevitable.

The global financial crisis and the Eurozone crisis have brought about fierce competition in the telecom industry. Although it is widely recognized that the industry has gone from an era of “high gross profit” to one of “micro-profit”, China’s ZTE continues to pursue market share instead of profit - a low-price strategy that has led to their loss of cash flow.

Without having taken appropriate strategies for enhancing the level of competency or innovative capabilities, ZTE still hopes to reach the level of, or even surpass, its competitors during the financial crisis. It seems to ignore the fact that during the financial crisis, its customers would also be focused on product quality and efficient delivery of solutions.

As reported by media in India, BSNL was recently taken in by ZTE’s offer of low prices. BSNL planned to expand its countrywide 2G network and selected ZTE over other international vendors on the basis of cost. In the new emerging situation, it is unclear as to whether ZTE will be able to provide the agreed upon equipment at the agreed cost, or BSNL may be forced to re-tender the bid at higher costs, which may put their network expansion severely behind schedule. In Saudi Arabia, for example, ZTE increased the price of a STC project by 30% after winning the bid.

The fear is not without reason. A similar incident took place in Pakistan. PT, a Telenor company, chose ZTE to update its network in Pakistan due to ZTE’s low prices. The project was severely delayed, and, as a result, there was a significant decrease in network quality. In addition, PT’s income decreased steadily for 3 months, with total losses reaching upwards of USD 6 million.

However, ZTE is able to maintain a low rate of profit, around 3%. Such a low profit rate does not allow for the company to have enough cash flow to enhance its management system to effectively deal with the financial crisis.

In response to its losses, and in order to control its overseas operation costs, ZTE has withdrawn many of its staff from international markets. ZTE even closed some poor performing offices.

According to top management at ZTE, the company will first raise its level of responsiveness to the internal and external environment in order to adjust its strategy in a timely fashion. The company will put profit at the center of its focus, and be committed to increasing the profitability of contracts, and reduce losses on some unprofitable business. The company will also optimize operational efficiency by reducing selling costs and research and development expenses. ZTE will eliminate offices that record loss for a long time, with limited prospect of a turnaround, consolidate products that offer little development potential, exercise headcount control and conduct organizational change.

According to the top management at ZTE, the company will conduct a review of its strategy on products, and on operations in different regions. The company will allocate more resources to its terminals business in North America and Europe, while proactively pursuing opportunities in the wireless and wired broadband segments in emerging markets including China and Asia Pacific. In the LTE segment, the path of the development of the 4G industry in China is becoming clearer, with the government indicating it will accelerate the granting of 4G licenses and network construction, while relevant authorities are now reviewing and formulating the allocation of spectrum. ZTE will closely monitor this industry development, and seek to participate proactively.

Amidst the severe operating environment, senior management at ZTE has claimed that they are confident of overcoming the pressure and challenges, and lead the entire company in readjusting its strategy in a timely fashion, grasping business opportunities in the market, lowering costs, raising efficiency, and returning to profitability as quickly as possible.

Given the global financial crisis and the company's poor performance in the last three quarters of the year, the claim sounds like a fairy tale.