ZTE's sales revenue dropped 11.6% to RMB37.8b

But here's a bit of good news.

According to CCB International, ZTE announced preliminary 1H13 results, with sales revenue down 11.6% YoY to RMB37.8b and net income up 23.5% YoY to RMB 302.3m. 

"1H13 was a mixed bag in our view, with reported net income failing to meet the street estimate after a bad forex loss in 1H13. On a more positive note, GPM is improving and operating expenses are coming under control," said CCB International.

Here's more:

Rising mobile equipment orders from PRC telecom operators. Telecom equipment orders from China Mobile fell short of expectations in 1H13. However, TD-LTEtenders from China Mobile should be out in 2H13F, boosting sales and profits for leading PRC telecom equipment vendors.

Besides China Mobile, China Telecom appears set to move up the date of its 4G trials, a positive development for ZTE, in our view.

Now a major player in the smartphone market. According to IDC, ZTE was the sixth-largest smartphone manufacturer in the world in 1Q13. We estimate it will ship 40m smartphones in FY13F producing 16.5% GPM for the mobile terminal division. ZTE is shifting focus to higher ASP smartphones and the overseas market.