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HK's PCCW Profit Slumps, Managing Director Quits

PCCW, Hong Kong's largest fixed-line operator, posted a disappointing 29% fall in second-half earnings and said its managing director quit after a failed stake sale.

PCCW has had a rough year with Chairman Richard Li failing to sell a controlling stake to Hong Kong financier Francis Leung for US$1.17 billion after shareholders in Li's Singapore-listed holding firm torpedoed the deal.

Chief Financial Officer Alex Arena -- a former government policy adviser and telecoms official -- will replace Jack So at the helm on April 30. PCCW said So, once head of Hong Kong's subway operator, resigned for "personal reasons".

Executives said PCCW should be able to reap the fruit from its new investments in wireless, media and even property -- an effort to branch out from plain-vanilla telecoms operation -- this year.

"We made the sound decision to invest in new technologies and businesses during 2006 in order to maintain our market leadership and build a solid foundation for the future," Arena said in a statement. "From 2007, we can begin to see the benefits."

PCCW reported a net profit of HK$456 million (US$58.37 million) for the six months ended December, versus HK$641 million in the previous year, when it notched up a hefty one-time gain, according to Reuters' calculations off previously reported data.

It enjoyed a 71% surge in revenue from a budding pay-TV business and a doubling of sales at its mobile arm, but that was not enough to offset flat growth in a much larger but stagnant traditional fixed-line services division.

The firm blamed general downward pricing pressure in a highly saturated local fixed-line market. The result lagged by far a consensus forecast for HK$934 million for the six-month period, the mean forecast of 15 analysts polled by Reuters Estimates. Market speculation persists that Li will find another way to exit the firm.

PCCW has, meanwhile, taken steps to drive growth, including striking a deal to gain access to China, buying a small local mobile phone operator, and aggressively building a pay TV service to broaden its product slate.

Its shares slid nearly 1% in 2006, underperforming a 34% rise in the benchmark Hang Seng Index. But the firm at one point had shed more than 90% of its market value since the heady Internet bubble days of 2000.