Cheap mobile phones drive ZTE's growth

Updated: 2013-05-10 11:18

By Michael Barris in New York (China Daily)

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While smartphones by Apple Inc and Samsung Electronics Co tend to grab media attention in the US marketplace, China's ZTE Corp is moving up on its rivals, helped by surging sales of its low-cost smartphones.

Neil Shah, an analyst with research firm Strategy Analytics, says ZTE has become both the fifth-largest and the fastest-growing smartphone vendor in the United States, closing ranks on No. 3 and No. 4 Motorola Corp and Blackberry, respectively, as first-quarter smartphone sales surged 85.7 percent. Meanwhile, Samsung continues to challenge California's Apple for the No. 1 spot, as iPhone sales slow to a historic low.

Shah said ZTE's plan to sell devices on prepaid carriers such as MetroPCS and Cricket has boosted the Chinese company's share of the global market to 4.3 percent, vaulting it into the fifth spot overall. The accomplishment is even more noteworthy, he said, considering that it happened amid the well-covered release last year of Samsung's Galaxy S III and the Galaxy Note "phablets" - which combine a phone and a tablet.

The senior analyst for Strategy Analytics' Wireless Device Strategies service called ZTE's performance "extremely impressive", given its "lack of major carrier support and its lack of advertising presence" compared with California-based Apple and South Korea's Samsung.

ZTE's rise in the US rankings dovetails with its growing global stature. The company had 4.4 percent of the global smartphone market in the fourth quarter of 2012, making it the world's fourth-biggest manufacturer of smartphones, just behind its larger Chinese rival, Huawei Technologies Co. Apple and Samsung dominate the global field, together making half the smartphones sold in the world in the fourth quarter of the last year, according to Bloomberg Industries data from researcher IDC.

Essentially frozen out of the US telecommunications market over US government concerns that the company poses a national security risk, Shenzhen-based ZTE is pinning its hopes in the US market on its smartphone business. Up until now, most of ZTE's US success had come from selling its smartphones under other brands. In an effort to become a well known name in its own right in the lucrative and huge US cellphone market that is seen as the key to its long-term success, it recently formed a joint venture with Intel Corp that started producing smartphones powered by a powerful new Intel chip. The phone uses the latest Intel Atom Z2580 processor, said to be twice as fast as the Intel chipset that powers the phone's processor, the ZTE Grand X smartphone.

The upward change in the company's rankings is evidence that the company's strategy to grow in the US phone market is succeeding. ZTE USA's chief executive, Cheng Lixin, told China Daily in an interview in April that as a handset maker, "we are well-positioned to grow in the US and also worldwide". Amid its clash with US politicians, last year it posted its worst financial results since the late 1990s, swinging to a net loss of 2.84 billion yuan ($460 million) from 2011 net profit of 2.06 billion yuan. But the company has said it expects to return to profit this year, helped by improving industry conditions and tighter internal controls. ZTE is expecting average annual revenue growth of 10 percent over the next five years, amid increased network infrastructure spending by European telecom operators, and stronger demand from carriers in Asia and Africa.

In April, ZTE ended two straight quarters of losses, by posting a 36 percent jump in first-quarter net profit, aided by gains from asset sales late last year. For the quarter ended March 31, ZTE reported a net profit of 205 million yuan ($33 million), up from 150.9 million yuan a year earlier. The figure was below the 220 million yuan profit forecast by analysts surveyed by Reuters.

At the time, ZTE said it expected an increase in smartphone sales and an expansion in 4G networks to keep it in profit this year.

"We have adjusted the strategy," Cheng said in the interview. "There is a lot of momentum to turn our company around," Cheng said. "I am positive there will be positive developments along the way."

He Shiyou, executive vice-president in charge of handsets, was quoted as saying by Reuters as saying that ZTE expects sales of its mobile devices to exceed 50 percent of revenue by around 2028 from 31 percent in 2012.

(China Daily 05/10/2013 page10)