Telecoms

Smart strategy

ZTE unveils grand plans to take on Samsung and Apple

ZTE's new smartphone

Huawei’s latest smartphone, the Vision, is currently in marketing overdrive, with ads online and images of handsets in newspapers and magazines as far away as Brazil and the UK. That’s a big departure for a company probably better known overseas for its telecom networks (and its rumoured links to the Chinese military, of course). In fact, Huawei also manufactures white-label handsets that carry other company brands.

But the arrival of the Vision seems to suggest that Huawei now wants to play in the same league as Apple and Samsung, with a handset brand of its own.

Huawei’s cross-town rival ZTE shares that ambition. Even though it resents being viewed as a second Huawei, it too has grown rapidly with a similar strategy.

“We’re making a shift towards producing more smartphones by investing more in innovation and marketing,” says the company’s chief executive Shi Lirong. “This is a marathon race and it’s too early to declare any winners. We have our own strategy and will take it one step at a time.”

Founded in 1985, ZTE’s core focus is also networking gear, and it has done particularly well in emerging markets in Africa, Latin America and the Middle East.

In 2002, the company also moved into the handset market, customising low-cost, unbranded handsets for mobile carriers like Telefónica. Today, ZTE is the world’s sixth largest handset manufacturer (Huawei ranks fifth).

But that is about to change. According to Shi, ZTE will now focus more on quality handsets and is aiming to grab market share in smartphones through the recently launched ZTE Skate and Libra. The goal is for smartphone sales to contribute 30% of the company’s total handset revenue.

ZTE says it expects to ship 12 million smartphones this year, up from 3 million last year (still only a small proportion of the 120 million handset units expected to sell globally in total).

Most of its marketing efforts will focus on Europe, where its networking business has already made inroads. Total sales in Europe accounted for about half of the nearly Rmb9 billion in US-Europe-Oceania revenues reported for the first half of this year, says Caixin Century, up 62% in the first six months of the year.

Back in June, ZTE also announced that it was moving into cloud computing, with a major new investment in a system to serve mobile carriers, governments and businesses.

“The [telecoms] industry won’t be able to support the 25% annual growth we’ve seen over the past 25 years, so we need a new area to drive growth. We see cloud computing and IT as a strategic growth area for the company, with lots of opportunity for innovation,” ZTE VP for cloud computing and IT operations, Wei Wang said at the time.

To succeed in such a venture, ZTE will have to negotiate the same challenge facing Huawei in the US: lawmakers intent on investigating what they see to be the potential security threat posed by Chinese telecommunication firms in North American markets.

Blogger Doug Young, former China news chief at Reuters, says the investigation is baseless: “If Huawei and ZTE products really do pose such a threat, then most of Europe is now at major risk of Chinese telecoms spying, since telcos in most of its countries now count Huawei and ZTE as two of their major telecoms equipment suppliers.” Still, Shi said ZTE was “wholly committed to transparency” and would cooperate with any investigation required of it.

He later told the UK’s Guardian that he has long adopted a patient approach to tackling the US market: “We’ll have to come up with some irresistible products that customers can’t resist. We’re adopting a more active and positive attitude towards the US market,” he promised.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.