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ZTE sets sights on leading global role(2)

2012-08-30 09:46 China Daily     Web Editor: qindexing comment

Rising from downturns

ZTE, which listed on the Shenzhen Stock Exchange in 1997 and in Hong Kong in 2004, increased its total sales from 9.3 billion yuan in 2001 to 86.3 billion yuan in 2011.

Rivals such as Ericsson and Huawei posted negative revenue growth in 2002. ZTE, however, escaped the fallout. It realized a modest earnings increase during the period because products using the CDMA mobile phone standard bore fruit and won significant contracts from the domestic market.

The other industry downturn was after the 2008 global financial crisis. Because many telecom carriers faced financial pressure and tightened their budgets, telecom equipment makers experienced another tough period.

Europe and the United States were the home markets and biggest revenue sources for many foreign rivals such as Ericsson and Alcatel-Lucent. After 2008, the developed countries' smaller markets prompted some companies to cut jobs and caused losses.

In contrast, ZTE rose quickly by benefiting from the construction of China's vast 3G networks since 2008. It grabbed the biggest market share - 36 percent - of China's 3G network infrastructure market in 2009, Hou said.

Obviously, the financial crisis meant more opportunities for ZTE than risks, analysts point out. "The prolonged global financial instability and difficulties over the last several years helped differentiate the low price, high performance value propositions of the Chinese vendors," Cheung said.

"The financial crisis challenged different companies in different ways," Hou said. Because of high costs, the products from foreign telecom equipment vendors were less attractive. Fewer sales resulted in slower technology upgrades, which further hurt their market positions. "As foreign rivals were losing market share, it created room for ZTE to catch up," Hou added.

Overseas expansion

ZTE has operated in overseas markets for about 17 years. The company started to export a few of its products in 1995. From 1998, it began to acquire contract projects and was able to ship products in large quantities to overseas markets.

Shi Lirong, chief executive officer of ZTE, said the company adopted a new marketing strategy in 2006 by strengthening cooperation with multinational telecom operators. "We cooperate with them in both emerging markets and mature, developed countries," Shi said.

There are hundreds of telecom operators in the world but only 20 percent of them, about 30 operators, are in big demand. "Whoever takes the biggest share of contracts from those operators is likely to become the biggest winner," Shi said.

In addition, ZTE focuses on expansion in some big countries and regions, such as the European and North American markets, Japan and the BRIC countries (Brazil, Russia, India and China). Hou said big countries have big populations and economies, which provides opportunities for enormous investment in network infrastructure.

"Overseas markets may eventually account for as much as 80 percent of ZTE Corp's total sales," Hou said. ZTE's overseas revenue reached 46.76 billion yuan, or 54.2 percent of its total revenue, in 2011, from 4 percent 10 years ago. The figure will continue to grow, but Hou did not predict when ZTE will realize the 80 percent goal.

Matt Walker, principal analyst at Ovum, said ZTE has proven itself to be committed to working with carriers in emerging markets. "Strong support by vendors such as ZTE is one reason for the mobile boom in emerging markets that has been apparent over the last five years or so," he said.

However, ZTE's overseas expansion faces severe challenges in the United States and India due to political and security concerns. ZTE was prevented from selling network infrastructure to major US operators and limited to signing contracts with a few small US carriers. The Indian authorities also imposed harsh restrictions on ZTE's business with local partners.

Hou did not conceal his disappointment at ZTE's setbacks in the United States. "It's useless making further efforts (to persuade the US government to trust ZTE). The problem cannot be solved," Hou said.

Redefining ZTE

This year could herald a harsh winter for telecom companies, analysts say. Telecom carriers slowed investment and became picky. Competition intensified and most telecom equipment makers said that they could not afford to further cut product prices.

In a recent filing to the Shenzhen Stock Exchange, ZTE said its first-half net profit fell 68 percent to 245 million yuan because of lower investment gains, foreign exchange losses and domestic operator networks postponing their tenders.

"ZTE has had to evolve with the times," said Walker at Ovum. "ZTE seems to be at a crossroads now, where it can and should stake out its own, independent vision and clarify its unique role in the industry."

He Shiyou, senior vice-president of ZTE, said the company would transform itself from a telecom equipment maker into a "communications integrated-solution provider". The company already owns a complete product line and has a well-functioning global marketing network, he said.

New business areas, including mobile devices, cloud computing and telecom services, are likely to become major drivers for ZTE in the near future, Hou said.

The company plans to double its smartphone shipments to more than 30 million this year and become one of the world's top three cellphone vendors by 2015. ZTE also aims for sales to government and businesses to hit more than $6 billion by 2015.

Neil Mawston, an analyst with Strategy Analytics, said ZTE is growing rapidly in entry-level and mid-range smartphones but Apple and Samsung dominate the premium segment. "ZTE's biggest long-term challenge will be to develop a connected portfolio of smartphones, tablets, smart TVs and cloud services so it can compete better with rivals such as Apple's iPhone, iPad and iTunes," he said.

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