China's ZTE Makes U.S. Expansion With `Salute' Phone for Verizon Wireless

ZTE Corp., China’s second-biggest maker of telephone equipment, is expanding in the U.S. with an agreement to sell a handset through Verizon Wireless.

Executives unveiled the phone, the Salute, yesterday in ZTE’s first handset agreement with a top-three U.S. wireless carrier. Verizon Wireless is the largest mobile-services provider in the U.S., with more than 92 million subscribers.

“It’s a very good start,” Jeff Ji, executive vice president for ZTE’s U.S. unit, said in an interview. “We are actively working with all tier-one operators in the U.S.”

ZTE is in talks with T-Mobile USA Inc. and Sprint Nextel Corp. as the U.S. becomes the focus of ZTE’s handset efforts, Ji said. The Shenzhen, southern China-based company, which got more than 80 percent of its revenue last year from Asia and Africa, said it spent more than $1.5 billion in 2009 investing in hardware and software in the U.S.

Operating revenue for the six months ended June 30 increased 11 percent to 30.7 billion yuan ($4.52 billion), the company said yesterday in a statement. Sales from Europe and the U.S. accounted for 18 percent of total revenue and grew 45 percent from a year earlier, according to unaudited financial statements.

The company’s Shenzhen-listed shares fell 0.4 percent to 22.58 yuan at 10:56 a.m. local time after earlier rising as much as 2.3 percent. ZTE’s Hong Kong-traded shares were unchanged at HK$25.45.

Handset Business

ZTE’s handset business increased the fastest, rising 40 percent, while its infrastructure business gained 1 percent and its telecom software services and software business advanced 18 percent, the company said. Net income jumped 12 percent to 877.5 million yuan, or 0.31 yuan a share, from 783.4 million yuan, or 0.29 yuan, a year earlier, based on Hong Kong financial reporting standards.

ZTE mainly sells equipment for telecommunications networks and gear to more than 500 carriers in at least 160 countries. In the first quarter, it ranked as the seventh-largest maker of handsets worldwide by shipments, according to ISuppli Corp., an El Segundo, California-based market-research firm.

“The U.S. market is definitely ZTE’s most important and strategic market,” said Ji, who helped expand ZTE in Europe before moving to the U.S. last year.

The company has since 2009 hired executives who worked at Microsoft Corp., T-Mobile and Nokia Oyj, the world’s largest maker of mobile phones. ZTE, which employs 70,000 people globally, said it plans to create more than 2,000 U.S. jobs in the next several years.

Sales Effort

“We have continued to recruit in sales and marketing and logistics,” Ji said.

With seven U.S. offices and a research-and-development center in Austin, Texas, the company began trying to sell phones to U.S. carriers in the past three years, Ji said. MetroPCS Communications Inc., the U.S. pay-as-you-go mobile-phone company, has had four ZTE handsets since 2008. I Wireless, a service provider affiliated with T-Mobile, started selling one a year ago, and Verizon Wireless last year offered ZTE’s mobile broadband USB modem.

The new phone is designed for families and basic business users, according to ZTE documents. The so-called slider phone has a 1.3-megapixel camera, a 2.4-inch display and a Web browser, and allows for text, picture and voice messaging. It will sell for $20 after a $50 mail-in rebate and with a two-year contract.

Catching HTC

ZTE plans to introduce a smartphone in the U.S. in 2011, the same year it will offer broadband devices such as data cards for 4G wireless networks based on technology called long-term evolution, Ji said. The company has a portfolio of smartphones based on Google Inc.’s Android software and Microsoft’s Windows Mobile system that can feature touch screens or BlackBerry-like looks.

Total research-and-development expenditures jumped 45 percent in 2009 while sales grew 36 percent, according to data compiled by Bloomberg. Tina Teng, a senior analyst at ISuppli, said ZTE has a long way to go before it can replicate the rise of Taiwan handset maker HTC Corp., which raised its profile in North America with phones based on Google’s Android.

“It’s definitely a fast follower,” Teng said in an interview, referring to ZTE. “But it’s not a real innovator.”

Verizon Wireless is co-owned by New York-based Verizon Communications Inc. and the U.K.’s Vodafone Group Plc. Dallas- based AT&T is the second-largest U.S. wireless carrier, followed by Overland Park, Kansas-based Sprint.

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

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