ZTE, Mozilla Plan Mobile System to Compete With Android

ZTE Corp. (000063), China’s second-biggest maker of phone equipment, will release a new mobile operating system with the developer of the Firefox web browser to compete with Google Inc. (GOOG)’s Android software.

The software will be available in the December quarter, ZTE Executive Vice President He Shiyou told a briefing in Beijing today. Closely held Mozilla Corp. makes Firefox.

ZTE is in talks with overseas carriers to offer devices with the new operating system to reduce its reliance on Android as it expects smartphone sales will double this year amid market share gains in Europe, North America, Brazil and Japan. ZTE is expanding in mobile devices and cloud computing where sales growth is faster than its traditional equipment business as the pace of new network rollouts slows.

“We will not rely on only one operating system,” He said.

The Shenzhen-based company uses Android on about 90 percent of its smartphones with the rest using Microsoft Corp.’s Windows Mobile.

ZTE rose 5 percent to HK$11.26 at the close in Hong Kong trading. The stock has dropped 54 percent this year, while the benchmark Hang Seng Index has gained 13 percent.

‘Unrealistic Strategy’

The challenges confronting ZTE to build an operating system that can compete with Android, Windows Phone or Apple Inc. (AAPL)’s iOS will be considerable, not the least of which is establishing a community of developers to make games and other apps for the devices.

As app developers are already committed to to the existing systems, ZTE’s plan is “a very unrealistic strategy,” said Pierre Ferragu, a London-based analyst at Sanford C. Bernstein & Co. in London.

“Operating systems follow winner-take-all rules,” Ferragu said in an e-mail today. “How can an operating system limited to a small, low-end manufacturer gain traction ever? It will most likely play against ZTE as consumers want Android, or at best be a non-event if they continue to do Android and Windows at the same time.”

Huawei Technologies

Huawei Technologies Co., China’s biggest telephone equipment maker, said on Sept. 12 it had no immediate plan for a mobile operating system following a report on the Sohu.com website that it would develop a backup to Android.

By 2015, mobile devices will account for 50 percent of ZTE’s sales, up from 40 percent this year, He said in April.

In the second quarter, ZTE smartphone shipments in the China market rose to third place from fourth, behind Samsung Electronics Co. (005930), Lenovo Group Ltd. (992), and Apple Inc., market researcher IDC said last month.

ZTE last month began sales of its first fourth-generation handset, the Grand X LTE (T82), through China Mobile Ltd. (941)’s Hong Kong unit. The Grand series of devices is intended to be ZTE’s “high-end flagship offering,” the company said in a June statement.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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