ZTE Seeks to Become Global Top Three Handset Company by 2016

ZTE Corp. (000063), the third-largest smartphone vendor in China, plans to be in world’s top three handset companies in three years as it increases investment in products, branding and distribution channels, Executive Vice President He Shiyou said.

ZTE, which became one of the world’s top 10 smartphone vendors by selling handsets for less than $100, is looking to costlier devices for sales growth. The company plans to get 60 percent of total income from mid-and high-end phones, priced at more than 1,500 yuan ($245), within three years, He said in an interview in Taipei yesterday.

In its China home base, the company is set to benefit as the introduction of fourth-generation wireless service in the world’s biggest smartphone market lifts sales of top-end handsets. In the U.S., ZTE this month became a sponsor of basketball’s Houston Rockets to boost the Chinese business’s profile as it sells two new high-end devices there.

“The Rockets partnership is expected to raise ZTE’s U.S. and global brand awareness,” He said ahead of a media event scheduled to coincide with a Taipei exhibition game between the Rockets and Indiana Pacers today. “The U.S. market is top priority and expected to be biggest market for ZTE cellphones in two years.”

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A visitor uses his mobile device to photograph a ZTE Corp. Grand S smartphone on display at the Mobile World Congress in Barcelona. Close

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Photographer: Angel Navarrete/Bloomberg

A visitor uses his mobile device to photograph a ZTE Corp. Grand S smartphone on display at the Mobile World Congress in Barcelona.

Sixty-five percent of ZTE’s cellphone revenue comes from overseas markets, according to He. The Shenzhen-based company targets 30 percent growth in global handset sales and shipments next year, with the U.S. outperforming, He said. ZTE ranks as the fourth-largest smartphone manufacturer in the U.S., he said.

4G Boost

China Mobile Ltd. (941), the world’s largest phone company by users, is conducting a trial of 4G service this year that will reach 100 cities covering a population of 500 million people, the carrier said in February. Licenses for commercial 4G service may be issued by the end of this year, the Beijing-based company said in March.

The start of 4G service will boost smartphone shipments in China 25 percent to 450 million devices next year, from 360 million this year, International Data Corp. forecast last month. China smartphone shipments next year will include 120 million 4G units, according to IDC.

ZTE last month said its Grand Memo handset was approved by the Ministry of Industry and Information Technology to run on 4G, the first to receive such regulatory approval in China.

Fourth-generation will account for 20 percent of ZTE’s global smartphone sales this year, growing to as much as 40 percent in 2014, He said yesterday. In China, 70 percent of cellphones will still use 3G in 2014 as it takes time to develop the service, he said.

ZTE forecasts a return to profit in the third quarter, compared with a loss of 1.95 billion yuan a year earlier, as it is on track to sell 45 million to 50 million smartphones this year, He said.

Rockets Sponsorship

In the U.S. market, handset revenue will climb to $1.6 billion this year from $1 billion in 2012, the company said last month. It’s still on track to reach that goal, He said yesterday. ZTE will release the Grand S and Nubia smartphones in the U.S. this month priced at about $450, it said Sept. 24.

To help promote sales of those devices, ZTE reached an agreement to make it the official smartphone of the Houston Rockets for the 2013-14 National Basketball Association season, the company said Oct. 5. The Rockets’ sponsorship is the company’s largest investment in branding, according to He, who declined to give figures, citing confidentiality agreements.

The sponsorship will raise brand awareness in the U.S. while also helping ZTE at home, where the Rockets are well known as the former team of Chinese basketball star Yao Ming, and current home to Jeremy Lin, the first Chinese-American to play in the league.

TCL, Huawei

The ZTE sponsorship is the latest in a growing trend by Chinese handset makers looking to raise awareness in foreign markets. TCL Corp. in January sealed a deal to rename Grauman’s Chinese Theater in Los Angeles as TCL Chinese Theater, buying naming rights for the cultural landmark along the Hollywood Walk of Fame. Huawei Technologies Co. in March 2012 signed a sponsorship deal with the Canberra Raiders rugby league team in Australia’s national capital.

ZTE’s sponsorship of the Rockets builds on an existing relationship in which the company is a NBA league sponsor for the China market. ZTE followed the lead of Chinese beer maker Tsingtao Brewery Co. (600600), which in December 2011 became a sponsor of the NBA’s Miami Heat.

Consumer handset sales are ZTE’s primary form of access to the U.S. market, where a House Intelligence Committee report effectively blacklisted ZTE’s traditional wireless network equipment, warning such equipment may help the Chinese government spy on the U.S.

U.S. Lobbying

The House committee’s report last year advised U.S. agencies and government contractors to steer clear of both ZTE and larger rival Huawei, saying that the companies hadn’t adequately explained their relationships with the Chinese government. ZTE has denied that claim.

After that report, ZTE more than quadrupled its spending to lobby the U.S. Congress to $330,000 in the first six months of this year -- the most since it began lobbying in 2009, Senate records show. That compared with $80,000 during the same period a year earlier, according to company filings. The company will continue to communicate and cooperate with U.S. government to “blend into the U.S. market,” He said yesterday.

Samsung Electronics Co. was the world’s biggest smartphone seller in the second quarter with a 30.4 percent share of shipments, according to IDC. It was followed by Apple Inc. (AAPL) with 13.1 percent, LG Electronics Inc. with 5.1 percent, Lenovo Group Ltd. with 4.7 percent and ZTE with 4.2 percent.

To contact Bloomberg News staff for this story: Cindy Wang in Taipei at hwang61@bloomberg.net; 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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