ZTE to Double Share on Apple Turf After Passing IPhone in China
ZTE Corp. (000063), which eclipsed Apple Inc. (AAPL)’s handset shipments in China last year, plans to double its share in the iPhone-maker’s home market by adding devices specifically tailored for individual U.S. wireless operators.
The company intends to grab as much as 10 percent of the U.S. handset market by 2015, Cheng Lixin, head of ZTE’s operations in the country, said in an interview yesterday at the annual International Consumer Electronics Show in Las Vegas. That would also boost the Shenzhen, China-based company’s U.S. sales ranking to fourth from fifth, he said.
ZTE plans to win backing from U.S. carriers by drawing on its experience making communications equipment to design phones that use operators’ networks more efficiently, Cheng said. That contrasts Apple’s one-size-fits-all approach, which left AT&T Inc. (T) struggling to cope with a flood of data following the introduction on the iPhone, he said.
“Apple has a completely different business model than we do,” he said. The Chinese phone-maker will also work with carriers to study consumer behavior and needs to improve and customize phone designs, he said.
The phone-maker surpassed Apple’s shipments in China in the second quarter of last year. In 2011, it more than quadrupled smartphone shipments in the country to 15 million. Apple’s share of the smartphone market in China declined two spots to sixth in the third quarter, with less than 10 percent, according to IDC. ZTE ranked fourth.
ZTE won sales in China by focusing on low-end smartphones, such as the Blade, which cost 1,000 yuan ($161) or less. The cheapest iPhone on Apple’s China website, an 8 gigabyte iPhone 4, costs 3,088 yuan. The iPhone 5 begins at 5,288 yuan.
ZTE is developing more advanced and expensive models as it tries to lure consumers from Apple and Samsung Electronics Co. (005930) in the U.S. At the Las Vegas show, it unveiled its new flagship handset, the Grand S, which is for fourth generation Long Term Evolution networks. It has a 5-inch screen and runs Google Inc.’s Android Jelly Bean system, enabled by Qualcomm Inc. (QCOM)’s Snapdragon S4 Pro processor.
Still, the company is struggling to convince analysts it can break into the high-end segment. It’s rated hold or sell by 23 analysts, with 11 saying buy, according to data compiled by Bloomberg. The phone-maker also fell 46 percent last year in Hong Kong trading, compared to a 23 percent rise in the benchmark Hang Seng Index.
“I find ZTE’s ambitions in the high end and in the U.S. fairly unrealistic,” said Pierre Ferragu, a London-based analyst at Sanford C. Bernstein & Co. “High-end smartphone users, especially in the U.S., are highly brand-conscious and I don’t believe ZTE has made any progress on that front.”
The company would be better served focusing on the low-end unbranded segment, where its good cost base provides a competitive edge, said Ferragu, who rates ZTE underperform.
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