Is ZTE a sleeping giant?

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Chinese handset manufacturer ZTE is threatening to move in on the European handset market. It is already a monster brand at home, in China. But, like the recently-awoken Chinese economy itself,  global recognition is unlikely  to come to it at length, if at all.

And its recent strategy for Europe, outlined by its agreement in February to issue ODM (original design manufacturer) units to Deutsche Telekom’s T-Mobile divisions, relies heavily upon network-branded handsets. It will be some time yet before it replicates HTC’s move two years ago to launch under its own brand.

Nevertheless, it talks like a sleeping giant, preparing to wake. Its ‘Vairy’ touchscreen prepay handset (pictured) is already available across T-Mobile in Europe, and its UK base in Brentford, Middlesex, has suddenly started to stir.

Its brand heritage is enviable in telecoms infrastructure, providing the majority of 3G network in China and boasting partnerships with 500 networks in 140 markets. In mobile phones, its legacy is shorter – just three years in device manufacturing, although already up to 100 million units sold.

ZTE has yet to stamp its name on actual handsets released in the UK, but its ultimate goal is launching its own brand handsets, and making it into the list of top five manufacturers globally.

Gartner analyst Carolina Milanesi suggests ZTE is in the running, along with smartphone giant RIM, to overtake the fifth placed manufacturer by the end of 2009 – presently Sony Ericsson, with around 14.5 million sales, which is widely expected to be in a dog fight with ailing US giant Motorola to cling on to the spot by year-end.

Ovum senior analyst Tony Cripps insists ZTE’s impact in the market for “high end, open platform devices” will be “fascinating to watch”.

ZTE’s Q1 results reported 10 million mobile device sales (along with its 100 millionth unit shipment since launching in the market), which puts it a way off fifth at present. Its ambitious calculation presumably rests upon it significantly upping its game and one of the present top five severely dropping theirs if itis to achieve such an accolade within seven months.

ZTE executives put a more realistic timeframe on it at a press conference last month – up to three years to make the top five. They outlined a target of 100 million handset shipments per year by then, which would see it advance on fifth if incumbents’ market shares continue to decline as analysts predict.

The 50 million handsets ZTE shipped last year – 80 per cent branded and co-branded, and the remainder white labelled – put it in sixth placed globally by volume, it claims.

Its figures look good, too, in a market where incumbent manufacturers are struggling to define themselves, even if the lion’s share comes from its networks division. Group results show £7.36 million profit in Q1, a 29 per cent increase from the same period last year.

At the same time, revenues from mobile handset products grew by 22 per cent against the same period, and it stated its commitment to “aggressively expanding” to international markets through network partnerships.

ZTE has been bold enough to say that the UK and Europe are markets strongly in its sights and it will chase market share from big names such as Nokia and Samsung; the recession bearing well for a surge in the low cost handset sector that ZTE has so far found success in – under its own brand in China and as an ODM for the likes of T-Mobile, Vodafone and Telefónica in certain of their markets.

The Deutsche Telekom/T-Mobile deal is significant not because of the Vairy handset the union has produced, but because ZTE has declared it a “strategic partnership” for all of T-Mobile’s European markets that will encompass future handsets and data cards.

To support the move, ZTE opened a new office in Bonn last year, after launching in Dusseldorf in 2005. It began operating in Europe (first, as infrastructure provider) in 2000 and has since set up 25 branches throughout Europe, in markets such as the UK, France, Italy, the Netherlands, Spain, Poland, Bulgaria, the Czech Republic, Finland, Sweden and Turkey.

ZTE’s UK office was opened in 2001, and while launching with very few staff, has expanded and is now still recruiting. ZTE expects to launch the first of a new smartphone range, first shown at Mobile World Congress in February, in Western Europe during this year.

There is also potential for ZTE in the area of mobile TV-enabled handsets, if demand and provision ever spike and coincide, as it was a major supplier in China during last year’s Beijing Olympics. It is the kind of proposition that could feasibly give it a hook in the UK if the technology becomes widely used.

While the company certainly isn’t lacking in numbers and financial resources – snaring a £9.57 billion credit injection from the China Development Bank and £6.21 billion from China Exim Bank this year – its president for Western Europe, Lin Cheng (pictured), acknowledges there will be work to do on the ZTE brand to set itself outside of China. In Portugal, last year, it debuted its own handset brand for the first time in Western Europe – a dry run in a market uncomplicated by subsidies.

“Our strategy in the UK and most of Europe at the moment is an ODM strategy,” states Cheng. “Maybe next year we would have the brand power to launch in this way. But for the time being, we want to train our team and see them work properly with T-Mobile; before progressively moving onto launching our own brand.”

Full article in Mobile News issue 440 (June 1, 2009).

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