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ZTE Sees Mobile Growth in the US & Europe

Sarah Thomas
1/28/2011

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) offered some initial guidance for its past year Thursday, including a bump in its overall sales revenue. What it didn't say is how one very interesting part of its company, its mobile devices business in the U.S. and Western Europe, is adding to its bottom line. As it readies more Android-based handsets for overseas use, ZTE appears to have staked out the mobile market for rapid expansion in 2011. (See ZTE Increases Annual Sales by 17% and ZTE Reports 2010 Prelims.)

Past earnings reports already indicate that its Western expansion plan is paying off. In the first half of 2010, ZTE's overseas handset shipments reached 17 million units, accounting for 60 percent of its total handset sales. It also cracked into the top-five smart-phone suppliers in IHS iSuppli 's rankings, edging out Sony Ericsson Mobile Communications and BlackBerry , and helping it on its way to a goal of top three. Last year, ZTE saw an 150 percent sales increase in Europe and 100 percent in the U.S., compared to growth around only 50 percent for the rest of the world. (See ZTE Boasts Handset Progress, ZTE Handset Sales Hit 90M and Sony Ericsson Rises & Falls.)

ZTE also inked its first U.S. Tier 1 carrier deal with Verizon Wireless in August to carry the entry-level Salute. It had previously offered phones through MetroPCS Inc. (NYSE: PCS), but is looking to build up relationships with all four Tier 1 operators. As part of that goal, the company will introduce its first smart phone in the U.S. (a market with discriminating tastes, to be sure) this year. (See Verizon Gets its First ZTE Phone and ZTE Blasts US Discrimination.)

ZTE's cheap Android army
ZTE's secret to world domination lies in low-cost Android phones. According to Pyramid Research , this is a wise strategy. Basic ultra-low-cost handsets, inexpensive smart phones and Android-based devices will be the most in demand this year, Pyramid says, resulting in an 8 percent growth spurt for handsets and more than 1.4 billion sold. (See Cheap Smartphones Are Smart Choice in 2011 .)

"I think they are at this point trying to tie their go-to-market strategy to the whole surge of Android," says Pyramid Research Senior Analyst Stela Bokun. "They are trying to ride the wave. It makes sense to stick to Android for a while, but ultimately down the road, I see lots of operators adopting multi-platform strategy and that makes perfect sense."

Android is growing so fast because the open-source operating system scales down well to full-featured phones at low price points -- ZTE's sweet spot. It also has the important feature of brand recognition, since ZTE -- like its main competitor Huawei Technologies Co. Ltd. -- has traditionally produced phones that are rebranded by the wireless operators and doesn't have an established following. They're hoping the glow of Android will spill over on them, so their devices are just the next cool Android phones and tablets.

ZTE hasn't announced plans to support other OSes, like Symbian Ltd. , but it's got the benefit of good timing. Android is exploding, and demand in the high end of the market has been satisfied with a slew of advanced smart phones announced throughout 2010. Now there's a big segment of users who have seen the power of smart phones, but can't afford the price. Operators are also searching for new sources of revenue by attracting every possible segment of the market, Bokun says.

"In Europe or the U.S., [ZTE and Huawei] won't be able to penetrate every segment, because in some segments, the price doesn’t matter much," Bokun says. "Here, they will target first-time smartphone users that can't afford an iPhone but they want something similar. This is going to be the difference in their approach to these markets."

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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