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Who Is ZTE & Why Are Rivals Running Scared?

Gordon Kelly

by

HQ

Who on earth is ZTE? Tech fans may have some idea, but to the general public the company remains just another random acronym. It soon won't be…

On Thursday ZTE started revealing its master plan. The Chinese telecoms giant announced its first self branded products would be sold in the UK. It followed this up in proclaiming that by 2015 it will be the world's third largest phone maker. In 3 ½ years it believes only Nokia and Samsung will be selling more handsets. For a company most people haven't heard of that's a big claim, yet for its rivals it is also a hugely concerning one.

HQ

To understand why requires a small history lesson. ZTE was founded in Shenzhen (HQ pictured) back in 1985 by Hou Weigui. It rose from a group of state-owned enterprises with ties to the government's Ministry of Aerospace and specialised in telecoms. In 1997 it had its first IPO on the Shenzhen stock exchange with a second on the Hong Kong stock exchange in 2004. By this point it was the second largest telecoms equipment vendor in China, selling base stations, switches, software, broadband networking gear and handsets.

That year sales grew 35 per cent to $4.1bn, but more importantly it took advantage of China's growing relations with the West to begin exporting heavily around the world. By the end of 2004 exports had skyrocketed 170 per cent. And you still hadn't heard of them.

The reason why is ZTE has used the tried and trusted HTC model of making handsets for carriers to rebrand. This helps gain traction and earns carrier trust. Just two years later ZTE accounted for 40 per cent of orders for CDMA networks globally. Telus, Vodafone, Telefonica, Telstra, Orange and others were customers before 2007. Like HTC, however, ZTE is now ready to step into the limelight.

growth

In part taking the step to push its own brand has come because ZTE has paid its dues. The company now supplies handsets to most of the world's operators and sales have exploded. In 2010 ZTE shipped 51.8m units, double the 26.7m it managed in 2009. It outgrew every handset maker on the market, including Apple, and now sits fourth globally behind LG (3rd), Samsung (2nd) and Nokia (1st). Much of this comes from pushing low cost handsets, but arguably the most exciting aspect to ZTE from a consumer standpoint and most worrying to competitors is the way its smartphones are redefining the market.

At the start of 2011 we spoke off the record with a senior source at Samsung. They told us the only company in the world that caused worry was ZTE. "We simply cannot make handsets as cheaply as it can," they explained. "And we cannot buy ZTE to make this problem go away because it is partly owned by the Chinese government. You do not push your luck with the Chinese government unless you want to lose access to a market of over a billion people."

lensmann

July 16, 2011, 3:22 pm

Being part-owned by the Chinese government also just may make Apple less likely to slap a patent infringement action on ZTE, as they seem to be doing in relation to other Android-based smartphones. Which would be a huge advantage in terms of pricing.

Davey

July 18, 2011, 6:45 pm

Nice article.

It sounds like ZTE could be huge, but I think the HTC model, on which its strategy is clearly based, is flawed. The problem HTC, LG, Sony Ericsson and, to some extent, Samsung have now is that they don't create their own operating systems. Apple, HP (if they ever get rolling with WebOS) and Nokia (!) all at least own their OS's - ZTE etc. are effectively held to ransom by what either MS or Google create and means they're basically just hardware companies.

IMO, HTC's biggest mistake was not buying WebOS - what are ZTE going to do differently?

ThaDon

July 21, 2011, 4:35 am

I welcome ANY company that knocks LG of their perch - i'm yet to see a single LG handset that i believe warrants more than a cursory 'meh'..

They tend to feel cheap, and i think the success of the ZTE Blade shows that ZTE is very much capable of making decent-selling handsets.

For the record, I'm not a ZTE fan so much as a loather of LG - i'm surprised they've lasted this long but i guess quality wasn't a key factor with so many customers (3rd in the world??? Really???)

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