Bottom line: Huawei stands a reasonably good chance of meeting its goal of becoming the world’s second largest smartphone brand in the next 3 years, while ZTE’s sell-off with the resumption of trading in its shares looks overblown.
Two of China’s oldest and largest telecoms names are in the headlines, though Huawei and smaller rival ZTE are moving in opposite directions as we close out the week. New data are showing that Huawei continued to pick up share in China’s smartphone market in February, as the division’s head discussed his latest timeline for overtaking global leaders Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930) in the next 4-5 years. Meantime, shares of ZTE finally resumed trading, and promptly tumbled as much as 16 percent, after a difficult few weeks due to a tussle with Washington.
The 2 stories reflect the opposite recent paths of these crosstown rivals, both based in the southern Chinese boomtown of Shenzhen. Huawei’s rapid rise in the smartphone space dates back to the middle of last year. ZTE’s woes are more recent, dating back to last month when Washington punished the company for illegally selling US-made equipment to Iran. But I would caution that Huawei’s rising fortunes could quickly run out of fuel in the fast-changing smartphone world, while ZTE may be oversold following resolution of its tussle with Washington.
Let’s begin with Huawei, which has suddenly becoming the world’s next hot smartphone brand and looks set to become king of its home China market. New monthly data for February show that Huawei recaptured the top spot for the China market with 24.4 percent share, beating out Apple’s second place finish at 22.2 percent, according to market research firm Kantar. (English article)
Separate reports quoted Huawei’s smartphone chief Richard Yu giving the 4-5 year time frame for overtaking Samsung and Apple for the world’s smartphone crown. Yu added he was eyeing the number 2 spot within 3 years. (Chinese article) He made the comments at an event in London to unveil Huawei’s latest model, the P9, which will start at 599 euros ($680). The model’s relatively high price reflects Huawei’s campaign to move away from the ultra-competitive low end of the smartphone market into the higher end, now dominated by Apple and Samsung, where margins are typically much higher.
Yu said he expects to sell more than 10 million P9s, which looks necessary if the company wants to meet its goal of beating a record performance that saw it sell more than 100 million smartphones last year. (previous post) I haven’t seen any specific Huawei sales figures or targets for this year, but expect it should be able to beat its 2015 unit sales by at least 10 percent and perhaps as much as 20 percent.
ZTE Shares Oversold?
Next there’s ZTE, which has received lots of attention over the last month after a 4-year Washington investigation determined the company sold US-made equipment to Iran in violation of US trade sanctions against the country. (previous post) ZTE shares were suspended and the company delayed the release of its annual results after the crisis broke as it tried to resolve the situation.
That resolution finally came over the last week, with Washington saying it would temporarily suspend the punishment as long as ZTE cooperated with an investigation into the matter. ZTE seemed to draw a line under the crisis with the replacement of its chairman and release of its results earlier this week.
Following all that, the company’s shares resumed trading and promptly fell as much as 16 percent in Hong Kong. But they ultimately rebounded a bit and closed down a more modest 10 percent. I personally think the sell-off was probably overblown, since the company appears to have resolved the conflict and shouldn’t suffer any major long-term damage. It still needs to focus on the larger issue of stabilizing its core networking equipment and smartphone businesses, but seems to be making slow but steady progress in that direction.
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