ZTE’s (HKEx: 763; Shenzhen: 000063) latest strategy of flooding the world with low-cost cellphones appears to be working, as the first phase of the its risky bid to become a global brand yields results. According to the latest information from IT data tracking firm IDC, ZTE zoomed past Apple (Nasdaq: AAPL) to become the world’s fourth biggest cellphone seller in the third quarter of the year, shipping more than 19 million handsets to take nearly 5 percent of the global market. (English article) ZTE has previously stated its aim of becoming one of the world’s top 3 cellphone brands, relying in part on a strategy of grabbing market share by selling low-end smarphones powered by Google’s (Nasdaq: GOOG) Android system for $100 or less for little or no profit. That strategy has showed up in ZTE’s results in the last 2 quarters, with profit dropping steadily even as cellphone revenue has soared. The strategy is a very risky one, as it’s often very difficult to raise your prices and corporate image after establishing yourself as a maker of low-cost products. Taiwan’s Acer (Taipei: 2353) learned this lesson about a decade ago, and is now learning it again. But for at least the next year or two, look for ZTE to steadily increase its global cellphone market share, even as its profits continue to erode. In a separate development along similar lines, Brazilian media are reporting that ZTE is preparing another major new initiative in contract manufacturing, opening a new factory in that country that has landed Apple itself as one of its first customers. (Chinese article) The reports are quite brief, but say that ZTE will assemble both iPads and iPhones for Apple in the city of Hortolandia, putting it in direct competition with Taiwanese OEM giant Foxconn (HKEx: 2038), which has also opened a plant in the same city. To this development I say: congratulations to ZTE for winning this prestigious business from Apple, if the reports are true. But at the same time, I suspect ZTE will be assembling the Apple products for little or no profit and most likely at a loss, meaning we could see its bottom line erode even more quickly.
Bottom line: ZTE’s latest aggressive moves to generate new business will erode its profits for the next 2 years at least, with only a 50-50 chance for long-term success.
Related postings 相关文章:
◙ Baidu, ZTE Earnings: More of the Same 百度和中兴财报：看上去没变化
◙ Ericsson, ZTE Spat May be Near Resolution 爱立信与中兴的官司尘埃落定？
◙ Low-Cost Apple iPhone to Bite ZTE, Lenovo 苹果推低端iPhone 冲击中兴和联想
Chinese firms are flooding the market with third-quarter results, with industry bellwethers Baidu (Nasdaq: BIDU) and ZTE (HKEx: 763; Shenzhen: 000063) both reporting figures that show continuation of recent trends. First Baidu, which reported a healthy rise of around 80 percent in both revenue and profit, as it banked on strong demand for ads on its search site, China’s dominant player with more than two-thirds of the market. (
Apple (Nasdaq: AAPL) has taken the interesting step of getting 40 new patents in China, in what looks like an opening move that could ultimately see it target the growing number of Chinese cellphone makers that use Google’s (Nasdaq: GOOG) popular Android cellphone operating system. (
There’s a couple of interesting new hires out there from Chinese tech firms Huawei and Lenovo (HKEx: 992), which are both clearly aimed at boosting their global operations. Whether either will succeed is a different matter, though both look like good ideas to me at first glance. First Huawei, which has hired IBM (NYSE: IBM) as a brand strategy consultant for its push into tablet PCs, smartphones and cloud computing. (
Well, it seems we now know at least one company that’s going to adopt Baidu’s (Nasdaq: BIDU) new mobile operating system, which it launched with fanfare last week (
history at new product development isn’t very strong. But I’ll also take this rare opportunity to break with the critics and say that Baidu’s new OS at least offers an interesting China-specific alternative to the other products on the market, as well as special access to Baidu’s market-leading search technology. Baidu has already proven that Chinese Web surfers do prefer a China-specific product to a one-size-fits-all approach like Google’s or Yahoo’s (Nasdaq: YHOO), so perhaps the same will be true for mobile Web surfing. Still, Dell is hardly a big name in the mobile Internet space, and, in fact, I don’t think I’ve ever seen anyone here in China using a Dell brand mobile phone or tablet PC. To succeed, Baidu will have to sign up some bigger cellphone makers in the next few months, with domestic names like ZTE (HKEx: 763; Shenzhen: 000063), Lenovo (HKEx: 992), TCL (Shenzhen 000100) and Huawei looking like the best candidates. If it can do that, and if its mobile OS proves reliable and user friendly, I would give it as high as a 50 percent chance of gaining a significant portion — perhaps up to 15 or 20 percent — of China’s mobile OS market.
Eight months after the news first broke, we’re finally getting a little more color on the potentially devastating lawsuit filed against telecoms equipment and cellphone maker ZTE (HKEx: 763; Shenzhen: 000063) by global rival Ericsson (Stockholm: ERICb), and things don’t look as bad as they did initially. Few details were given when Ericsson filed the suit in Britain back in April, but the action had the potential to halt ZTE’s sales in major European markets. (
The rest of the world may be buzzing about Steve Jobs’ announcement that he will retire as CEO of Apple (Nasdaq: AAPL), but my attention has been captured by a smaller piece of news that Apple may soon enter the low-cost smartphone business. Apple never discusses its future plans, and accordingly this latest piece of news is only gossip so far, citing two knowledgeable sources saying a low-cost version of the iPhone 4 is now being developed to go head-to-head with a segment of the market now dominated by phones running on Google’s (Nasdaq: GOOG) free Android operating system. (
