Telecoms firm ZTE (HKEx: 763; Shenzhen: 000063) latest earnings show a sharp divergence in its top and bottom line growth, the result of a big new gamble on its small but fast-growing smartlphone business that it hopes will offset sluggish growth at its networking equipment unit. The company says its revenue grew around 30 percent in the second quarter, a strong improvement over the first quarter, but that its latest quarterly profit actually fell more than 20 percent, a sharp about-face from 16 percent growth in the previous quarter. (company announcement) It cites an aggressive gamble on its smartphone business behind the profit decline, as it sells its smartphones, mostly based on Google’s (Nasdaq: GOOG) Android operating system, at ultra-low prices in a bid to become one of the world’s top 5 vendors in the next 2 years. ZTE said its smartphone unit sales rose 400 percent to 5 million in the first six months of 
the year, even as gross margins for all handsets fell sharply on its aggressive smartphone pricing. A company source previously told me ZTE hopes to sell $600 million worth of smartphones in the US this year alone (previous post), and based on reports I’ve seen saying many of those phones could retail for as little as $100, ZTE will need to sell more than 6 million of those phones in the US alone to meet that target. Such plays for rapid market share gains are a risky bet, with Taiwan’s Acer (Taipei: 2353) serving as a classic case of a company whose willingness to gain share at the expense of profits nearly drove it to bankruptcy a decade ago and are threatening to undermine it again. Still, I would give this ZTE initiative a 50-50 chance of success, provided it can really post the rapid market share gains it expects in the next 1-2 years and then use its new clout to slow raise prices to more sustainable levels. In this case execution will be key, which could work to ZTE’s disadvantage as this such strong execution isn’t typically a strong point for many Chinese firms.
Bottom line: ZTE’s decision to sacrifice short-term profits to rapidly expand its smartphone business is a risky but potentially profitable bet, with a 50-50 chance of success.
在中兴通讯最新财报上，公司营收与利润差异巨大，而原因主要在于其押注规模较小但增长快速的智能手机业务，公司希望利用这块业务来弥补其网络设备业务的缓慢增长。中兴通讯发布业绩快报称，第二季度公司营收增长大约30%，较一季度有很大改善，但是二季度利润下降超20%，而其一季度为16%的正增幅。公司解释称智能手机业务是利润下降原因，因公司为能够未来两年内位列全球五大手机厂商，其智能手机售价非常低。公司还表示，今年上半年其智能手机销量上升400%，达到500万部。一名公司消息人士此前曾向我透露，中兴通讯希望今年在美销售总额达6亿美元的智能手机。而据我所看到的报导，手机售价可能低至100美元，如果按此计算，中兴通讯仅在美国就需要卖出600多万部手机才能实现目标。这种为快速获得市场份额的举动可谓冒险，台湾宏基(2353.TW)就是一个经典案例。该公司通过牺牲利润来换取市场份额，几乎让它在十年前濒临破产。不过，我觉得中兴的这种策略依然有50%的成功机率，前提是中兴真的能在未来1-2年快速获得其预期的市场份额，然後利用其新的影响力逐渐将价格提高至更可持续的水平。在该案例中，执行将是关键，但可能不是中兴的强项，因这种执行力通常不是很多中国企业的强项。
一句话：中兴牺牲短期获利来换取智能手机业务快速发展的决定有风险，但可能也是有利可图的，其成功机率为50%
Related postings 相关文章:
◙ ZTE’s US Back Door, Huawei’s Foreign Hire 中兴通讯的美国後门 华为的海外招贤
The relentless drive by telecoms equipment giants Huawei and ZTE (HKEx: 763; Shenzhen: 000063) to break into the US continues, with the pair taking decidedly different approaches in their quest to be first to make big bucks in the world’s most lucrative telecoms market. First ZTE. While everyone has focused on ZTE’s frustrations in the US selling networking equipment, most notably its failure to win a big contract earlier this year from Sprint (NYSE: S) (
After saying on several occasions earlier this year that 4G licenses won’t be issued for at least the next 2-3 years, China’s telecoms regulator is subtly shifting its message, no doubt under heavy pressure from China Mobile (HKEx: 941; NYSE: CHL), which would like to see such licenses issued sooner rather than later. Chinese media are now quoting an official from the regulator at an event this week saying that 4G licenses will be awarded when the technology is “mature.” (
