China’s ZTE Corp, which launched its first basic mobile phone in Africa little more than 10 years ago, said it could be shipping 100 million smart phones a year by 2015, as it looks up-market to reverse a decline in its handset margins.
ZTE, which sold 15 million smart phones last year and could sell up to 50 million this year, also said it would launch its first two phone-cum-tablet ‘phablets’ this year, hoping to branch out from China’s fiercely competitive mobile mass market.
ZTE, the world’s No.4 handset producer and fifth-ranked telecoms gear maker, has fared better than cross-town rival Huawei Technologies Co Ltd in mobile sales, but lags its local peer in its mainstay telecom equipment business.
Both have diversified into consumer gadgets, selling dongles, smart phones and tablets to drive revenue growth as the telecom equipment sector stagnates, and both have met stubborn resistance in the United States where cyber-security issues have kept the telecom equipment market largely off-limits.
ZTE, valued at $9.3 billion, has expanded its footprint in emerging markets and Europe, though it said last month it was scaling back operations in Iran due to sanctions over Tehran’s nuclear development program.
A total of 472 million smart phones were sold around the world last year, according to research firm Gartner, and Credit Suisse has forecast sales will top 1 billion by 2014.
Executive director He Shiyou said that ZTE plans to focus on its Blade and Skate hand phone models, upgrading them rather than unveiling new models, and expects to also double its tablet PC sales this year,
“As handsets contribute more to overall revenue, it will affect our profit margins. In 2012, our aim is to increase handset margins,” Shiyou said on the sidelines of the company’s annual analyst conference in Shenzhen, where the company is based.
The gross profit margin at ZTE’s consumer gadgets division, which comprises mainly handset sales, was 15.18 % in 2011, down 3.81 %age points from a year earlier, as Reuters stated.
Having cut its teeth making cheap-end smart phones for other operators to slap their brand names on, ZTE, founded in 1985 as Zhongxingxin Telecommunication Equipment Corp, is moving into the high-end market itself to take on Apple’s iPhone and Samsung Electronics’ Galaxy.
“We want to come up with the next generation of a Galaxy Note-type product – a combo product of handsets and tablets,” Lv Qianhao, head of handset strategy at ZTE said.
But there are significant roadblocks, not least that it’s a Chinese firm and the market it covets is brutal and expensive.
As a relative newcomer to smart phones, ZTE lacks the brand cachet that bigger global rivals enjoy.
Launched two years ago, the Blade has sold more than 8 million as ZTE pushed into the Smart phone mass-market.
As a next great leap, ZTE caused a stir at this year’s Mobile World Congress in Barcelona with the launch of its Era Smartphone, boasting technical specifications matching those of international rivals.
“With the Era and quad-core processor tablets, ZTE has very clearly decided to step out and move to high-spec, high-performance, high-profile phones,” said IDC’s Wong.
In February, ZTE launched its first tablet in the United States with partner Sprint Nextel. The Android-based Optik tablet, which has a unique rubberized grip to stop it slipping, can be bought for $100 with a contract and $350 without, making it far cheaper than the latest iPad that costs at least $499.
ZTE is expected to report its January-March earnings on Wednesday, with three analysts on average forecasting a 10 % increase in net profit to 183 million yuan from 166 million yuan a year earlier.