ZTE hopes US success can offset domestic disappointment

With about two months left before the annual Consumer Electronics Show (CES) begins in Las Vegas in January, Shenzhen-based smartphone maker ZTE Corp is eager to increase recognition of its products in the US.

"We anticipate being the third-largest phone manufacturer in the US market over the next three years," Cheng Lixin, CEO of ZTE USA, a Texas-based subsidiary of ZTE Corp, told reporters in New York on October 27.

Cheng was speaking as ZTE announced partnerships with the New York Knicks, the Houston Rockets and the Golden State Warriors to become the official smartphone sponsor for the three NBA teams for the 2014-15 NBA season.

The sponsorship will increase the Chinese brand's exposure both in arenas and via local media. It follows ZTE's first corporate sponsorship in the US in October 2013, when it signed a deal with the Houston Rockets to become the pro basketball team's official smartphone provider during the 2013-14 NBA season.

The latest move is seen as a reflection of the Chinese phone maker's ambitions in the US. ZTE first entered the US market in 1998, but has only made strong progress there in recent years.

Ambitious move

In the second quarter of 2014, ZTE ranked as the fourth most popular smartphone vendor in the US with a 7.4 percent share of the market as measured by shipments, the latest data from US-based market research firm Strategy Analytics Inc showed. The most popular was Samsung Electronics, followed by Apple Inc and LG Electronics.

The partnerships with the three NBA teams will triple the company's marketing spending in the US in 2014 over the previous year, according to Cheng.

He didn't disclose the exact marketing investment figures, but revealed a reading measuring ZTE's brand awareness in the Houston area, which had shot up to 16 percent from nearly zero prior to the company's deal with the Houston Rockets last year.

Market watchers, however, remain skeptical about how effective the new partnerships will be for the Chinese brand, which has been less of a hit in its home market.

"The investment may not bear plenty of fruit in terms of boosting ZTE's brand recognition in the US market or even the Chinese market, as it comes across as having little relevance to the Chinese phone vendor," Xu Hao, an industry analyst at Beijing-based consultancy Analysys International, told the Global Times on Tuesday.

A salesman at a New York branch of T-Mobile, one of the four major telecom carriers in the US, told the Global Times on October 27 that ZTE is still relatively little-known compared to the likes of Apple and Samsung.

ZTE and its Shenzhen-based rival Huawei Technologies Co have long been embroiled in various trade disputes in the US, which have limited their access to the local telecom equipment market.

The US market has traditionally been a tough nut to crack for Chinese firms, but Cheng pointed to the more than 50 ZTE phone models currently being sold in the US market as evidence of the company's growing clout.

Making a transition

Zeng Xuezhong, chief executive of ZTE Mobile Devices, said in an interview with the Global Times in late October that the company is going through a transition toward becoming more consumer-oriented.

The company has always been mainly a business-to-business equipment and solutions provider, but now it is trying to increase its business-to-consumer operations.

Mobile device-related businesses now account for about 30 percent of the company's total revenue, and it is set to reach 50 percent in the next three to five years, according to Zeng, who is also executive vice president of ZTE Corp.

ZTE posted 191 percent profit growth in the third quarter, driven by a surge of over 40 percent in revenues from smartphones and 4G equipment, according to the company's quarterly results released on October 23.

However, Zeng said that the domestic market presents a tougher challenge for the company, partly because of the strength of the local competition.

Local brands rising fast

Samsung, the top smartphone vendor globally in terms of shipments, reported on October 30 that its July-to-September quarterly net profits nearly halved to 4.2 trillion Korean won ($4 billion) from 8.2 trillion won in the same period last year.

Analysts said this was partly because its mobile business is being besieged by low-cost Chinese rivals.

Beijing Xiaomi Technology Co, which only entered the smartphone market three years ago, has moved up the rankings particularly fast.

The company ranked third in the global smartphone market in the third quarter with a 5.3 percent share, up from 2.1 percent the year before, according to figures released on October 30 by US-based research firm IDC.

By contrast, Samsung saw its global market share fall by 8.7 points to 23.8 percent during the quarter, while Apple's share also shrank to 12 percent from 12.9 percent.

The rise of Xiaomi, which has yet to arrive in the US market, has mainly been driven by its strong performance in the Chinese mainland and its expansion into the Taiwan market as well as Singapore and India, according to Xu at Analysys International. However, making inroads in the US will be a tough task for the company, Xu said.

Meanwhile, at Lenovo Group, which announced on October 30 the completion of its acquisition of Motorola's mobile business, there are high hopes that the combination of the two brands offers a strong basis for moving into the US market.

ZTE believes the progress it has already made in the US gives it an edge over other Chinese firms, ZTE's Zeng said.

"The mobile device business is like a marathon," he noted. "Only those who are able to run to the very end will succeed."