ZTE smartphone push pays off at expense of profits

The Chinese handset maker sees revenue jump but profit growth fall as it shifts its focus from feature phones to own-brand smartphones and continues a push to expand sales in Europe

Chinese device maker ZTE has seen a 36-percent jump in international revenue as it continues a push into worldwide markets, including the UK.

ZTE Skate phone

Chinese firm ZTE has seen a 36-percent jump in international revenue as it launched the ZTE Skate, redubbed the Monte Carlo from Orange, in the UK. Photo credit: CNET UK

The Shenzen-based company reported its half-year financial figures — ending on 30 June — on Wednesday. Global sales grew nearly 22 percent year-on-year to 20.81bn Chinese yuan (£2bn) and accounted for 55 percent of its total operating revenue of 37.4bn yuan. However, ZTE noted that its net profits fell as it restructured its smartphone strategy to establish its self-branded handsets in the UK and European consumer markets.

At Mobile World Congress in February, ZTE began a campaign to woo more international partners for its portfolio of 'smart terminals', or mobile internet-enabled devices. The announcement marked a shift in strategy away from focusing on feature phones to higher-end smartphones, such as its own-brand Blade and Skate Android-based handsets and the Light tablet PC. These efforts are starting to pay off, according the company.

"ZTE adopted an aggressive approach as part of a critical stage of gaining access to the key smart terminal market. The company shipped 60 million terminal products, including 35 million smartphones in the first six months of the year," it said in a statement.

Smartphone gains

In its earnings statement, ZTE noted that it saw an increase of more than 30 percent in smartphone sales in Europe, where it has 65 operator partners. In the UK, it has sold more than 2.5 million Blade handsets, known as the San Francisco in that market.

Carolina Milanesi, mobile analyst at Gartner, attributed part of its gains in the smartphone market and its success with the Blade to growing demands for cheaper devices. "ZTE's popularity in western Europe has been growing as the appetite for mid-range smartphones increased," Milanesi told ZDNet UK.

We aim to launch over 30 smart terminals during the remainder of 2011, including mid- to high-end smartphones.

– He Shiyou, ZTE

"The Blade is probably the most successful product ZTE has ever had in the European market and one of the best-selling phones in the mid-range. From a brand [perspective], we have certainly seen a move from original design manufacturer (ODM) to more own-branded devices across all regions, including Europe," she added.

In July 2010, ZTE introduced its first own-branded smartphone in the UK, the Android-based Racer. In July this year, it struck a deal with Brightpoint, a supply chain company for mobile carriers, to boost its smartphone push in the country.

"We are working closely with Brightpoint to launch smartphones into the UK market this year. We expect ZTE to become a household name synonymous with high-quality smartphones and tablets," said Wu Sa, the UK director of mobile device operations for the company, in a statement at the time.

Own-brand phones

ZTE said in its earnings statement that it saw a fall in net profits of around 12.4 percent to 768.5m yuan. This was partially the result of the shift to selling own-branded smartphones, in a bid to expand its market share and challenge competitors such as Huawei.

"We are pleased with the success of the Blade worldwide and of our other handsets in other major markets. We aim to launch over 30 smart terminals during the remainder of 2011, including mid- to high-end smartphones such as the ZTE Skate, a smartphone harnessing Windows Phone 7," He Shiyou, executive vice president of ZTE, said in its statement.

On Wednesday, Orange started selling the ZTE Skate, branded as the Monte Carlo from Orange, one month before it was expected to launch. The device comes with a 4.3-inch capacitive touchscreen display, five-megapixel camera, 3G and Wi-Fi connectivity and the Android 2.3 operating system, better known as Gingerbread. The handset is available for free on qualifying contracts of £20 per month or more, or is available on pay-as-you-go for £150.

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