ZTE US boss warns off copycat entrants into smartphone market

After decades of selling switching equipment, Chinese networking and telecommunications vendor ZTE believes it is ready to stake its claim in the consumer handset market, but its US CEO says it is not a place for the ill prepared.
Written by Chris Duckett, Contributor

As a Chinese company operating in Western markets, in recent years, ZTE has faced a number of investigations from authorities in the US, Europe, and India — although, last week, the European Union and China reached a deal to satisfy the EU's concerns about Chinese government subsidies to Huawei and ZTE.

ZTE currently sits as the second-most prolific filer of patents worldwide, behind Panasonic, with respecting intellectual property laws being important in a market such as the US, chairman and CEO of ZTE US Lixin Cheng said.

"The product [has to be] innovative by itself, but also, if you utilise others' technology, you better pay the licence so that you have a better position to defend yourself when other guys come after you," he said.

"If other companies want to come here as a copycat, that would be a disaster, and they would be sued out of the business very quickly."

Cheng said that companies need to be prepared and have a long-term strategy when entering a mature market, and could not rely on jumping into the US and figuring out the details later.

"That's a mentality more of China, and not really here," he said.

"When you come into the market, you really have to do thorough studies and understand the environment and what is a requirement, so that when you come into the market, you have to do things right at the beginning.

"In terms of patents, you cannot afford this kind of mistake — and I see so many mistakes from others."

The Chinese telecommunications manufacturer is stepping out from behind its white-labelled mobile phones, and will, from this year, place its brand on all-new devices launched in the United States.

While the company lays claim to holding the fourth rung on the smartphone market share ladder, it wants to move up to third in the next three years. Standing in its way is a lack of recognition from potential customers, despite the company having a physical presence in the US since 1995.

In an attempt to rectify the situation, ZTE announced on Monday that it is duplicating its sponsorship arrangements with the Houston Rockets basketball team with two more NBA teams: The New York Knicks and the Golden State Warriors.

"Over the last NBA season, ZTE's brand awareness among all US smartphone users increased from 1 percent to 16 percent," Cheng said. "Our game plan is working."

Cheng told ZDNet that the company had conducted internal reviews, and decided to increase its "addressable market" by going after the consumer handset market.

"We are a solid number four now, [and want to] be a solid number three in three years," he said. "That is our goal, and I think with our track record during the last few years in the United States, we are very confident that we will be achieving that goal."

In financial statements (PDF) filed with the Hong Kong Stock Exchange last week, the company posted operating revenue of 21.1 billion yuan ($3.5 billion) for the company's third quarter, up 23.75 percent year on year. This took total revenue for the current financial year to 59 billion yuan, an increase of 7.78 percent from this time last year.

Net profit for the third quarter stood at 703 million yuan, a jump of 191 percent year on year, with profit for the year to date rising by 232 percent to 1.83 billion yuan.

The company highlighted a 40 percent jump in handset revenue, thanks to growth in the US, China, and Japan, and a 12.8 percent increase in revenue from its networking equipment arm.

Disclosure: Chris Duckett travelled as a guest of ZTE.

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