Smartphone firm rockets into the US

US market

After more than a decade's development in the US, ZTE has gradually gained in-depth knowledge of the market. And since no other Chinese telecom companies set an example before, ZTE has to crack the market on its own.

The US has a population of 316 million and about 93 percent of the people are mobile service subscribers. Eight out of every 10 Americans own a smartphone, compared with the world's average smartphone penetration rate of 59 percent.

"Although you see many telecom carriers in the United States, the top 4 carriers — Verizon, AT&T, Sprint and T-Mobile — have almost 90 percent of the wireless market," said Shen Junjie, an official with ZTE USA.

Three-fourths of US mobile subscribers choose the postpaid model, which means that they sign contracts with carriers first and pay their bills later in accordance with their usage of the mobile services, Shen explained.

ZTE's US revenue mainly comes from its mobile phone sales, with its telecom equipment business contributing less than 10 percent of the company's revenue in the US.

ZTE, founded as a telecom gear manufacturer in the southern city of Shenzhen in Guangdong province in the 1980s, failed to get a major part of its revenue from its traditional business sector — but has flourished with its new focus area — smartphones.

"Because of political reasons, ZTE, as well as other Chinese telecom gear makers, are prohibited from entering the mainstream US telecom infrastructure market," Cheng said.

He recalled that in 2010, when ZTE took part in the bidding for a Long Term Evolution (LTE) project for Sprint, ZTE demonstrated a competitive edge over rivals and was expected to win at least one-third of the contract.

However, the US government intervened in the deal and asked Sprint to block ZTE. The government's move was based on a vague reason — "national security concerns". ZTE denied all the allegations.

In order to survive in the US market, ZTE had to seek new ways out. It found that the terminal business, especially the smartphone business, showed plenty of promise.

"Selling mobile phones avoids sensitive political issues," Cheng added.

The strategy shift has started to bear fruit. ZTE's sales in the United States, a mere $200 million in 2010, have almost doubled in 2011, and last year, revenue surged to $1 billion.

However, it is not an easy task to secure healthy and long-term success in the US. In the mobile phone industry, many famous companies rose, had dazzling performances and then tumbled. Those cases even included one-time local giants, such as Motorola Inc.

Taiwan-based HTC Corp used to be of the top smartphone vendors in the US. But the company has seen a shocking slump in the past two years. HTC's market share dropped to less than 5 percent in the US this year, from about 25 percent in 2011.

South Korean brand LG also stumbled in the US market because of wrong strategies, said Larry Liu, chief operating officer of ZTE USA.

"When most companies developed Android-based smartphones, LG made a bet on Windows Phone devices. Samsung and Apple widened the gap with LG in recent years," Liu added.

Cheng described ZTE as a leader in the challengers' group in the US smartphone market. Dominant players like Samsung and Apple still hold sufficient barriers to protect their market shares and profits.

Since ZTE entered the US market in 1998, the company has already built up partnerships with almost all of the US telecom operators, and that's the major reason, Cheng said, contributing to ZTE's current success.

"We firmly invested resources to support our carrier partners," Cheng said. He added that more than 95 percent of ZTE mobile phones are sold through telecom operators' channels in the US.