When it comes to smartphones, what company do you look for if you do not want to pay the cost required for one made by Apple or Samsung? There is one company that is becoming a player in the U.S. market, but it is not a household name. This company is ZTE.
ZTE is quietly becoming a force in the U.S. by selling good enough phones at low prices—smaller prepaid smartphones for $30 and basic phones with QWERTY keyboards. The Chinese company’s products are among the cheap phones of choice for all of the big U.S. carriers except Verizon. ZTE claimed about 8 percent of America’s smartphone market in the second quarter of this year, says researcher IDC, up from 4.2 percent in the first quarter of 2014. That ranks the company fourth among smartphone makers overall, behind Apple, Samsung, and LG. “We came from nowhere, and now we are a solid force,” says Lixin Cheng, head of ZTE’s U.S. operations.
ZTE was best known in the U.S. for making network routers and switches for mobile operators. This changed in 2012 when the U.S. House Intelligence Committee issued a report warning that China’s intelligence services could potentially use ZTE’s equipment, and those of rival Huawei Technologies, for spying. While Huawei responded to this issue by moving out of the U.S., ZTE began concentrating on phones since U.S. officials indicated that phones were not a concern.
After starting modestly with small carriers such as MetroPCS, ZTE landed some of its prepaid phones in bigger carriers’ stores and expanded from there. Besides phone stores, its products are on sale at Wal-Mart, Target, and Best Buy. While the brand is not famous, it’s doing much better in the U.S. than Chinese powerhouses such as Lenovo, which has seen its share of the market drop from 5.3 percent to 3.1 percent since the first quarter of 2014. Chinese leader Xiaomi, which is focused on emerging markets such as India and Brazil, has avoided the U.S. to date.
ZTE’s next challenge in the U.S. will be translating higher sales into higher revenue. While its U.S. market share has nearly doubled since early 2014, revenue is up 4 percent, from $354 million to $369 million. That means ZTE has gained share only by making its phones cheaper, and it doesn’t have its home market as a safety net. The company is ranked eighth in China with just 3 percent of the market, down from 10 percent in 2012, according to researcher Canalys. The recent stock market drop has extracted 36 percent from ZTE’s Hong Kong-listed share price since its June peak, leaving its market value at $10.3 billion.
In July, ZTE introduced the Axon Pro, a higher-end phone selling for $450 on its website, Amazon.com, and EBay. It’s unclear whether customers will respond to the sleeker model, but Peter Ruffo, senior director for government relations at ZTE’s U.S. arm, says the campaign to change the company’s image will pay off eventually. “ZTE is taking the long view, and we are very patient.”
For more information, see Bloomberg.
(Photo: Apple iPhone ZTE Grand and Huawei AscendMate, Flickr)