ZTE chairman confident in future growth
ZTE bucked the trend of network vendors having a difficult Q1, with revenue jumping 29% and its net profit up 24%.
By contrast, both Ericsson and Alcatel-Lucent saw revenue declines of 4% to 12% in the period, and Huawei's profit fell sharply in 2011.
ZTE's overseas operating revenue, which increased 24% last year, now accounts for 54% of its overall operating revenue.
ZTE chairman Hou Weigui told TelecomsEMEA.net that the industry has enjoyed tremendous revenue growth over the past decade, but profit margins are dropping as competition intensifies and companies look to eke out market share gains.
"Overall global revenue growth is forecast at 3%, so we have to focus on growth markets and diversify our offering. In emerging markets - particularly China - we still foresee growth in revenue and profits. That's why we are still very confident of the prospect of the telecom industry overall.
"For example, we see companies like Apple and Google performing very well, with their market capitalization at record highs. They are 'kind of stealing' revenue from the traditional service providers, which means there is still a market there, it's just how you get there."
On the handset side, Hou points out that scale is essential and the company is getting there. Last year it became the fourth largest producer of mobile terminals in the world, according to Gartner. "It's true that our profit margins are not very high. And although the bulk of our shipments are smartphones, most are focused on the low-end and mid-range markets. We are trying to learn from our competitors."
Hou notes that Apple has only been making mobile phones for five years, while ZTE has been at it for 14. "So we believe it's not just the technology. We are trying to narrow the gap by improving the user experience and finally improving our profit margins."
The vendor’s terminal revenue rose 27% last year and its domestic market share increased from 5% to 11%. Nokia was the big loser in China, with its share plunging from 26% to 15%. ZTE's six-percentage-point increase was second to Huawei, which added seven points to its share, finishing the year with a 13% market share. Despite the strong gains of the domestic makers, Samsung managed to boost its share from 18% to 22% last year.
Hou also noted that demand for fixed and mobile broadband continue to expand rapidly. So over the next couple of years, ZTE will focus on the expanding government and enterprise segments, which are being driven by government investments in things like smart and intelligent cities.
In terms of making a major breakthrough in Europe and North America, where it has been making a push for the past couple of years, Hou claims all the major tier-1 European operators are using its network systems and terminals.
"However, those products are primarily sold in their subsidiary markets in Asia, Africa and Eastern Europe. To enter the mainstream domestic markets in Western Europe we still have a long way to go because sales volumes aren't high compared to the other major competitors," he admitted.
In the US, ZTE mainly sells mobile terminals because of security concerns by the government and businesses about its networking gear, Hou says. "We don't think that's going to change very soon. However, we are very optimistic about our prospects in the longer term because our terminals are selling very well there."
With the economic outlook in the both markets fairly weak, particularly in Europe, Hou says ZTE is looking to gain steady growth to maintain "a balance of cost and profit margins and build a solid foundation" for the future.