SHENZHEN, China--While acknowledging ZTE's relatively small presence in developed markets, company executives expressed confidence that the firm's approach to the global wireless infrastructure market will yield positive results in the coming years. That includes ZTE's ability to tap the lucrative North American wireless infrastructure market.
Speaking at the Chinese vendor's corporate headquarters here, ZTE executives said in interviews that the company's strong financial position and its continuing investments in research and development will help it grow in the dynamic infrastructure market, especially compared with rivals Alcatel-Lucent (NASDAQ: ALU) and Nokia Siemens Networks. Indeed, the company counts 15 R&D centers worldwide, including nine in China and three in the United States. The company invests around 10 percent of its revenue into R&D, and 25,000 of its 70,000 employees are focused on the area.
ZTE had a banner year in 2009: The company's net profit jumped 48 percent to $360.4 million, up from $243.2 million in 2008, and its 2009 revenue rose 36 percent to $8.83 billion, from $6.48 billion in 2008. Despite this success, Xu Ming, ZTE's vice president of wireless products, acknowledged the company still does not have a significant presence in North America, Western Europe or Latin America. Still, he remained confident that ZTE could continue its remarkable growth.
Specifically, ZTE will continue to focus on its domestic efforts; the company commands 35 percent of the Chinese infrastructure market. And as China's three main carriers upgrade their networks and expand the reach of 3G services and devices, this will provide ZTE with stable revenue growth, Xu said. Additionally, ZTE will expand into more wireless markets in Latin America this year, he said.
Xu acknowledged ZTE--and its larger Chinese rival Huawei--work to undercut the competition on pricing. However, he said ZTE is also committed to innovation. Ericsson (NASDAQ:ERIC) retains is leading position, he said, by investing in innovation. "The capacity for R&D is the killer factor," he said.
Xu declined to say whether ZTE would consider acquiring a competitor, or even predict how the company will perform financially, noting the dynamic nature of the market. However, he did say that if competitors such as Alcatel-Lucent and Nokia Siemens Networks can't improve their ability to meet the requirements of carriers, there will be changes in the marketplace.
Still, Xu said, ZTE faces significant barriers to entry in developed markets, including the U.S. "It's not a very open market, in the telecommunications industry," he said. In order to overcome these barriers in the U.S. and other markets, he said, ZTE needs to build strong local teams of engineers and understand the specific requirements of each carrier.
So far, ZTE has inked five LTE contracts, Xu said, including a pre-commercial deal with China Mobile for a TD-LTE network, and a software-defined radio deal with Portugal's Sonaecom that includes an upgrade to LTE. ZTE is also working with Commnet Wireless, a subsidiary almost wholly owned by Atlantic Tele-Network, to deploy LTE trial networks in parts of Arizona, New Mexico and Utah.
Interestingly, the company continued to voice its skepticism of the Voice over LTE initiative (VoLTE), which was formed by the GSMA in February to develop a specification for delivering voice calls over LTE networks. Li Jian, ZTE's general manager for CDMA/LTE products, said that the company has developed a dual-mode CDMA-LTE solution that can be used for voice.
"We can deploy to use it for the voice, but we don't think it's a suitable way," she said through an interpreter. "We think it's better for data service. We think there are so many natural differences between the data and voice scenarios. For voice, we need clear, seamless coverage, the real-time reflection and low latency."
Cracking the U.S. LTE market remains a challenge, Xu said. When asked how ZTE could convince U.S. carriers that have already chosen their primary LTE vendors to switch to ZTE in the future, he said he was optimistic, noting that in the past five years, in terms of ZTE's market position, "the world map has totally changed."
Xu said ZTE will try to work its way up from U.S. Tier 3 and Tier 2 operators, and eventually to the Tier 1s. "ZTE didn't get the chance to be the provider," he said. "We hope in the next phase, we can get the chance."
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