China's ZTE not worried about Apple, patent litigation

HONG KONG Tue Aug 28, 2012 6:49am EDT

A ZTE company logo is seen at the company's exhibition pavilion during the CommunicAsia information and communications technology trade show in Singapore June 19, 2012. REUTERS/Tim Chong

A ZTE company logo is seen at the company's exhibition pavilion during the CommunicAsia information and communications technology trade show in Singapore June 19, 2012.

Credit: Reuters/Tim Chong

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HONG KONG (Reuters) - China's ZTE Corp, the world's fourth-biggest mobile phone vendor, is unfazed by the possibility of being sued by Apple Inc over patent violations, and is looking to boost its own patents and find unique designs and features for its range of handsets.

In the wake of Apple's patent victory over South Korea's Samsung Electronics in the United States last week, ZTE and other phone makers that use Google's Android operating system were cited as being at risk if Apple opted to extend the lawsuit beyond Samsung.

"We're not worried about it. As a listed company we're very careful when it comes to our phone designs to make sure we don't violate any patents," Luo Zhongsheng, vice president of ZTE's handset division, told Reuters on Tuesday.

ZTE itself last year overtook Japan's Panasonic Corp as the world's top patent filer, according to World Intellectual Proprety Organisation data.

"We've also been working hard on the patents front as this will help protect us (from lawsuits)," Luo said on the sidelines of an event in Hong Kong to launch its Grand X model - its first 4G LTE (long term evolution) phone - with China Mobile.

The Shenzhen-based firm has been making its phones slimmer and sleeker, while packing in more power and features.

"We've been trying to improve the exterior design from this year. A few years ago, some people may think ZTE phones are ugly, but now, the feel is different," Luo said.

Pointing to a ZTE phone, Luo said they could place the camera, headset jack and charging port at different places on the phone to differentiate themselves from Apple's iPhone. "If we can state at least five differences between our phones and the iPhone, then we're not violating any patents," he said.

DESIGN, MARGINS

In terms of software, ZTE executives said they hoped the Mifavor user interface would help the company set its phones apart from rival brands. ZTE, which ranks behind Samsung, Nokia Oyj and Apple in global mobile sales, has sought to move up the ladder by launching higher-end smartphones to boost margins amid stiff price competition.

ZTE's first-half gross profit margin was 16.6 percent for its consumer devices, down more than 3 percentage points from a year earlier.

On Tuesday, executives said ZTE aimed to more than double smartphone and tablet shipments this year to tap booming global demand. ZTE, which is also the world's fifth-ranked telecoms gear maker, aims to ship 40 million smartphones this year, up from 15 million in 2011, and expects to sell about 1 million tablet computers, more than double last year's figure.

More than half of its smartphones would be sold in China.

"Our smartphones are selling quite well in certain mature markets such as Japan, the U.S., Europe, Australia and in certain emerging countries," Senior Vice President Zhang Renjun told Reuters.

ZTE plans to launch a Windows 8 smartphone in the first quarter of next year, but has not yet decided in which market.

HIGHER ESTIMATE

The company's target of 40 million smartphones is higher than an estimate of 30 million it gave to analysts just last week after it announced its earnings - when it posted an 85 percent drop in quarterly profit.

ZTE, which launched its first basic mobile phone in Africa little more than a decade ago, said in April it could be shipping 100 million smartphones a year by 2015. With its Blade, Skate, Era and Windows-based Tania phones, ZTE has diversified into consumer gadgets, selling dongles, smartphones and tablets.

In February, it launched its first tablet in the United States with partner Sprint Nextel. The Android-based Optik tablet, with its unique rubberized anti-slip grip, sells for $100 with a contract and $350 without, making it far cheaper than the latest iPad, which costs at least $499.

ZTE shares fell 1 percent in Hong Kong on Tuesday, lagging a flat overall market. The stock has slumped 55 percent this year as its margins have been pinched by sluggish equipment sales and fierce competition in handsets.

The company is also being investigated by the FBI over allegations it illegally sold U.S. computer products to Iran. Separately, the European Union is investigating whether ZTE benefited unfairly from Chinese government subsidies.

(Reporting By Lee Chyen Yee; Writing by Anne Marie Roantree; Editing by Richard Pullin and Ian Geoghegan)

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