* ZTE says to double smartphone, tablet sales this year
* Also says to launch two 'phablets' by year-end
* Expects to reverse decline in handset margins
* Huawei 2011 results expected later on Monday
* ZTE shares up 2 pct in Hong Kong
By Lee Chyen Yee
HONG KONG, April 23 China's ZTE Corp
, which launched its first basic mobile phone in
Africa little more than 10 years ago, said it could be shipping
100 million smartphones a year by 2015, as it looks up-market to
reverse a decline in its handset margins.
ZTE, which sold 15 million smartphones last year and could
sell up to 50 million this year, also said it would launch its
first two phone-cum-tablet 'phablets' this year, hoping to
branch out from China's fiercely competitive mobile mass market.
ZTE, the world's No.4 handset producer and fifth-ranked
telecoms gear maker, has fared better than crosstown rival
Huawei Technologies Co Ltd in mobile sales, but lags
its local peer in its mainstay telecom equipment business.
Both have diversified into consumer gadgets, selling
dongles, smartphones and tablets to drive revenue growth as the
telecom equipment sector stagnates, and both have met stubborn
resistance in the United States where cyber-security issues have
kept the telecom equipment market largely off-limits.
ZTE, valued at $9.3 billion, has expanded its footprint in
emerging markets and Europe, though it said last month it was
scaling back operations in Iran due to sanctions over Tehran's
nuclear development programme.
A total of 472 million smartphones were sold around the
world last year, according to research firm Gartner, and Credit
Suisse has forecast sales will top 1 billion by 2014.
ZTE plans to focus on its Blade and Skate handphone models,
upgrading them rather than unveiling new models, and expects to
also double its tablet PC sales this year, executive director He
Shiyou said on Monday.
"As handsets contribute more to overall revenue, it will
affect our profit margins. In 2012, our aim is to increase
handset margins," He told reporters on the sidelines of the
company's annual analyst conference in Shenzhen, where the
company is based.
The gross profit margin at ZTE's consumer gadgets division,
which comprises mainly handset sales, was 15.18 percent in 2011,
down 3.81 percentage points from a year earlier.
"We spoke to components suppliers recently and it seems that
handset makers such as ZTE won't be able to reduce their raw
material costs," said Nomura Securities analyst Huang Leping.
"For ZTE to improve its profit margins, they will have to raise
their average selling prices and to do so will largely depend on
their sales in the North American and Japanese markets."
Having cut its teeth making cheap-end smartphones for other
operators to slap their brand names on, ZTE, founded in 1985 as
Zhongxingxin Telecommunication Equipment Corp, is moving into
the high-end market itself to take on Apple's iPhone
and Samsung Electronics' Galaxy.
"We want to come up with the next generation of a Galaxy
Note-type product - a combo product of handsets and tablets," Lv
Qianhao, head of handset strategy at ZTE, told reporters.
But there are significant roadblocks, not least that it's a
Chinese firm and the market it covets is brutal and expensive.
"The (higher) value part of the market is driven by brand
and that's the part a company like ZTE needs to focus on," said
Adam Leach, a London-based analyst at Ovum, noting that margins
are much higher at the top-end of the market.
"People who buy Apple and Samsung have greater brand
awareness so they might not take chances with a little-known
brand, especially one from China," said Teck-Zhung Wong, a
Beijing-based analyst for research firm IDC.
"No one really knows ZTE outside China."
As a relative newcomer to smartphones, ZTE lacks the brand
cachet that bigger global rivals enjoy.
"It's difficult to get that top slot in consumers' minds,"
said Ovum's Leach, estimating it takes 3-5 years of sustained
spending on marketing, as well as investment in product design,
to achieve strong branding. "ZTE is in a good position, but
there's no guarantee of success," he said.
But there are some promising signs.
Gao Jinwen is a self-confessed smartphone addict and, after
years of using foreign-branded models, the 28-year-old
post-graduate student has ditched his sputtering Motorola
and switched to a ZTE Blade that he bought for just 800
"It's much better than I expected," he said. "I reckon this
could overturn the old stereotype of China-made smartphones."
Launched two years ago, the Blade has sold more than 8
million as ZTE pushed into the smartphone mass-market.
As a next great leap, ZTE caused a stir at this year's
Mobile World Congress in Barcelona with the launch of its Era
smartphone, boasting technical specifications matching those of
"With the Era ... and quad-core (processor) tablets, ZTE has
very clearly decided to step out and move to high-spec,
high-performance, high-profile phones," said IDC's Wong.
In February, ZTE launched its first tablet in the United
States with partner Sprint Nextel. The Android-based Optik
tablet, which has a unique rubberized grip to stop it slipping,
can be bought for $100 with a contract and $350 without, making
it far cheaper than the latest iPad that costs at least $499.
ZTE is expected to report its January-March earnings on
Wednesday, with three analysts on average forecasting a 10
percent increase in net profit to 183 million yuan ($29 million)
from 166 million yuan a year earlier.
"Our channel checks indicate supply chain optimisation and
robust growth in U.S. handset shipments, with higher margins, to
positively impact handset margins from Q1 2012," Jefferies
analyst Cynthia Meng said in a report dated April 19.
Unlisted Huawei, founded by CEO Ren Zhengfei in 1987, is due
to release its 2011 earnings results later on Monday.
ZTE's Hong Kong-listed shares pared gains of more than 2
percent on Monday to trade flat by 0715 GMT, while the main Hang
Seng Index was down 1.1 percent. ZTE shares touched a
7-month low last Thursday having lost more than a fifth of their
value in 5 weeks, but the stock has now gained almost 6 percent
in three straight sessions.