China's ZTE appoints U.S. head Cheng as new mobile business chief

HONG KONG (Reuters) - China’s ZTE Corp has picked the head of its U.S. business to lead its mobile phone business globally, the latest management appointment after it settled a U.S. government probe and agreed to pay a record penalty of nearly $900 million.

ZTE's logo on its R&D center is seen in Beijing, China, in this March 22, 2016 file picture.REUTERS/Kim Kyung-Hoon/Files

ZTE appointed Cheng Lixin, its North America mobile devices business unit president and CEO of ZTE USA since 2010, as president of ZTE mobile devices business unit, the company told Reuters.

The move comes after a string of senior management changes at the Chinese telecom equipment and handset maker since March, when it agreed to plead guilty and pay the penalty in a U.S. sanctions case, ending a long-standing scandal that had threatened to cut off its supply chain.

Previous mobile chief Yin Yimin was named chairman last month.

ZTE, whose market share in the fiercely competitive Chinese smartphone market has dwindled over the years owing to domestic rivals like Huawei and Xiaomi, stands out as the only Chinese vendor with a significant U.S. presence, being the fourth largest smartphone vendor in that country.

Despite a looming trade ban through the past year, ZTE’s share in the U.S. handsets market grew to 11.6 percent in the fourth quarter of 2016 from 8.9 percent a year ago, according to Counterpoint Research.

Jefferies analyst Edison Lee said ZTE has managed to establish itself as a mid-tier brand in markets like the United States and Europe due to its partnerships with local carriers, which control sales in those markets.

“The U.S. is the strongest market for ZTE on handset, so it makes sense to make [Cheng] to lead the business globally,” Lee said.

ZTE on Monday reported a 27.8 percent profit rise in the first quarter on a 17.8 percent revenue increase.

Lee said that showed ZTE is able to secure orders despite the scandal. He said he expects ZTE to continue to focus on the more profitable handsets markets of Europe and the U.S., instead of China, where it is “too expensive and too late” for ZTE to fight.

But he added he expects no margin improvements at ZTE’s handset business in the next three years amid growing competition and component costs.

Reporting by Sijia Jiang; Editing by Muralikumar Anantharaman