ZTE sold 65mn handsets in 2012 and became the 4th largest OEM in the world, according to IDC. 70% of the handset revenue came from smartphone. Looking into 2013, we expect ZTE to ship 40mn smartphone, up 42% YoY. ZTE ships ~40% of its smartphone in domestic market and ~60% in overseas. We expect ZTE to continue focusing on operator channel in 2013 and believe management should be cautious about moving towards open channel, due to high marketing expense. In China, growing volume in TD models would also benefit ZTE, who has a competitive edge against peers in TD. TD models deliver higher margin for ZTE thanks to less competition thus far.
ZTE management acknowledged that there’s still a gap between ZTE
