ZTE Shifts Focus to Operators for Increasing Sales

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 and tier one vendors such as Apple and Samsung in terms of profitability. ZTE targets to become 3rd largest player by 2015. ZTE introduced Grand Memo in MWC 2013, a new flagship model. The phone is equipped with 5.7-inch display, Snapdragon 1.5GHz quad-core processor, 13 megapixel camera, 3,200 mAh battery but only 8.5mm body. ZTE also claims that this is the world’s first smartphone featuring Dolby Digital Plus, which can be found in many other products such as TVs but this is the first time it is being used in a phone. The Grand Memo will first launch in China, and with the opportunity to launch it in the US and Europe.

ZTE launched ZTE Open, a Firefox smartphone. ZTE Open has a 3.5-inch display, multi-touch, a 1GHz processor, 512 MB of storage, 256MB of RAM, a 3.2MP camera, and a 1,200 mAh battery. The phone is positioned as an entry level smartphone and serves primarily emerging market. The phone will be introduced in Europe and Latin America.