Bloomberg News

ZTE Eyes Surpassing Alcatel on Emerging Market Phone Demand

March 02, 2012

Visitors inspect the latest ZTE Corp. smartphones on display at the company's booth at the Mobile World Congress in Barcelona, Spain. Photographer: Denis Doyle/Bloomberg

Visitors inspect the latest ZTE Corp. smartphones on display at the company's booth at the Mobile World Congress in Barcelona, Spain. Photographer: Denis Doyle/Bloomberg

ZTE Corp. (000063), China’s second-biggest maker of phone equipment, wants to become one of the world’s top three makers of network infrastructure in three years, said Xu Ming, the company’s vice president of wireless products.

ZTE plans to use its footprint in emerging economies in Africa and Asia to win contracts for faster fourth-generation wireless networks, Xu said in an interview at the Mobile World Congress in Barcelona this week.

The Chinese company ranked sixth among telecommunications infrastructure makers in 2010 with a 7.2 percent market share, according to the most recent Gartner Inc. (IT) estimates. To win the third spot behind Ericsson AB and Huawei Technologies Co., Shenzhen-based ZTE will have to overtake Alcatel-Lucent (ALU), with a 13.3 percent share, Cisco Systems Inc. (CSCO) with 9.4 percent and Nokia Siemens Networks with 8.4 percent based on the estimates.

“We are growing stronger and stronger in research and development and in the market, and we are confident to become the No. 3,” Xu said. “In the following two to three years we can, in every region, be a top three provider for all infrastructure. Our chances are climbing with 4G.”

Pricing Pressure

ZTE rose 2.7 percent to HK$23.10 in Hong Kong trading today. The stock has declined 5.1 percent this year, compared with the 50 percent gain in the stock of Alcatel-Lucent through yesterday.

Alcatel-Lucent slipped 1.3 percent to 1.76 euros at 9:50 a.m. in Paris. Pierre Ferragu, a Sanford C Bernstein analyst, cut his rating to “market-perform” from “outperform.”

Stronger economic growth in emerging markets and less developed networks mean phone companies in those countries are more eager to award deals to supply the population with wireless connections, Xu said.

The network equipment market has transformed over the past decade as new competition emerged from Asian vendors, such as ZTE (763) and Huawei, putting extra pressure on gear prices and on incumbents’s revenues.

“ZTE’s technology is pretty solid and very innovative but to move past Alcatel-Lucent (ALU) and others they would have to build their service business,” said Bettina Tratz-Ryan, a Gartner analyst based in Germany. “Especially in new network rollouts around 4G, operators tend to evaluate their suppliers by their ability to help in design and implementation.”

The Chinese company also aims to become the third-largest vendor of mobile devices after winning the No. 4 spot in the final quarter of last year based on Gartner figures. ZTE sold 18.9 million devices for a market share of 4 percent in the period, behind Nokia Oyj (NOK1V), Samsung Electronics Co. (005930) and Apple Inc. (AAPL) ZTE’s smartphone sales may double this year as it gains market share in Europe, North America, Brazil and Japan, the company said in January.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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