The Cheap Phones Quietly Winning the U.S.
The Cheap Phones Quietly Winning the U.S.
China’s once-embattled ZTE almost doubled its share in 15
months
September 3, 2015 — 3:52 PM PDT
In most AT&T, Sprint, or T-Mobile stores, it takes a
while to find the ZTE phones, buried in the back, past the latest from Apple
and Samsung. But they’re there. In AT&T stores it’s the ZTE Maven, which
has a screen, speakers, and a processor with capabilities somewhere between the
iPhone 5 and 6. As Tony Greco, ZTE’s head of U.S. retail marketing, puts it,
“These were state-of-the-art features two years ago.” The Maven’s draw, really,
is price. Without any subsidies from a wireless carrier, the phone costs just
$60. And it’s not even one of the company’s cheaper models.
ZTE is quietly becoming a force in the U.S. by selling
good enough phones at low prices—smaller prepaid smartphones for $30, basic
phones with QWERTY keyboards for about the same, and so on. The Chinese
company’s products are among the cheap phones of choice at three of the big
four U.S. carriers. (Verizon doesn’t carry them.) ZTE claimed about 8 percent
of America’s smartphone market in the second quarter of this year, says
researcher IDC, up from 4.2 percent in the first quarter of 2014. That ranks
the company fourth among smartphone makers overall, behind Apple, Samsung, and
LG. “We came from nowhere, and now we are a solid force,” says Lixin Cheng,
head of ZTE’s U.S. operations.
In the U.S., the company was best known for years for
making network routers and switches for mobile operators. Its phone sales are
all the more surprising because it’s been frozen out of the more lucrative
telecom networking market since 2012. That year, the House Intelligence
Committee issued a report warning that China’s intelligence services could
potentially use ZTE’s equipment, and those of rival Huawei Technologies, for
spying. Huawei then dismissed the allegations as “little more than an exercise
in China bashing.”
“We were unfairly lumped in with those complaints,” says
Cheng. But in any case, officials “made it clear that phones weren’t a
concern.” So while Huawei essentially moved out of the U.S., shifting the North
American focus of its networking equipment business to Canada, ZTE began
concentrating on smartphones. Cheng, an Ericsson veteran who joined the company
in 2010, figured that American consumers wouldn’t know or care about the
congressional heat.
After starting modestly with small carriers such as
MetroPCS, ZTE landed some of its prepaid phones in bigger carriers’ stores and
expanded from there. Besides phone stores, its products are on sale at
Wal-Mart, Target, and Best Buy. While the brand is hardly famous, it’s doing
much better in the U.S. than Chinese powerhouses such as Lenovo, which has seen
its share of the market drop from 5.3 percent to 3.1 percent since the first
quarter of 2014. Chinese leader Xiaomi, which is focused on emerging markets
such as India and Brazil, has avoided the U.S. so far.
To boost its U.S. street cred, over the past two years
ZTE has teamed with the NBA’s Houston Rockets to make phones with their logo
and app, and is also working with the New York Knicks and Golden State
Warriors. To win over critics in Washington, the company has upped its lobbying
expenditures from $170,000 in 2011 to $950,000 last year, according to Senate
records. “ZTE is a little shrewder in how to work in the American market” than
other Chinese phone makers, says James Lewis, a senior fellow at the Center for
Strategic & International Studies, a Washington think tank.
ZTE’s next challenge in the U.S. will be translating
higher sales into higher revenue. While its U.S. market share has nearly
doubled since early 2014, revenue is up 4 percent, from $354 million to $369
million. That means ZTE has gained share only by making its phones cheaper. And
it doesn’t have the home market to fall back on: The company is No. 8 in China
with just 3 percent of the market, down from 10 percent in 2012, according to
researcher Canalys. The nation’s stock meltdown has carved 36 percent from
ZTE’s Hong Kong-listed share price since its June peak, leaving its market
value at $10.3 billion.
In July, ZTE rolled out the Axon Pro, a higher-end phone
that sells for $450 on its website, Amazon.com, and EBay. It’s unclear whether
customers will respond to, or even notice, the sleeker model, but Peter Ruffo,
senior director for government relations at ZTE’s U.S. arm, says the campaign
to change the company’s image will pay off eventually. “ZTE is taking the long
view,” he says. “We are very patient.”
The bottom line: ZTE is now the No. 4 smartphone brand in
the U.S., but its increased share hasn’t yielded much revenue growth.
Comments
Post a Comment