Although US regulators are not very friendly to ZTE in the near future, Chinese communications giants need American consumers more than ever to survive in the increasingly competitive smartphone market.
ZTE is the only Chinese mobile phone manufacturer that can be at the forefront of the US smartphone market, ranking fourth after LG Electronics, Samsung Electronics and Apple. According to market research firm Canalys, ZTE’s sales have grown every year since it entered the US market in 2011.
There are two reasons for this achievement: First, ZTE has been declining in China's domestic market. Since 2012, it has slipped from the fifth to the tenth in the sales list. The other is ZTE’s arduous struggle with the US regulatory authorities. Last month, ZTE and the US government reached a settlement on the US government's export control investigation case. The former agreed to pay $892 million in criminal and civil penalties.
However, after experiencing this twist, some analysts are optimistic about the future development of ZTE. ZTE is China's largest listed telecom equipment manufacturer and is scheduled to release its first quarter earnings report on Monday. Analysts surveyed by Thomson Reuters expect ZTE's consolidated earnings per share to be 0.23 yuan, revenue of 22.69 billion yuan, an increase of 3.8% over the same period last year.
After reconciliation with the US Department of Justice, the Department of Commerce, and the Ministry of Finance, ZTE was removed from the US trade blacklist. If the blacklist is fully implemented for ZTE's restrictions, US parts manufacturers and software companies will not be allowed to do business with ZTE.
Industry analysts believe that the suspension of this restriction order means that ZTE’s head is over, and it should allow the company to sell more goods to the world. Despite regulatory issues, according to Canalys, ZTE’s mobile phone business continued to grow significantly in the US last year, with sales up 42% year-on-year.
Rushabh Doshi, an analyst at Canalys, said that when ZTE was punished, ZTE apparently swallowed the bitter drug as a price to pay for doing business in the United States. Dosh said: "In the low-end smartphone market in the United States, ZTE's status is basically no challenge." However, he also pointed out that after experiencing the rapid development in 2016, it is not easy for ZTE to maintain this growth rate. ZTE has not commented on this.
The sorrow and joy of ZTE coincides with the global smartphone industry at a difficult time. The growth of global smartphone sales is slowing down, and it is difficult for major brands to introduce models that appeal to consumers, allowing them to change their phones as frequently as before.
This cold wave has affected some well-known brands in the Chinese mobile phone market. Huawei said last month that the company's profit growth last year was almost stagnant, as the lower margin equipment and mobile phone business accounted for an increase in corporate profits. ZTE’s net loss last year was 2.36 billion yuan (about 342 million US dollars) due to fines from US regulators.
Both of these companies are facing a more violent impact in the Chinese domestic market, such as the high-profile rising stars. According to Canalys' data, OPCO and Vivo, two of BBK's brands, rank second and third respectively in China according to market share. In addition, Xiaomi, which used to be a smash hit, has been declining its share in the local market, and its operations in the sea have been quite unsatisfactory.
Analysts said that if ZTE wants to overcome the setbacks of US regulation, it needs to focus on the fast-growing US market. In the US market, ZTE has an advantage in that it has established long-term cooperative relationships with operators such as AT&T and T-Mobile USA. This is crucial for ZTE's success in the United States, because American consumers are usually willing to sign long-term contracts when they purchase.
In contrast, Huawei is difficult to enter the US smartphone market because the company lacks cooperation with major operators, and the US government is concerned about the security risks of its equipment. Huawei is currently the world's third-largest smartphone maker and one of ZTE's competitors.
Edison Lee, an analyst at investment bank Jefferies in Hong Kong, said: "Whether it is fortunate or designed, ZTE has formed a good relationship with AT&T and some regional wireless carriers. ZTE enjoys a good position because it seizes the opportunity. Brand recognition."
ZTE's consumer business accounted for about one-third of the company's total revenue last year, and the equipment business accounted for 58%. Edison-Lee said that ZTE’s share of equipment business in China may grow last year, and the lifting of US trade restrictions means that this business is expected to grow globally. He predicted that ZTE’s smartphone business in China may shrink due to “missing opportunities†and will focus more on the US market in the future.
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