ZTE understands that gaining scale is essential for its mobile terminal business, and according to chairman Hou Weigui, the company is starting to get there. Last year it became the fourth largest producer of mobile terminals in the world, according to Gartner.
Its terminal revenue rose 27% in 2011 and its domestic market share increased from 5% to 11%. Nokia was the big loser in China, with its share dropping from 26% to 15%. ZTE's 6-percentage-point increase was second to Huawei, which added 7 points, finishing the year with a 13% market share.
"It's true that our profit margins are not very high," Hou told Telecom Asia. "And although the bulk of our shipments are smartphones, most are focused on the low-end and mid-range markets. We are trying to learn from our competitors."
He points out that Apple has only been making mobile phones for five years, and ZTE has been at it for 14 years. "So we believe it's not just the technology. We are trying to narrow the gap by improving the user interface and finally improving our profit margins. We're also focusing on our internal management, where we see there is room for improvements."
The company recently added a third division solution operations. Before it had just two major divisions products/R&D and sales, which Hou says was pretty much a product-driven organization.
"The reorganization will help to provide not only products but solutions to operators and allow us to better understand the business models of our customers. By doing this we'll be able to improve and overcome some of the issues that have come up from a product-centric business model."
ZTE is also diversifying by putting a strong focus on cloud computing and the enterprise market. Last year while its services products increased 40%, its enterprise sales doubled.
On the infrastructure side, while most network equipment makers faced a difficult Q1 (with both Ericsson and Alcatel-Lucent seeing revenue falls of 4-12% in the period and Huawei's profit down sharply for 2011), ZTE bucked the trend with revenue jumping 29% and its net profit up 24%. Overseas operating revenue, which increased 24% last year, now accounts for 54% of overall operating revenue.