February 14, 2011 / 3:37 PM / in 7 years

China's ZTE aims for top 3 in telecom gear

BARCELONA (Reuters) - Chinese telecom equipment maker ZTE is gunning to be among the world’s top three telecom equipment makers in the coming years, a wireless executive told Reuters on Monday.

<p>A man walks past a ZTE banner at the Mobile World Congress in Barcelona February 17, 2010. REUTERS/Albert Gea</p>

It would be a major move for ZTE, which is smaller than its better-known Chinese counterpart Huawei, and holds roughly 5 percent market share in wireless gear, according to Bernstein Research.

“We want to be in the top three in terms of revenues and market share,” said Xu Ming, vice-president of wireless services in an interview at the Mobile World Congress in Barcelona.

Founded in 1985 in the southeastern Chinese city of Shenzhen, ZTE earned about half of its revenues outside China last year by selling both handsets and fixed and wireless network gear.

It benefits from a low-cost base like Huawei, but its margins are lower because of its lack of scale in many business lines, according to analysts.

ZTE’s ambitions could be bad news for other telecom gear makers, notably the smaller European vendors Nokia Siemens Networks and Alcatel-Lucent, which have lost market share to low-cost Chinese rivals in recent years.

Market leader Ericsson is seen as better positioned to resist the onslaught, as its economies of scale give it better margins.

Xu said international expansion was a major priority for the company.

“Our strategy for the wireless business in the past 10 years has been to gain critical mass in China, then we expanded into emerging markets like Africa, Asia, and Latin America. Now we are bringing that push into developed markets like Europe.”

Asked if ZTE would seek to expand via acquisitions, Ming said the company did not have such plans. “ZTE is a very rich company in terms of product lines and offerings, so we don’t see the need to go out and buy companies to expand our portfolio.”

However, as it seeks to expand abroad, ZTE plans to hire more local workers to serve European markets for example, and notably more experts in R&D and marketing, he said.

NETWORK UPGRADES

Xu also said ZTE would benefit from the coming wave of network upgrades going on at European operators such as France Telecom and Teliasonera, which are replacing decade-old second and third generation wireless gear to keep up with a boom in data use from smartphones and tablet PCs.

“It is a very good chance for the operators to change the competitive situation among their vendors, and it is a very good chance for ZTE to get in,” he said, citing KPN and Teliasonera as operators where this had already begun.

Xu said he was confident ZTE could make its goal of reaching the top three.

“The trend is very clear. If you look at Alcatel Lucent or Nokia Siemens Networks, their growth rate is flat or shrinking, and even market leader Ericsson has a slow growth rate,” he said.

“For ZTE, if we can continue to grow at the very rapid rates that we have seen in recent years, we will soon take over one of the major vendors in terms of revenues.”

ZTE posted 2010 revenues up about 16.7 percent at $10.67 billion last year, while operating profit was up 26 percent at $396.5 million. Analysts called the results positive, given tough conditions in China, where operators cut spending by 20 percent after a binge in wireless buildouts in 2009.

Xu declined to say what growth rate ZTE would achieve this year, but said 2011 should be “another very good year.”

The company’s shares are traded on the Hong Kong and Shenzhen exchanges.

Editing by Will Waterman

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