Smartphones: ZTE Sputters, Lenovo Looks Out 智能手机：中兴缩减，联想进军海外
When ZTE (HKEx: 763; Shenzhen: 000063) warned 2 weeks ago that it would post a massive third-quarter loss, everyone assumed that its smartphone business was partly to blame as the company sacrificed margins in exchange for fast growth. Now it seems that even its smartphone plans were overly ambitious, with ZTE’s newly released official results showing it is likely to miss its smartphone target for the year by a big gap. Meantime, Lenovo (HKEx: 992), still basking in the glory of recently becoming the world’s biggest PC seller, is also making its own smartphone moves with news that it will start to sell its models outside China. I’ll admit I have my doubts about this new smartphone push by Lenovo, as the company has enjoyed far less success with this product in its home China market than with its core PC business.
But let’s return for a moment to ZTE, which has just announced its latest results that show it posted a nearly 2 billion yuan loss in the third quarter, wiping out its profit for the first half of the year. (results announcement; English article) That loss isn’t really new, as the company first flagged the figure a couple of weeks ago in a pre-announcement. (previous post)
But we’re getting a bit more detail with the actual results, including ZTE’s disclosure that it sold 19 million smartphones in the first 9 months of the year. That looks well behind the pace it needs to sell its previously stated target of 28-30 million smartphones. Obviously ZTE’s sales could pick up sharply in the fourth quarter, allowing to hit its target; but if they stay on their current track, its smartphone sales would come in at about 25 million for the year, or 10-15 percent below its target. That certainly doesn’t sound like good news for a company that was banking on smartphones to help offset slowing growth for its core telecoms equipment business.
Moving on, let’s take a look at Lenovo, which will soon start selling its own smartphones in developing markets. (Chinese article) The company will start by offering smartphones in India next month, media quoted a company executive saying, with more developing markets to follow.
From a strategic standpoint, the choice of emerging markets for its smartphone expansion looks like a smart one, since Lenovo’s biggest strength is its understanding of such markets that are similar to China. The only problem is that Lenovo doesn’t have nearly the reputation as a smartphone maker as it does in the PC field. That means the company could have difficulty winning consumers with its products, which don’t exactly have a reputation for their excellent quality and “coolness” even inside its home China market.
I won’t completely dismiss this smartphone expansion since Lenovo does have the advantage of a strong presence and name recognition in developing markets. But I would put Lenovo’s chances of success at just 30 percent for this new campaign, and don’t really see the company taking more than 3 or 4 percent of any of the smartphone markets it enters over the next 5 years.
Bottom line: ZTE’s smartphone business is showing early signs of sputtering, while Lenovo’s new campaign to sell smartphones abroad is likely to produce limited or no success.
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