Xiaomi, Huawei Set 2014 Goals, ZTE Adjusts
The start of a new year is seeing 2 of China’s top smartphone and telecoms equipment makers lay out their new goals for 2014, with the fast-rising Xiaomi aiming to continue its explosive growth as the more mature Huawei targets more modest gains. Meantime, another leading telecoms player, ZTE (HKEx: 763; Shenzhen: 000063), is also detailing a major reorganization aimed at rekindling growth as it tries to diversify beyond its core business of building networks for big telcos. All of these plans are consistent with previous signals from each of the 3 companies, and in that regard aren’t very surprising. But they do provide a hint of where priorities will lie in the new year.
Xiaomi is now enjoying a rapid growth period like that previously seen by Huawei and ZTE about a decade ago, when that pair first began a major drive to export their wares to foreign markets. I remember earlier days in the mid-2000s when both Huawei and ZTE would regularly post strong double-digit and even triple-digit growth in both revenue and profits, as each used their low-cost advantage to challenge more established rivals like Sweden’s Ericsson (Stockholm: ERICb), as well as the now-defunct Nortel and the networking equipment arm of Motorola.
But like their rivals, both Huawei and ZTE are now discovering it’s hard to maintain such rapid growth after becoming a major global player. Huawei has acknowledged that fact, and is aiming to maintain a revenue growth rate of about 10 percent over the next few years. The latest media reports say the company ended 2013 by meeting that target, with revenue for the year topping $38.5 billion. (Chinese article) The reports cite rotating CEO Xu Zhijun saying 2014 will be a transformative year for Huawei, as it seeks to improve its management structure and diversify beyond its original business of building core networks for telecoms carriers.
A similar message of transformation was at the center of a new announcement from ZTE, which stumbled badly in 2012 before returning to profitability in the third quarter of last year. Still, ZTE reported a 10 percent decline in revenue for the first 3 quarters of 2013, even as the declines continued to moderate through the year.
Now ZTE has announced it will start off 2014 with a new corporate structure that will see it divided into 3 primary operating units. (company announcement) One of those will focus on its original business of building networks for big telcos, while another will focus on selling equipment to smaller corporate customers for their internal networks. The third unit will focus on ZTE’s smartphone business, which has grown rapidly in the last 2 years but is struggling for name recognition outside its home China market and is still largely viewed as a reliable but low-cost brand.
Lastly there’s Xiaomi, which is aiming to more than double its smartphone sales this year to 40 million units. (Chinese article) As I’ve said above, we’re seeing some very explosive growth coming in Xiaomi’s latest numbers, which come from its talkative CEO Lei Jun. Xiaomi sold 7.2 million smartphones in 2012, its first year of major sales, and was on track to sell more than 15 million units in 2013. A major component of the 2014 growth could come from international sales, with Xiaomi now negotiating a deal with one of the world’s top private cellphone distributors. (previous post)
So, what do I think of all these plans? ZTE’s looks the most prudent to me, as the company is focusing on operational issues that will be key to its future return to health. Huawei’s decision to focus on the 10 percent growth figure looks ok, and the company should get a boost from newly awarded 4G licenses in China. But it could struggle to reach the goal if the sluggish global market for new networks continues and its newer enterprise and smartphone businesses fail to gain big traction. As to Xiaomi, its aggressive 2014 target looks a bit aggressive to me, especially if the company’s global expansion is slower than expected.
Bottom line: ZTE’s new organizational overhaul looks like a smart tactic to continue its recovery, while Huawei and Xiaomi could face difficulties meeting their 2014 growth targets.
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