ZTE Faces More Profit Erosion With Latest Low-Cost Moves 中兴通讯以低价机抢占市场恐损及获利
ZTE’s (HKEx: 763; Shenzhen: 000063) latest strategy of flooding the world with low-cost cellphones appears to be working, as the first phase of the its risky bid to become a global brand yields results. According to the latest information from IT data tracking firm IDC, ZTE zoomed past Apple (Nasdaq: AAPL) to become the world’s fourth biggest cellphone seller in the third quarter of the year, shipping more than 19 million handsets to take nearly 5 percent of the global market. (English article) ZTE has previously stated its aim of becoming one of the world’s top 3 cellphone brands, relying in part on a strategy of grabbing market share by selling low-end smarphones powered by Google’s (Nasdaq: GOOG) Android system for $100 or less for little or no profit. That strategy has showed up in ZTE’s results in the last 2 quarters, with profit dropping steadily even as cellphone revenue has soared. The strategy is a very risky one, as it’s often very difficult to raise your prices and corporate image after establishing yourself as a maker of low-cost products. Taiwan’s Acer (Taipei: 2353) learned this lesson about a decade ago, and is now learning it again. But for at least the next year or two, look for ZTE to steadily increase its global cellphone market share, even as its profits continue to erode. In a separate development along similar lines, Brazilian media are reporting that ZTE is preparing another major new initiative in contract manufacturing, opening a new factory in that country that has landed Apple itself as one of its first customers. (Chinese article) The reports are quite brief, but say that ZTE will assemble both iPads and iPhones for Apple in the city of Hortolandia, putting it in direct competition with Taiwanese OEM giant Foxconn (HKEx: 2038), which has also opened a plant in the same city. To this development I say: congratulations to ZTE for winning this prestigious business from Apple, if the reports are true. But at the same time, I suspect ZTE will be assembling the Apple products for little or no profit and most likely at a loss, meaning we could see its bottom line erode even more quickly.
Bottom line: ZTE’s latest aggressive moves to generate new business will erode its profits for the next 2 years at least, with only a 50-50 chance for long-term success.
Related postings 相关文章:
◙ Baidu, ZTE Earnings: More of the Same 百度和中兴财报：看上去没变化
◙ Ericsson, ZTE Spat May be Near Resolution 爱立信与中兴的官司尘埃落定？
◙ Low-Cost Apple iPhone to Bite ZTE, Lenovo 苹果推低端iPhone 冲击中兴和联想
