ZTE’s Smartphones Go Upscale 中兴发布新手机品牌Nubia 发力高端市场
Embattled telecoms equipment maker ZTE (HKEx: 763; Shanghai: 000063) is taking a relatively low-key approach to its newest move into the smartphone space, which comes with its launch of a new brand called Nubia specifically aimed at the high-end market. The tactic is a bit unusual for the company, which earlier this week put out a full-fledged press release announcing it has formally passed Taiwan’s fading HTC (Taipei: 2498) to become the world’s fourth largest smartphone maker. (company announcement)
But from my perspective, I do like this lower key approach since this new initiative is fraught with risk but also quite necessary if ZTE wants to become a serious player in the smartphone space. Let’s take a look at the actual news, which ZTE apparently announced to the world at a low-key press conference in Beijing and through microblog posts on China’s popular Weibo service.
Media are reporting the company is launching Nubia as a separate brand that will be marketed separately from its more mainstream lower-end models sold under the ZTE name. (English article) I had to smile when I first saw this new brand name, as the word “Nubia” refers to ancient peoples and kingdoms of what is now Egypt, conjuring images of exotic princes for many westerners. So if nothing else, perhaps this exotic name will intrigue some western buyers to try out this new and unusual brand.
In fact, the name Nubia also comes from the Latin for “cloud”, which is apparently what ZTE was thinking of when it came up with the name for this new product line. Reports say the first Nubia model, the Z5, will come with a 13 megapixel camera and an Italian design, though other details weren’t provided.
Moving on past all the jokes, I really do find this new brand launch intriguing and a relatively smart move for ZTE if it really wants to succeed in the smartphone space. The company’s rapid rise in smartphones has come almost exclusively on the back of low-end models often costing less than $100 each. Profit margins for those phones are razor thin, and ZTE’s aggressive promotion of that part of its business was a big factor that pushed the company deeply into the red in its latest reporting quarter. (previous post)
By comparison, higher end smartphones like Apple’s (Nasdaq: AAPL) iPhone and Samsung’s (Seoul: 005930) Galaxy series command much higher profit margins due to consumers’ willingness to pay a premium for a famous brand. So ZTE’s decision to launch its high-end initiative under a new brand is smart, since many consumers already associate the ZTE name with lower-end products and are unlikely to pay a premium for the brand.
But premium brands are also extremely difficult to build, which is why they can charge such high premiums. Such brand building often requires a decade or more of savvy marketing, and of course a strong product is also helpful. I have confidence that ZTE can develop products that could compete with the iPhone and Galaxy from a design perspective. But I’m much less certain that ZTE has the patience and is willing to devote the resources necessary for the kind of brand building necessary to transform Nubia into a high-end name.
Taking all of that into consideration, I wouldn’t give this Nubia initiative very high chances for success but also wouldn’t say it’s doomed to failure. If ZTE is willing to be patient and give this initiative the resources it needs to succeed, Nubia could stand a 30-40 percent chance of entering the realms of high-end smartphone brands in the next 5-10 years. But I could easily see ZTE quickly losing patience, meaning Nubia could more likely die a quiet death in the next year or 2 before it gets the necessary time to gain a reputation as a high-end brand.
Bottom line: ZTE’s high-end smartphone gamble could have a 30-40 percent chance of success if the company is patient and allocates necessary resources for the new initiative.
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