ZTE reaffirmed its commitment to innovation in the telecom market and elaborated on its foray into the enterprise networking space at its Global Analyst Conference in May.
Though still following in Huawei’s footsteps, ZTE demonstrated that it is outperforming in specific technology areas, such as optical and cloud, by posting third-party market share and customer reference data.
Armed with its increased credit line from China-based banks, which stabilized the firm’s financial position and is helping fund R&D initiatives in new areas, ZTE is on a defined trajectory to become a global integrated ICT solutions provider over the next five years.
ZTE chose to host its 9th annual analyst conference via a series of live webcasts rather than invite attendees to its headquarters in Shenzhen, to save money and to accommodate more analysts without sacrificing collaboration.
Day one included a keynote speech, followed by a series of presentations, each 30 minutes to one hour in length, by each major business unit. The focus of the keynote was how ZTE is branching out into adjacent markets to expand its addressable reach without losing focus on its core telecom market.
During the eight days that followed the keynote speech, ZTE conducted deep-dive workshops for each of its major business units: wireline, wireless, cloud computing, terminals, enterprise networks and service solutions. Each session started with a 15- to 20-minute detailed overview of company positioning, the latest technological innovations and future strategy, followed by more than an hour of Q&A. Following each session, ZTE made available its “dream team” of engineers, executives and marketing personnel in each unit to field questions and provide insights.
Highlights from each session, coupled with TBR’s assessment, are provided below.
ZTE reiterated it is strongly positioned in the global optical market and is taking market share from incumbents; ZTE has taken the top market share spot in the global FTTH CPE, PON OLT and PON ONU/ONT markets and is among the top four suppliers within other optical categories.
Optical will remain a key investment area for ZTE, especially as its core customers in China push forward with massive LTE and fixed-access deployments across the country. For Western markets, particularly Europe, ZTE will continue to focus on extending the life of copper access and backhaul using new technologies such as VDSL2 and Vectoring as well as investing to take a bigger share in the routing and switching space.
Despite ZTE’s leading position in optical, its margins have been under increasing pressure as the technology becomes commoditized and operators demand price concessions.
As for Europe, though ZTE is taking market share, capex investment has been broadly weak as operators on the continent ride out the worsening recession in the Eurozone. Still, ZTE will remain well positioned in optical due to its low-cost manufacturing advantages and customer composition.
ZTE touted the evolution of its RAN offerings, as it will move from C-RAN to Cloud RAN in the near future, and provided insights on its small-cell offerings and preliminary customers. Given its strong position within China-based telcos and growing presence in Europe, ZTE’s Wireless team is confident it will become the third-largest wireless equipment vendor in the world.
Despite some success in wireless, ZTE remains a minority player in the LTE market by revenue and contracts won, with only 3 percent of the market in 2012, according to TBR’s LTE Market Share Tracker, and has been challenged to translate its legacy install base outside China into profits. Though ZTE has some compelling RAN technology (e.g., Cloud RAN) that is arguably ahead of close competitors’ technologies, ZTE is still a laggard in wireless infrastructure by revenue.
ZTE unveiled an extensive cloud portfolio at the event and drove home its strategy of leveraging its data center offerings with its telecom expertise to implement carrier cloud and enterprise cloud solutions. ZTE aims to become one the top four global providers of cloud equipment and solutions for telecom operators by 2015.
Despite tenure and cachet within global optical markets, xDSL deployments and a swift rise through the ranks of the Android smartphone ecosystem, ZTE’s impact on the cloud computing marketplace will be limited. Strong competition for server, storage and data center networking business from U.S.-based Cisco, IBM, HP and Dell, combined with Huawei’s expanding presence in x86 server and storage markets, will mute ZTE’s value proposition.
ZTE’s incumbent customer base provides the company with a global addressable market to which it can champion the value proposition of an end-to-end cloud computing solution, especially for service providers; however, ZTE’s nascent product portfolio will be overshadowed by more mature, broader solution stacks from established enterprise vendors.
ZTE revealed its aggressive goals to leap into the high-end tranche of the handset market: leverage the scale of its rapidly expanding Android smartphone portfolio to become a global top three vendor of overall handset unit shipments by 2015, and utilize intense consumer demand for mobile devices in India, China, Africa and Southeast Asia to attain a global top five rank in brand value by 2015.
The appeal of ZTE’s portfolio of budget-priced, entry-level and midtier smartphones to consumers in emerging markets has made the company the fifth-largest smartphone vendor in the world, and ZTE is increasing the speed at which high-end, premium-priced smartphones replace legacy devices that carry razor-thin margins, boosting its profits and providing it with the financial resources necessary to compete with Android rivals Samsung, LG, Huawei and Apple.
ZTE’s skyrocket through the ranks of the Android ecosystem has not translated into substantial revenue and profit gains for the company, and TBR expects ZTE to be relegated to fighting for trivial shares of revenue and profits not claimed by Samsung.
As ZTE expands into emerging markets, especially within India, Southeast Asia and its home country of China, TBR expects smartphone unit shipments to continue to rise, propelling the vendor over rivals Huawei and LG to trail only second-place Apple and market juggernaut Samsung; however, as fierce competition drives smartphone ASPs below $80 in some emerging markets, ZTE’s reliance on low-cost, entry-level smartphones for revenue will make its profits vulnerable to erosion and will severely limit its opportunities to substantively increase revenue.
ZTE is aggressively targeting the government and enterprise business to spur growth and greatly expand its addressable market, which is increasingly important as operator spending worldwide remains flat. ZTE is targeting a CAGR of 30 percent through 2015, sales of $6 billion in 2016 and status as a Tier 1 player in the enterprise networking market by the end of 2016.
ZTE plans to attain these ambitious targets by employing multiple marketing approaches, including channel, direct sales, resale by carriers and global strategic partnerships. ZTE has made huge progress already, with more than 30 partners and 1,800 channel partners worldwide, and the company has completed several successful deployments of its U-Safety, iRail and Smart City solutions.
ZTE’s formal entrance into the enterprise networking market follows a similar move by its close competitor, Huawei; however, this is one area where ZTE is ahead of incumbents Ericsson, Alcatel-Lucent and Nokia Siemens, which have been unable thus far to establish themselves in this market.
ZTE’s big push into enterprise networking will enable the firm to fuel growth and more rapidly participate in nascent industry trends such as cloud adoption and IT convergence. However, ZTE will encounter stiff resistance from new competitors in this space, such as Cisco and HP.
ZTE spoke to its fast-growing professional and managed services businesses and provided a glimpse into their view of where the market is headed given the cloud and convergence shifts that are taking place.
ZTE is fast following Huawei in building out its services organization and offerings, but the firm is still far behind incumbents in services portfolio capabilities and expertise and far behind incumbents Ericsson and Alcatel-Lucent in professional services offerings for telecom operators; however, ZTE has identified the Internet Data Center (IDC) as a target market, because it lies at the core of converging big data, mobile and social, cloud computing and smart city concepts. IDC is the area of the market that ZTE is focusing on for growth, especially as it pertains to enterprise.
Impact and Opportunities
ZTE is resurgent in the global ICT arena after being recapitalized by China-based banks in December 2012. ZTE now has the financial flexibility to support its foray into new markets and technology areas, particularly cloud and enterprise. At its analyst conference, ZTE demonstrated itself as a credible player in the ICT market by the breadth and depth of its portfolio, growing distribution channel and its customer references as well as its willingness to utilize aggressive go-to-market approaches to rapidly obtain its goals.
Chris Antlitz, analyst, Networking & Mobility Practice & Jack Narcotta, analyst, Computing Practice at Technology Business Research