ZTE’s Strength in Smartphones Delivers Increased Profitability

ZTE Corporation exceeded the company’s target by more than doubling shipments of smartphones in 2012, delivering improved profitability for the terminals division.

The growth in smartphone sales helped ZTE post a gross profit margin of 16.8 percent in its terminals division in 2012, an improvement of 1.6 percentage points compared to a year earlier. The strong performance in smartphone sales helped ZTE record RMB 1.87 billion of operating cash flow in 2012. ZTE also posted positive free cash flow and operating cash flow for the first time in three years.

ZTE saw smartphone shipments greatly increase in the United States as a result of its strategic focus on high-end markets. In emerging markets including India, Indonesia, Mexico, Argentina and Russia, ZTE also achieved fast growth. In 2012, the distributors channel contributed 10 percent of ZTE’s terminal revenue for the first time.

“ZTE aspires to be the global leader in 4G, and shape the future of smart devices,” said Mr. He Shiyou, ZTE EVP and Head of the Mobile Devices Division. “For ZTE’s terminals business, 2012 was a year of transition that saw increased scale and profitability as well as helping to further raise the profile of the brand. The shift to high value growth will continue in 2013.”
The strong growth in ZTE’s smartphone business elevated it to the position of the world’s No. 4 manufacturer in 2012, and helped offset decreasing sales of feature phone products.

Last year, ZTE unveiled its Grand series of smartphones designed to strengthen the company’s position at the high-end of the market. ZTE generated 15 percent of its smartphone revenue in 2012 from sales of mid to high-end devices, and aims to expand this to 25-30 percent during 2013.

After a breakthrough year for ZTE smartphones in 2012, the company will intensify efforts to offer the best devices in 2013, focusing on 4G products that bring superior intelligence and user experience. ZTE will transition from a business-to-business (B2B) model to a business-to-consumer model (B2C) and increase spending on branding and marketing in order to get closer to customers and embrace the exciting opportunity presented by 4G.

ZTE will collaborate with operators to focus on high-end products, LTE broadband devices, intelligent integrated services, and product innovation, as well as integrate its e-commerce platforms to offer better and faster services for end-users. The Grand S and Grand Memo were two of the strongest LTE devices to be introduced to the industry this year. The Grand S is the new generation flagship smartphone and was the winner of the IF2013 design award and the Grand Memo is one of the highest-specification phablets on the market. Additionally, ZTE’s U8910 LTE smartphone is among the first devices selected by China Mobile in its expanded 4G trial this year.

In the space of two years, ZTE has achieved dramatic growth in its smartphone business, while maintaining solid profitability. It is firmly established among the world’s Top-4 handset vendors and expects to achieve 30 percent growth in its smartphone revenue in 2013.

“4G is key to ZTE’s future, and our capabilities in LTE give us a lot of confidence,” said Mr. He.

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