According to Counterpoint data, for the first half of 2016, ZTE’s smartphone shipment ranks number 7 globally. Looking at Q2 alone, ZTE’s shipment ranks number 6 globally.  We think that ZTE’s performance is good given the changes in management and the US Department of Commerce’s sales ban earlier this year. The performance of different countries varies. Despite the sales ban in the US, ZTE still ranked number 4 in terms of market share in the US during Q2. In Europe, ZTE’s smartphone shipment was ranked number 5 for 2016Q1. Within Russia, it accounted for 15% of the market share and ranked number 2. Within Sweden, it accounted for 6% of the market share and ranked number 4. Improvements are needed in China and other markets going forward.

ZTE recently announced their 1H 2016 financial results and we thought it would be a good time to examine its smartphone strategy.

In our view ZTE’s future marketing strategy can be summarized as focusing on premium products and strengthening marketing globally.

1. Product strategy: focus on Axon models and ZTE’s prime models. Axon series as a high-end flagship product will receive the company’s best supplier and marketing resources. ZTE targets to have prime models, such as Blade series, to achieve shipments greater than 1 million units. This is not only cost effective but more efficient in terms of marketing.
2. Globalization strategy: Focus on the US and Europe market and actively expand in countries such as Germany, Russia, Japan, Thailand, Mexico and etc.. ZTE’s focus on selected markets given limited market resources and funding is clearly a good move.
3. Branding strategy: Using online marketing to enhance brand awareness and offline stores to shape product image and disseminate product experience. Online marketing is not limited to the internet, ZTE also sponsors various brands and sport events.  For example, ZTE sponsors 5 NBA teams and Germany’s VfL Borussia Mönchengladbach team. In addition, ZTE has opened consumer focused experience stores. ZTE has opened experienced stores in 5 countries across Europe and opened up “Z community” in the US. ZTE also plans to open 30 experienced stores in China in the coming year. ZTE will continue to expand and open more stores in Middle East and Africa.
4. Innovation Strategy: Innovation should create real value for users and focus on users’ needs. According to Counterpoint, one of the most important feature consumers care about is the camera functions. To meet the users’ demand in taking good pictures, ZTE has spent 15% of its revenue on R&D in 1H2016 and set up an imaging and turning studio in 2016Q1 to develop algorithm optimization, software tuning, and hardware integration. Counterpoint views this investment as worthwhile as demonstrated by ZTE Axon 7’s camera functions.

Of the 4 strategies stated above the product strategy is almost in place. The Blade series is giving good volume performance and the Axon has been refreshed.

However the branding strategy and globalization will require more time and resources, especially marketing money. Huawei and ZTE have similarities and have started out from the same roots: a network equipment manufacturer based out of Shenzhen China challenging global players.

Huawei has grown to become the No. 3 player in just 3 years while ZTE has not enjoyed such spectacular growth. One of the obstacles was as mentioned above marketing dollars. As being the subsidiary of the No. 1 network equipment manufacturer Huawei has been privileged to have access to rich resources when it needed the cash. But without a strategy, marketing money can be used in vain. We’ve seen that with Blackberry and Nokia Microsoft before. Huawei on the other hand made good use of the extra funding it received from its other divisions.

ZTE strategy looks much like that of Huawei of 2 years ago and the product strategy has reached similar levels of Huawei. Therefore we view ZTE is on the right track and has opportunity to replicate the success of Huawei in the next 2 years. If successful we see 20% annual growth in shipments and ZTE will rise the ranks.

ZTE consumer devices doesn’t have quite the support of its main network division as Huawei Devices did. Huawei is the No. 1 equipment maker compared to ZTE which is No. 6. But having a diversified portfolio and being part of a conglomerate is definitely a boon. It’s not just Huawei, Samsung also has its cash rich memory chip cousins and Apple has its Mac division.

So ZTE will have to be shrewd when executing the long term cash dependent strategy for brand and globalization. Choosing the right markets and product segments will be crucial. We will stay witness to its rise to become the next global smartphone brand from China.

Looking into the future, ZTE’s consumer business (smartphones) is using the overall ZTE Group’s “Change to M-ICT2.0” as an opportunity to focus more on advanced products, globalization and innovation. This will be another booster for ZTE.