ZTE is signaling a shift in strategy that could be good news for its competitors. The Chinese maker of network infrastructure and smartphones said today that it has boosted profits by turning down low-margin contracts. ZTE was referring to infrastructure projects outside China.
For years ZTE and its larger Chinese rival Huawei have pressured European competitors Ericsson, Alcatel-Lucent and NSN with low bids that in some cases did not even leave room for a profit margin. Here in the United States, Cisco has felt the pressure of competition from ZTE and Huawei. Like Cisco, ZTE is a major supplier of routers and switches to network operators.
Today ZTE said that first quarter profits will be at least $68 million, more than double last year’s amount. The company says its change in strategy in one big reason for the improvement. After losing money in 2012, ZTE has become less aggressive in its bidding for contracts. One result of the new policy has been a decline in revenue, but the company is returning to profitability.
ZTE maintains a very significant market share in China and India, two of the largest and fastest-growing markets for infrastructure equipment vendors. The company has lagged some of its competitors in LTE, but has a very strong presence in China’s 3G networks.
Analysts expect ZTE’s growth outside China to depend on smaller contracts in developing markets in the near term. Markets like Nigeria and Namibia are a focus for ZTE.
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