BEIJING—In many parts of the world, consumers associate Chinese
handset makers with the cheapest smartphones. But ZTE Corp. is
betting that Americans are finally ready to pay more for a high-end
Chinese phone.
U.S. gadget watchers have long heard about buzzy Chinese
smartphones from the likes of Xiaomi Corp., with iPhone-rivaling
specs but cut-rate prices. These phones are usually sold unlocked
online at big bargains from comparable mainstream devices, but with
an important asterisk: they aren't sold in the U.S.
This is starting to change as China's smartphone market matures
and begins to produce credible rivals to global brands like Samsung
Electronics Co. China's most valuable startup Xiaomi is still a
ways away from selling its phones in the U.S., but ZTE, another
major Chinese vendor, has just launched its first globally
competitive flagship device in the U.S.
The $450 Axon from ZTE can go against leading global smartphones
with a 5.5-inch screen, powerful octa-core Qualcomm Snapdragon 810
processor and 13-megapixel and 8-megapixel cameras on the back and
front. It is a big jump up from ZTE's previous highest-end phone
sold in the U.S., which cost $250. ZTE unveiled the Axon last week
in New York and held a bigger launch Tuesday in Beijing for the
China version, which has some additional features such as a
fingerprint sensor.
ZTE's Mobile Devices Chief Executive Adam Zeng said in an
interview Tuesday that his company was trying to change perceptions
of Chinese smartphones. When sending out launch invitations in the
U.S. this month, ZTE left off the company's name to avoid people
writing it off as a low-end device because it was Chinese.
"We didn't connect it with ZTE at first," Mr. Zeng said. "If
customers know it is a Chinese brand, they might assume it's a
cheap phone."
ZTE is actually the fourth-largest smartphone vendor in the U.S.
by shipments, although many still don't recognize its brand because
it has traditionally focused on budget phones.
Last year, ZTE tripled its marketing investment in the U.S.,
expanding its sponsorship deals with U.S. National Basketball
Association teams, including the New York Knicks, Golden State
Warriors and Houston Rockets. ZTE's decision to double down on the
U.S. market sets it apart from other Chinese smartphone makers
focusing mainly on emerging markets in Asia, Latin America and
Africa.
In the first quarter, ZTE had 5.5% of the U.S. smartphone market
in the first quarter, behind Apple Inc., Samsung and Korea's LG
Electronics Inc., according to research firm Strategy
Analytics.
In the U.S., ZTE is the only Chinese player with a substantial
market share. Xiaomi hasn't set a timeline yet for a U.S. launch,
but it has been building up a patent portfolio in preparation.
Chinese smartphone makers like ZTE face a challenge in making
their online-sales business model work in the U.S., where most
consumers get their phones through telecom operators. In China,
consumers are increasingly buying handsets from online shopping
sites. Mr. Zeng said that ZTE will sell the Axon phone in the U.S.
through its own website and online retailers such as Amazon.com.
The company won't buy traditional advertising, but will continue
its sponsorship of NBA teams.
Mr. Zeng said ZTE will double its marketing spending each year
for the next three years as it tries to surpass LG to become one of
the top three smartphone vendors in the U.S. by 2018. ZTE Chief
Executive Shi Lirong told The Wall Street Journal in December that
the company's budget this year for marketing and branding was more
than 1 billion yuan ($161 billion). That marketing budget isn't
just for the smartphone business but for all ZTE operations. ZTE's
main business is providing telecommunications carriers with
networking gear like routers and switches.
ZTE was on track to meet its target of selling 60 million
smartphones this year, Mr. Zeng said.
On Tuesday, ZTE said its net profit for the first half of this
year rose 43% to 1.61 billion yuan ($260 million), while revenue
increased 22% to 45.94 billion yuan. The company said its earnings
were boosted by strong demand for faster fourth-generation wireless
networks from carriers in China and overseas.
Write to Eva Dou at eva.dou@wsj.com and Juro Osawa at
juro.osawa@wsj.com
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