Summary Bullets:
- ZTE stands at an inflection point – will it grow increasingly regional or global?
- Massive Chinese LTE rollouts provide an opportunity for transformation
Coming back from the New Year holiday, a wave of déjà vu made me question what year I was in as I read ZTE’s announcement of “organizational changes.” Didn’t the vendor implement organizational changes awhile back? Some of the same vague concepts mentioned in that previous reorganization seemed to echo in this new one – its infrastructure business vowing to “intensify its focus on key areas of higher profitability” (whatever those might be). At least on the infrastructure side, are these changes more of the same?
China doesn’t actually welcome the new year until January 31, when it will leave the year of the water snake behind and enter the year of the wooden horse. The irony behind ZTE’s latest repetitive-sounding promises of change is that the next two years could be truly transformative for the company if it plays its cards right.
ZTE stands at an inflection point with the potential for real snake-into-horse-like evolution, thanks in large part to massive LTE rollouts now taking place in China. China’s three biggest mobile operators are all embarking upon massive multibillion-dollar LTE rollouts, with ZTE likely to play a major role in each. According to media reports, ZTE has already been picked to supply 20% of China Mobile’s LTE rollout (the largest in the world) and about a third of China Telecom’s rollout – far outstripping Western rivals in both cases. And the vendor is likely to have a similar role supplying China Unicom when the country’s second-largest operator makes its selections early this year.
Make no mistake: Huawei will get the lion’s share of all this Chinese mobile infrastructure investment in aggregate. However, Huawei has been rapidly ascending on the global stage for years. ZTE, on the other hand, has been following a different trajectory — with sometimes volatile financials, multiple restructuring moves and a revenue base that’s only becoming more geographically concentrated (see chart below); that’s why these rollouts hold more transformational potential for ZTE. What the vendor does with this momentum – the vaunted stature, the boosted share of the global LTE market and the heightened credibility in TD-LTE in particular – will determine where its trajectory heads next. Can it differentiate its infrastructure business more than it has thus far? Can it develop a more effective geographic expansion strategy? Can it capitalize on the near-term financial and strategic instability facing Alcatel-Lucent or the momentum challenges facing Samsung and NEC?
ZTE’s track record thus far gives plenty of reason to doubt that it will fully capitalize on the situation. But this is a new year (or in China, it soon will be) and, for ZTE, a new chance to become a different animal altogether.
