Why Chinese Smartphone Makers Come to America
Why do Chinese smartphone makers come to America when their home market ships 400 million smartphones a year? In other words, why is America special?
The Chinese brand ZTE describes its strategy as ACW—’America, China, Worldwide.’ In that order.
It boasts of its U.S. smartphone shipments growing 30% last year, to 15 million phones, and being the only Chinese maker with sizeable sales in the U.S. market. “Look at all [original equipment manufacturers] in China”—including Huawei, oft-discussed Xiaomi, Lenovo’s Motorola—”we’re the only one with sizeable market share,” says Waiman Lam, ZTE’s senior director of technology and partnership. ZTE’s is fourth in U.S. smartphone market share, behind Apple (AAPL), Samsung Electronics (SSNLF) and its Korean rival LG, according to IDC and Counterpoint Research.
ZTE has sponsored five NBA teams since 2013, including last year’s champions the Golden State Warriors, and a PGA golfer named Danny Lee. It has expanded phone offerings with all the big carriers since it came to the U.S. in 2010.
Despite China’s size, Americans still spend more than anyone in the world on expensive smartphones—those around $500 and up. It is not just the prestige of having a brand in the world’s richest country; it’s the promise of selling to consumers willing to pay a high sticker price.
Last year ZTE debuted its flagship phone called Axon for $449 notably first in the U.S., then two weeks later in China.
There’s another trend in the U.S. boosting companies like ZTE, which market themselves as high-spec, lower-cost: the carriers are giving up on subsidizing expensive phones.
AT&T (T), Verizon (VZ) and the others have done away with two-year contracts. Now customers pay the phone cost upfront or split the payments over two years. It makes the retail price of a top-end Samsung, Apple or even LG a little more shocking, and is one reason ZTE is confident saying it expects to pass LG in U.S. market share in three years.
Before ZTE sponsored the Houston Rockets in 2013, it had 1% name recognition in the U.S.. Last year, that grew to 16%. That’s not much to brag about, but then again, not too many expected a Chinese smartphone company to join the top five U.S. market share a few years ago.
ZTE’s growth, as well as rival Huawei’s, may continue amid the favorable trends. Huawei, a Chinese telecom equipment maker with a smartphone brand (ZTE’s main business is also telecom equipment) plans to sell its flagship $600 phone in the U.S. this year for the first time.
The U.S. still has the biggest spenders, so expect the Chinese brands to keep coming.