ZTE shows unexpected resilience, while Samsung waits to pounce

ZTE has an even tougher job than Huawei to convince operators to stick with it. It lies a fairly distant fourth in the mobile infrastructure market, and so is more dispensable than Huawei in many markets, especially as its strength outside China lies in emerging economies, many of which will not implement sanctions, but will not deploy 5G at scale for many years either.

Ming Xiao, head of sales at ZTE, was putting a brave face on the situation at a recent conference in Italy, where he said that, now a settlement had been reached with the US over access to American components, ZTE was targeting a 25% share of the telco equipment market – up from 10% now, though no timescale was provided.

ZTE has invested heavily in 5G R&D, and has a particular expertise (along with Huawei) in Massive MIMO. This is part of an attempt to become less dependent on keen pricing to compete for business, and – like Huawei before it – to make the transition from low cost vendor to technology leader.

If the company succeeds in avoiding any further US sanctions, it looks better positioned to bounce back than seemed likely in May, when it had to suspend operations because of the ban on it purchasing US components. In its most recent quarter, Q3 2018, it reported a 14% year-on-year drop in revenue to $2.8bn, far lower than many analysts expected in the first full quarter after the temporary ban. And on the RAN side, the decline was “single-digit”, said the company, while wireless equipment shipments returned to pre-ban levels, according to Stefan Pongratz, an analyst at market research firm Dell’Oro. He estimates that ZTE’s third quarter revenue share in the RAN segment was between 8% and 9%, about five percentage points better than in the ban-hit Q2, which indicates a surprisingly fast recovery. That allowed ZTE to seize back its fourth place in the RAN market, which it had lost to Samsung during the crisis period.

Some of the bounceback may be down to pent-up orders which were delayed, but not cancelled, during the ban period. Even Wind Tre in Italy, which was reported to have replaced ZTE with Ericsson in its network modernization contract after the US ban was imposed, subsequently re-introduced the Chinese vendor, though keeping Ericsson for part of the deal.

The risk associated with ZTE still means the firm is threatened by the prospect of operators playing it safe, and using the 5G transition as a convenient juncture to phase out the vendor’s kit – and certainly avoiding a Wind Tre-style single-source deal in future. However, other operators believe they would be shooting themselves in the foot – ZTE may be less important than Huawei, in terms of technological leadership and as a competitive check on Ericsson and Nokia, but few MNOs want their choice of suppliers reduced to just four.

There will, however, be strong operator motivation to boost Samsung, as a contingency against restrictions on Chinese suppliers. The Korean firm, which failed to make much impact on 3G or 4G RANs outside its homeland, is faring far better in 5G, where its expertise in small cells, virtualized networks and millimeter wave spectrum have all become highly relevant. While ZTE is targeting 25% of the RAN market, Samsung is after 20% of the 5G RAN space by 2020, building on its deals with three of the four US operators.

However, while there is a clear vacuum in the USA because of the lack of Chinese suppliers, Samsung has a high mountain to climb elsewhere. It works with Reliance Jio in India, and of course with the Korean MNOs, but has little presence in Europe as yet, and indeed, lost its flagship European customer, Three UK, to Huawei for 5G. It does score highly when operators are testing or deploying millimeter wave gear, and as more MNOs start to acquire and build out these airwaves, it could come into its own. Its rare European engagements tend to be based on mmWave and fixed wireless, like its initial US contracts – for instance, it is trialling residential broadband delivered by fixed 5G with Orange Romania.