Image via Reuters

On Monday, the US Department of Defense released a report that once again points the finger at China for hacking and other forms of digital data theft that pose a threat to American public and military interests. And although the report doesn’t mention Chinese telecom companies Huawei and ZTE by name, it apparently spooked Indian intelligence authorities enough that Indian intelligence agencies are now undertaking a thorough investigation of the Chinese companies.

According to the Hindustan Times, Indian intelligence has set up a testing facility in Bangalore and plans to run Huawei and ZTE equipment through the ringer.

This isn’t the first time Huawei and ZTE have found themselves in the sights of Indian authorities. Last year, India considered investigations into the telecoms, and earlier this year both were denied ‘domestic telecom’ status in the country over lingering security concerns.

Concerns about Huawei and ZTE stem from their apparent ties with the Chinese government and military. Huawei, for example, was founded by a former military officer and maintains a Chinese Communist Party office within its corporate headquarters.

(Hindustan Times via Sina Tech)

With renewed tension and worries over cyberattacks reportedly emanating from state-sponsored entities in China, the new funding bill that passed the US Congress this week has a lot of provisions that ban government IT spending on Chinese technology. These sanctions effectively allow for the banning of buying federal computer and telecoms equipment from entities “owned, directed, or subsidized by the People’s Republic of China”.

This anti-China tech stance was spotted in the 574-page bill by lawyer Stewart A. Baker. TechCrunch notes that he’s the former assistant secretary in the US Department of Homeland Security under George W. Bush. In two posts by Baker (here and here), he unpacks the ramifications of these provisions and the damage they could do to Chinese firms like Lenovo (HKG:0992), ZTE (HKG:0763; SHE:000063), and Huawei. Indeed, Lenovo has previously been unscathed by recent alarm over potential backdoor surveillance in Chinese technology sold to overseas governments, perhaps because Lenovo’s gadgets are largely based on its IBM PC business acquisition.

Lenovo, notes TC’s Catherine Shu, is a major supplier to the US military, NASA, the Department of State, and the Department of Energy, not to mention Lenovo’s growth being dependent on taking market share from Dell and HP in American classrooms and local government offices.

Baker points out that China has played this protectionist game itself in the interests of national security, but Washington could still face World Trade Organisation (WTO) protests from Beijing:

While the provision doesn’t prohibit purchases of Chinese-government-influenced systems, it makes such purchases politically difficult. How will China react? Not well. China has spent years trying to curtail its own purchases of IT from outside its borders, but that won’t stop it from calling the bill protectionist and claiming a violation of US WTO obligations. Legally, China may have trouble making such a claim stick. China has not signed on to the WTO’s government procurement code; it is just an observer.

This bill could affect Chinese-brand PCs and telecoms equipment regardless of where they’re actually manufactured or developed in the world. Baker explains:

But China may not have to make the claim stick in its own right. That’s because the provision doesn’t hit China directly. Instead, it restricts purchases from Chinese-government-influenced entities, no matter where those entities manufacture their products. This means that the provision could prevent purchases of Lenovo computers manufactured in Germany, or Huawei handsets designed in Britain. Both of these countries have joined the WTO government procurement code, which obliges its members not to discriminate against other member countries in procuring data processing software and hardware. This means the US could see WTO challenges to the provision from its own allies (unless they’re so sick of Chinese hacking that they decide to emulate the new provision rather than attack it).

With Chinese cyberattacks allegedly traceable to a unit of its People’s Liberation Army, the nation might have no plausibly persuasive argument for Lenovo, Huawei, et al being trustworthy partners for sensitive tech equipment.

It’s a complex issue emerging from a massive bill, so Baker’s two posts deserve to be read closely to see how the Obama administration might enforce this – and how it might need to issue waivers for equipment that’s desperately needed. Plus, there’s always the risk of Chinese laws being swiftly crafted in retaliation.

(Via: TechCrunch)

It seems every day we come across another rumor about Chinese telecommunications firm ZTE, but unlike last week’s rumor, this one has nothing to do with the company’s dire financial situation. China’s IT Business News is reporting that according to anonymous but knowledgable sources, ZTE’s Mongolia office is being investigated for bribery.

According to the report, Mongolian anti-corruption officials received a report and investigated ZTE’s office as well as the residences of some executives and confiscated documents in addition to detaining upper management personnel. Exactly how many were detained is not specified in the report, but the IT Business News‘s sources claim that Mongolian authorities have already uncovered proof of bribery in connection with a Mongolian national digital education project.

We have contacted ZTE for comment, and will update this story if we hear back. ZTE has given us the following official statement:

ZTE notes recent media reports about alleged investigation of the company’s operations in Mongolia. ZTE wishes to clarify that its representative office in Mongolia is operating as normal and the company’s operations in Mongolia comply with all relevant local and international rules and regulations.

As a public company listed on the stock exchanges of Shenzhen and Hong Kong, ZTE is committed to the strictest standards of legal compliance in the conduct of its business and is bound by the company’s mission to fulfill its corporate social responsibility. ZTE takes any allegation of business misconduct quite seriously.

Certainly the IT Business News story is thinly-sourced enough that it should be taken with several grains of salt. The company does have a bit of a history with bribery outside of China, though; in June of last year two ZTE executives were sentenced to ten years after being convicted of corruption in Algeria (although they were tried in absentia and will likely not be extradited by the Chinese government). More recently, ZTE was accused of bribing officials to attain a government contract in Kenya, although that dispute is ongoing and the allegations could prove false.

It is also plausible that Mongolian officials would detain ZTE executives in the case of suspected bribery. Mongolian authorities have in the past proven willing to detain foreign nationals implicated in corruption scandals; last October, for example, Mongolia detained an Australian lawyer (and later confiscated her passport) in connection with a corruption investigation.

Whether the Mongolia allegations are true or not, though, they are likely to further damage the company’s already-weak ethical reputation overseas. And they’re certainly not likely to improve perceptions of the company in Mongolia, which already has a serious corruption problem that is causing social dissatisfaction and unrest.

(IT Business News via Sina Tech)

In response to a report quoting anonymous sources in Investment Bulletin suggesting that ZTE would lay off as much as twenty percent of its work force in the coming year, an anonymous ZTE representative told Beijing’s Capital Week (via the Global Times):

The company is undergoing a labor optimization. Currently, there has been no mass layoff and the peak time to cut the labor has passed.

On the face of it, that seems like a denial, but it’s hard to be sure. The fact that there hasn’t yet been a mass layoff doesn’t mean there won’t be, and the Investment Bulletin report seems to suggest the layoffs are being staggered, with a certain percentage of contracts not being extended as they come up for renewal each month. Moreover, it is strange that an anonymous ZTE representative would be making this statement rather than an official company representative.

Rather than speculate further, we have contacted ZTE about the layoff rumors and will update this post with the company’s clarifications if we hear back.

Rumors about big layoffs at ZTE have been bubbling for some time now, and here at Tech in Asia we have heard from some former ZTE employees over the past year who claim they were laid off, but we have never been able to corroborate their claims. However, the company’s half-year financial reports reveal that between the end of 2011 and June 2012, ZTE cut 2,806 employees from the payroll. The company has not yet released its report for the second half of 2012, and its not clear whether those cuts continued through the second half of the year or whether they’ll continue in 2013.

What is clear, though, is that ZTE’s “labor optimization” will probably have to involve some form of cutbacks. The company had an absolutely abysmal 2012, posting $400 million in losses, and no company can bleed like that for long without making some serious changes. Whether that means layoffs or some other adjustments remains to be seen, but the company will have to make major changes in 2013 if it wants to keep its place among the world’s top smartphone makers.

The research firm Canalys has unveiled new data for Android shipments in Q4 2012. With Android now powering a third of all mobile phones shipped in that quarter, it’s especially notable that Android has helped China’s Huawei, ZTE (HKG:0763; SHE:000063), and Lenovo (HKG:0992) move into the top five among global smartphone makers.

Canalys tracked smartphone shipments in over 50 countries to conclude that the smartphone market grew 37 percent compared to the same time in 2011. Android is on 34 percent of all such phones around the world, with iOS on 11 percent of them.

There are actually four Chinese brands to look out for, as Canalys notes that Huawei, ZTE, Lenovo, and Coolpad (though the researchers used the “Yulong” (HKG:2369) parent company name) “all grew by triple-digit percentages.” As we noted recently, figures from Gartner have already told us that Coolpad (and Lenovo, ZTE, and Huawei) is outselling Apple’s iPhone within China. But that’s just within China. So CoolPad is mostly restricted to domestic sales, and is not in the worldwide top five.

Samsung still grew 78 percent globally according to today’s stats. Samsung was China’s top smartphone brand in 2012 as its Galaxy phone series, particularly the large-screen ones like the Note II, sold well. But Lenovo has plans to topple Samsung’s statue in China, with CEO Yang Yuanqing having recently declared that intention.

While Coolpad’s success is almost exclusively within China, its compatriot brands have successful overseas sales as well. Today’s report notes:

Huawei took third place for the first time in Q4 and ZTE fourth. As well as their home markets, they have been relatively successful in the US, where ZTE was fourth and Huawei fifth, driven by their portfolios of low-cost LTE smart phones. Even so, both vendors took less than 5 percent share each there.

Lenovo pushed out Sony to get into the top five. Here are the Q4 2012 global stats:

(Source: Canalys)

We reported last year that Chinese-brand smartphones make up 60 percent of sales in China, but Samsung remains the top brand. For now. Lenovo (HKG:0992) CEO Yang Yuanqing said this week that it’s “definitely our aspiration” to surpass Samsung (005930:KS) to become China’s top smartphone maker.

Yang put no timeframe on that aim. It could happen soon, as according to Canalys data last summer, Lenovo was China’s fastest growing smartphone brand in Q2 2012, increasing sales by 2,665 percent to stand as China’s third-biggest phone seller. ZTE was second. Samsung was top in China in both 2012 and 2011 thanks to its Galaxy S and SII phones along with a range of cheaper Android-powered options.

More recently, newer figures from Gartner showed that Lenovo had edged into second place in China. At the same time, Apple dropped to sixth position and the relatively unknown CoolPad brand rose to third.

It’s possible that Yang’s aspirations could be realised by the end of 2013.

The Lenovo boss voiced his thoughts during Wednesday’s earnings call with Chinese and international media. Amid all the talk of growing PC sales and doing well in the US, it’s worth remembering that Lenovo has strong mobile ambitions in its home country.

Keeping his options open, Yang also said that Lenovo “will assess whether we should launch [on] the Windows Phone” platform as well, joining rivals such as Samsung, HTC, ZTE, and Huawei in hedging their bets on Microsoft’s WP as well as Google’s Android.

Taiwan’s Digitimes Research believes that 189 million smartphones were sold in China in the final quarter of 2012, with 86 percent of those being Androids. It’s conceivable that 300 million smartphones will be sold in the country in 2013.

(Source: MorningWhistle)

It’s no secret that India and China aren’t the best of friends. The two countries still have unresolved territorial disputes, and are also engaged in an ongoing struggle for regional influence and control. So it’s no surprise that India hasn’t been excited about the idea of Chinese telecoms like Huawei and ZTE, both of which have close ties to the Chinese government, getting too deep into the Indian telecommunications market. And those two companies faced another big step backwards in their Indian aspirations late last week when India’s Department of Telecommunications (DoT) rejected their applications to be included on a list of domestic telecom companies.

Inclusion on the list would have made it easier for Huawei and ZTE’s Indian subsidiaries to do business in the country, especially on public sector projects. Both countries cited substantial manufacturing and investment in India, but were rejected amidst claims of security concerns. The real reason for the rejection may go deeper: the list was prepared by an Indian telecommunications lobbying group that neither Huawei or ZTE is a part of before it was approved by the Indian DoT. An internal memo from the DoT attained by the Economic Times raised the possibility that the companies might be included on some future list, though, saying of ZTE: “we may not include them now.”

Whatever the true reason for Huawei and ZTE’s rejection, India is clearly concerned about Chinese espionage via telecommunications networks. The country has also expressed concerns about Chinese telecommunications networks building infrastructure in Indian neighbor countries like Nepal and the Maldives, fearing that this equipment may be used to monitor communications coming out of India. Chinese companies, of course, claim that these suspicions are completely unwarranted, but at least in the short run, that isn’t likely to matter. As I’ve said before, brand China is poison (especially when it comes to telecommunications), and Chinese companies are going to continue having a very hard time convincing foreign governments that everything they’re doing is on the level.

(Sources: Sina Tech, Times of India, http://tech.sina.com.cn/t/2013-01-28/14338022829.shtml again)

That’s the most surprising finding in recent figures from Gartner which show that CoolPad’s Android-based phones have soared to third place in terms of the number of smartphones sold in China at the end of the previous year. CoolPad is one of four Chinese brands in the top six, a phenomenon we first noted last year when Canalys pointed out that domestic phone-makers now account for 60 percent of sales in China.

The CoolPad 8060, one of the phones now outselling the iPhone in China. (Image: ZOL.com.cn)

Going back to the Gartner numbers, China’s smartphone top six now looks like this:

• 1st - Samsung

• 2nd - Lenovo

• 3rd - CoolPad

• 4th - ZTE

• 5th - Huawei

• 6th - Apple

So how did CoolPad phones, made by the relatively tiny China Wireless Technologies (HKG:2369) which used to make PDAs and very unimaginative feature phones, manage to leap past the over-hyped and hallowed iPhone? And that’s despite Apple doubling iPhone sales in the country in 2012. As anyone following the progress of Android in China, you’ll have figured out how already. Android is one big reason, and price is the other. Basically, CoolPad is making a lot of serviceable – if not very trendy – phones for a mere 10 percent of the cost of an iPhone 5. The CoolPad 8060, for example, sells for just 500 RMB (US$80) unlocked, and is a highly affordable gateway to the smartphone world [1].

300 million smartphones to be sold in China in 2013

With smartphone sales at an estimated 189 million in China in 2012, and expected to reach 300 million by the end of 2013, Apple can no longer ignore the entry level market. To do so, some might say, would be to replicate the mistake of decades past that made Apple’s Mac OS into a fringe platform, dwarfed by the widely-used Windows. Apple might have an addressable market at the moment of a few hundred million Chinese middle-to-upper income individuals, but the larger potential market is people who can’t afford to pay out one, two, or three months’ salary for the current iPhone.

Although Apple would never go as low as CoolPad’s price points, there are rumors that Apple is pondering a lower-cost iPhone that could better help it battle Android in China and other important developing markets. Even if Apple aimed at half of the cost of the full iPhone, that would create a smaller iPhone priced at 2,500 RMB in China. That would at least put it closer to more well-specced Android devices in China (not CoolPad’s), such as the Xiaomi Mi2. The young phone-maker Xiaomi sold 7.19 million of its Android-powered phones in 2012, mostly to Chinese consumers.

In some ways, Xiaomi is the cool equivalent of CoolPad. While Xiaomi phones seem to be sold mostly to younger people, with 70 percent of them sold online, CoolPads are sold to a wider – and maybe less affluent – range of consumers from electronics retailers such as Gome and Suning.

CoolPad, then, represents the huge amount of people in China who’re ditching Nokia and feature phones, and jumping onto the cheapest thing that lets them play Temple Run 2. Apple needs to decide whether it wants to bring Xiaomi and CoolPad buyers closer to its price range, or forever push them – all half a billion of them – out of its exclusive club.

ZTE and Huawei seem to get lumped into the same basket when it comes to international security concerns, so it’s good to have an occasional reminder that the two companies are actually quite different. One key difference: Huawai is making a lot of money, ZTE is not. Huawei’s 2012 financial report is pretty triumphant; profits are up 33 percent and overseas business is growing. But ZTE’s preliminary report, released Sunday, makes for rather brutal reading.

All in all, ZTE thinks it lost about 2.5 billion RMB ($400 million) on the year. Net profit attributable to the shareholders dropped between 220 and 240 percent on the year, in large part due to drops in both the company’s revenue and profit margins. Revenue was down 18 percent year-on-year in Q4 2012 alone, and profit margin was down 11 percent over the same period due to an increased number of low-margin contracts both at home and abroad.

The company has rosier hopes for next year, though. In one release, it announced it would be undergoing complete reforms that would affect everything from the company’s management to its products and target markets. And the company is even predicting a profit for Q1 2013, although that sort of prediction obviously needs to be taken with a few grains of salt. Can the folks at ZTE right the ship in 2013? It will be interesting to find out. We talk a fair amount about the company’s image woes overseas, but that’s not going to be a particularly important problem if it can’t figure out a way back to profitability.

(via ZTE IR and Sina Tech)

Image via Reuters

It’s no secret that the US and China have a bit of a disagreement on their hands when it comes to Huawei, the ostensibly-private Chinese telecommunications company. Today, though, I came across this article in the Legal Weekly — a state-run newsweekly — that I think is very indicative of how the Huawei scandal is being packaged domestically and why this isn’t likely to be resolved anytime soon. Here’s a key passage from the article:

This [Huawei's R&D investments in the US] have also made the Americans cry “the wolves are coming,” and America’s “worries” about Huawei were laid bare in 2012. In addition to the US Congress’s investigation into Huawei and ZTE over “national security”, a US International Trade Commission member launched a number of “337″ investigations into the two companies, saying that Huawei and ZTE had stolen American companies’ intellectual property. Whether it’s the Congress’s suspicions or the 337 investigations, the intention is to prevent Huawei and ZTE’s products from entering the United States.

Of course, it’s no surprise that official state media would imply that American (and other countries’) suspicions about Huawei and ZTE are nothing more than protectionism. But I think this article illustrates the larger problem on both sides that will prevent this situation from being resolved any time soon, and a problem that all Chinese and American companies will face when trying to expand into the opposite markets: mutual suspicion that borders on paranoia.

As an American, I’ll admit that I’m probably a bit biased about this; I think that in the case of Huawei, the US is very right to be suspicious. I still haven’t heard a good explanation for why Huawei — ostensibly private company — has a Party office located in its headquarters, and I think both Huawei and ZTE have a lot of answer for when it comes to their business engagements with Iran. That said, though, other Chinese companies far less deserving of suspicion are going to be met with it anyway. We’ve written a lot about this before, but that’s only one side of the story.

The other side is that the suspicions now go both ways. If the US investigates Huawei, China will investigate Cisco. But the article I’ve quoted above goes beyond that; it indicates a complete lack of unwillingness to accept that at least in Huawei’s case, there might be some grounds for suspicion.

Of course, I would never expect state media to imply that Huawei might be helping the government spy on foreign countries. But if it wanted to, state media could characterize the US allegations as a misunderstanding of Huawei; ‘Americans misunderstand China’ is a well-worn and not entirely inaccurate story, and that would provide a foundation upon which to lay out a defense of Huawei; a clear explanation of its government connections. But instead, the article above — and many others like it — adopt a confrontational tone, suggesting that there is no question whatsoever that American motivation for keeping Huawei out of the US is strictly commercial.

(It probably goes without saying, but that argument is also hugely misleading; Huawei and ZTE products are already widely available within the United States and there has been no attempt to kick the companies out wholesale. Mostly, what has actually motivated the US investigations is an interest in limiting Huawei’s access to “sensitive” sectors of the US economy, like government and defense contract work).

In short, then, each side is now fully convinced that the other is operating with ulterior motives. The US believes Huawei to be, at the very least, a bit too cozy with the Chinese government, and China believes the US’s suspicions are politically and commercially motivated. Neither side has a completely convincing argument, and it’s hard to see much progress in either direction as both sides are no longer even speaking a common language. Instead, they are simply trading mostly-unfounded allegations back and forth, ignoring what the other side has to say.

There is blame on both sides here, and no real end in sight. A similar tone is already swirling over the SEC’s probe of accounting firms and PCAOB reports that might ultimately result in the delisting of Chinese companies from US stock exchanges, with some Chinese media suggesting that these investigations are the result of anti-China bias rather than the result of the SEC trying to enforce American laws. We can — and will — argue more in the days and months to come about who is in the right, but it is probably mostly academic at this point. The suspicions on both sides run quite deep, and it’s difficult for me to even imagine a way to establish at least some mutual trust again. That’s bad news for Huawei, but it’s also bad news for other Chinese companies, from startups up to the tech giants, that are interested in entering the US market. It’s also bad news for American tech companies looking to move into China, as they are likely to be met with similar suspicions going forward.

Taiwan’s Digitimes Research has a new report out looking at the smartphone landscape in mainland China. It states that sales of smartphones in China – across all platforms, like iPhone and Android – are expected to grow 137 percent year-on-year to 189 million devices in 2012.

It’s expected that 86 percent of fourth quarter sales in China will be Android phones (with 50.8 million Androids sold in Q4). For the year as a whole, that amounts to an impressive 157 million Android smartphones sold in China during the whole year, which is up 260 percent from a year ago.

The new report also signals a shift towards Chinese consumers favoring domestic smartphone brands, with local brands expected to account for 61 percent of China’s smartphone market in 2012 led by Lenovo. That syncs with Canalys data we saw last month which pointed out that China’s top five smartphone brands are, in descending order, Samsung, Lenovo, CoolPad, Huawei, and ZTE. That’s very bad news for the once-beloved HTC; as for other overseas phone-makers, only Samsung and Apple appear to be making a strong showing this year.

This all seems to be on a par with what Canalys said earlier this year. It found that China “accounted for 27 percent of the 158 million global smartphone shipments” back in Q2 alone.

[Source: Digitimes and Digitimes Research]

ZTE has not been having an easy go of things in the US of late. But investigations and financial troubles be damned, the company is apparently pouring another $30 million into its US operations, according to its US CEO Cheng Lixin. The money will be used to make and strengthen local partnerships, develop core technologies, and more with the general idea being to upgrade ZTE US’s level of localization and capabilities.

Forgive me, but it seems like with investigations in the US, India, and the EU, not to mention the company’s history of cooperation with Iran this money might be better spent on a PR campaign, or maybe just pulling back in the US for a little while and focusing on the new and interesting things ZTE has going on back in China.

Cheng says that the company already has partnerships with major US telecoms, and American consumers certainly aren’t generally aware of what ZTE even is, let alone that it’s Chinese. But those who have seen it before have probably seen it on the news being investigated by Congress — that’s not a good thing. Moreover, the bigger ZTE US gets, the more I expect its international and American rivals will push to make sure that Americans are aware of all of its past misdeeds, and of all the questions about its close ties with the Chinese government. In fact, I can’t help but wonder if this $30 million comes from the $20 billion ZTE just got handed by China’s state-run China Development Bank.

Whether it does or not, I think there are far too many unanswered questions about ZTE for it to be successful on a large scale in the United States. Clearly, ZTE’s management is willing to bet at least $30 million that I’m wrong; it will be interesting to see if that ultimately proves wise or foolish.

[Beijing Morning Post via Sina Tech]

There was lots of interesting tech news going down in Asia this week, and particularly in China. The iPhone hit in a few new countries, although there was more going down around the region that warranted attention.

Coincidentally, much of the news from this week did center around apps that run on iPhones though. I guess there just isn’t any escape, is there?

Charlie’s pick: You’ll Never Guess What The9 and ZTE Are Teaming Up to Work On

The MIIT news is huge, too — Steven will explain that shortly — but I’m going to pick this news this week because I think it’s indicative of where a lot of Chinese tech companies are headed right now. I won’t give away what it is they’re working on, but it’s something a lot of other tech and web companies are thinking about working on, too.

Rick’s pick: GREE’s ‘Metal Gear Solid: Social Ops’ Hit 100,000 Downloads in First 2 Days

This new title from GREE and Konami got off to a good start with 100,000 downloads in its first two days. And today we’re hearing that it the mobile game has gone on surpassed 500,000 downloads. And to mark the occasion, players will be able to earn 1.5x experience points from now until December 17 as part of its campaign to mark the milestone.

Steven’s pick: China’s App-ocalypse? All App Stores Might Have to be Regulated

China’s Ministry of Industry and Information Technology (MIIT) seems keen to regulate all of the nation’s app stores, leaving developers worried about the potential impact. This would apply even to Apple’s iTunes App Store and Google Play. While it might help control piracy and malware on the numerous third-party app stores in China, this kind of monitoring by authorities will, I reckon, likely involve some meddling into the kinds of apps that can be distributed.

Willis’ pick: Line App Launches in China

The chat app war is getting really intense! Tencent might have thought that WeChat was safe and secure in China with it huge user base. But Line isn’t giving up without a fight, hoping to loosen WeChat’s stranglehold in China. It’s unlikely Line will win the battle, but it’s ballsy for NHN Japan to take such big risk. Grab your popcorn, place your bets. We may be in for an epic battle in China between Line and WeChat. 

The9 is one of China’s biggest gaming companies. ZTE is one of its biggest handset and telecom equipment makers. So what do you get when you put those two things together? No, seriously, take a second and think of a guess! Got one? OK, here’s what they’re working on: an internet television company. Wait, what?

It’s certainly not what I was expecting, but it’s true: ZTE and The9 have announced the establishment of a new joint subsidiary company (to be not-so-creatively called ZTE The9) based in Wuxi that will work on value-added services for the internet television industry. The ultimate goal is to create products that will support the web, mobile phones, and televisions, to get into 90 percent of Chinese households with internet TVs, and to create a high-quality internet TV entertainment platform. The new company’s CEO Zhao Jingyi said that the goal is to do all of that within two or three years, which certainly sounds ambitious.

The9 does have content partnerships with a number of mobile and TV companies to bring gaming videos to their platforms, so the partnership isn’t quite as weird as it sounds at first, although I have no idea what ZTE is bringing to the table. But it may just be that the companies see an opening for smart TVs in China. If that’s the case, they certainly wouldn’t be alone; there has been a lot of talk about the future development of China’s internet and smart TV sector recently (fueled in part by all the Xiaomi TV news).

Personally, I do think there could be an opening for smart TVs and an internet TV platform to explode in China. Although the concept hasn’t really caught on in the West, where people who want to access the internet services via TVs often do so via gaming consoles or HTPC setups, both of those things are far less common in China, and set-top boxes seem like a very short-term solution that is destined to ultimately be replaced by services and platforms that come pre-installed on the televisions themselves. My guess is that ZTE The9′s two to three year timeframe is a bit overly ambitious, but I could certainly be wrong. The tech industry in China is developing very quickly, and in another couple of years, things might really look totally different. My guess is that ZTE The9 will also be up against a lot of competition, though. It’s clear that Xiaomi is interested in the internet TV sector, and I expect a lot of other internet and tech companies to head in similar directions over the next year or two, especially if Xiaomi is able to resolve its regulatory issues.

[via Sina Tech]

Image via Reuters

Hoo boy. Chinese telecom equipment provider Huawei has been having a rough couple of months what with all the speculation about spying coming from places as high up as the US government and the Indian government. But if you thought that was damaging to Huawei’s image and overseas business plans, wait until you get a load of this Reuters investigation (h/t to Sinocism for pointing this out):

Documents seen by Reuters show that a partner of China’s Huawei Technologies Co Ltd offered to sell a Huawei-developed “Lawful Interception Solution” to MobinNet, Iran’s first nationwide wireless broadband provider, just as MobinNet was preparing to launch in 2010.

The system’s capabilities included “supporting the special requirements from security agencies to monitor in real time the communication traffic between subscribers,” according to a proposal by Huawei’s Chinese partner seen by Reuters.

Huawei also gave MobinNet a PowerPoint marketing presentation on a system that features “deep packet inspection” – a powerful and potentially intrusive technology that can read and analyze “packets” of data that travel across the Internet. Internet service providers use DPI to guard against cyber attacks and improve network efficiency, but it also can be used to block websites, track internet users and reconstruct email messages.

The article goes on to say that MobinNet is actually using some of Huawei’s DPI equipment, although the company has denied selling it and it’s not clear how MobinNet acquired it. Last year, Huawei promised to restrict its business development in Iran by not signing new customers, but since MobinNet is not a new customer, it’s quite possible the companies are still working together.

If this is all sounding very familiar, it’s because Reuters released a similarly damning report about ZTE back in March. The report found that ZTE had sold “a powerful surveillance system capable of monitoring landline, mobile and internet communications” to Iran’s state-owned TCI.

Anyway, as far as international PR goes, helping Iran spy on (and subsequently arrest, torture, and kill) its own citizens is pretty high on the list of don’ts. At this point, it’s hard to imagine that either Huawei or ZTE have any hope of winning over Western countries that are considering allowing them to work in the local telecommunications industry. And while China seems to be taking the scrutiny of Huawei and ZTE personally, this report is just the latest in a long list of reasons why that scrutiny is pretty well-deserved. It’s also a good reason why the official scrutiny is probably irrelevant; even without official hoops to jump through, it’s doubtful that Huawei would be able to dig itself out of the PR hole that is “we helped Iran spy on its own people.” The Reuters story, for example, opens with a vignette in which Iranian authorities beat a college student with an iron bar, which is then immediately followed by the section about Huawei quoted above. That’s not the sort of thing a company can come back from quickly, especially when it didn’t have much PR good will to lose in the first place.

So Huawei and ZTE are toast in the US, and probably most of Europe, for the foreseeable future. But the real shame here is that this news will stigmatize other Chinese tech companies looking to expand too. Most Chinese companies don’t have internal Party committees and they certainly haven’t sold surveillance equipment to Tehran, but that isn’t going to matter much. That people will judge companies by their country of origin is biased and unfair, but that doesn’t make it any less of a reality, and every time news like this breaks, it makes it that much harder for the next Chinese company to gain any traction or trust outside China’s borders. There’s a reason major tech firms like Tencent are already rebranding when they expand beyond China’s borders. Brand China is poison, and it’s not all the Chinese government’s fault.

[Reuters via Sinocism]

Chinese telecom and mobile firm ZTE announced yesterday that it has signed a five-year $20 billion financing agreement with China Development Bank. This is the third round of financing between the two companies, as similar agreements were previously made by the companies in 2005 and 2009.

ZTE, which has been in dire financial straits of late, says it will use the financing mostly to fund overseas projects. But the continued partnership with China Development Bank is not likely to assuage fears of US congressmen or Indian authorities (among others) that the company is too closely tied to the Chinese government. That’s because the bank is not only state-owned, it is directly overseen by the State Council and is probably more integrated with the government than almost any other financial institution in China.

Of course, ZTE’s ties with the China Development Bank aren’t new, but this latest massive round of fundraising comes at a sensitive time, with governments from several countries considering investigations into ZTE and China’s government orchestrating what appears to be a payback campaign attacking Cisco. Given ZTE’s massive losses of late, it’s possible the company didn’t have much choice in the matter, but it seems inevitable that the company taking another $20 billion from what is essentially the Chinese government is going to lead people outside China to wonder about just how beholden to the government this makes ZTE. That kind of speculation can’t possibly be good for ZTE’s projects overseas.

[via Sina Tech]

Whether or not these accusations are true in either case is anyone’s guess — I haven’t been particularly impressed with the evidence presented on either side so far — but it now seems clear that the article above is not a fluke, but rather part of the first volley in what may well be a wave of attacks coming from Chinese state-run media and targeted at Cisco. For example, in addition to the China Economy and Informatization piece, another piece reacting to the Huawei investigation by suggesting Cisco and other US companies should be investigated was published in Caijing National Weekly yesterday. It reads very similarly to the China Economy and Informatization, accusing Cisco of conspiring with US officials to “plot attacks on competitors [like Huawei and ZTE]” and citing “information” suggesting Cisco has a virtual stranglehold on China’s network infrastructure.

Although the name might suggest it is connected to the independent and respected Caijing magazine, Caijing National Weekly is actually a state-run media outlet too (it is directly managed by China’s official Xinhua News Agency). One Cisco hit piece in state media in one day? That could be a coincidence. But two? That’s a little suspicious. And it wasn’t limited to just two; a Voice of China radio broadcast on the subject was adapted into this similar piece that ran yesterday in the People’s Daily. Then there was this article in the China Enterprise Report, yet another state-owned outlet. Numerous versions of this story were published across China’s major news portals, but most of them (every one that I looked at) seem to lead back to one or more of these state media reports.

It is clear, then, that China’s government has decided to respond in-kind to the frosty reception ZTE and Huawei have gotten from the US Congress. I would be quite surprised if a formal investigation into Cisco is not announced within the next few months, and other US companies like Microsoft may also be on the list. But it seems someone has decided that Cisco will bear the brunt of this storm; the company is mentioned more than a dozen times in each of the articles mentioned above. Cisco and other American and Chinese tech companies may need to batten down the hatches for what appears increasingly likely to become a protracted trade war of sorts.

(As a side note, the choice of Cisco as the target of these accusations is interesting given that Cisco has also been accused by the US of collaborating with the Chinese government. In 2008 the company was heavily criticized after it became apparent that Cisco had helped with the infrastructure of China’s Great Firewall censorship system, and in 2011 Cisco was sued in US court by Chinese Falun Gong practitioners for helping the Chinese government persecute them. On the other hand, though, rumor has it that Cisco has been partially responsible for the cold reception Huawei and ZTE have gotten in the US, and if that’s true, it would make Cisco a very attractive target for this kind of “revenge” in China.)

Investigating Cisco: the front page story in China Economy and Informatization

With the US Congress taking swings at Huawei and ZTE it was only a matter of time before China took some swings of its own. Now, the magazine China Economy and Informatization has run a front-page story about the security threat posted to China by Cisco (NASDAQ:CSCO) and other US companies, based primarily on data from China’s National Computer Network Emergency Response Team (CNCERT).

According to the article, more than eight of Chinese servers are being controlled by American sources via trojan horses and botnets. It also says that 3 out of 4 IPs found to be imitating Chinese banking sites originated in the US. The article jumps straight from there into a condemnation of Cisco and the “eight American King Kongs” that have made an “empty shell” out of Chinese information security. It quotes an anonymous information security expert as saying, “China is basically standing naked in front of the armed-to-the-teeth eight American King Kongs.”

But it turns out that’s pretty misleading. The article cites data from 2011, but CNCERT’s most recent information security report rates the threat to China as “moderate,” makes zero mention of Cisco, and does not suggest that the US or US companies pose any particularly grave threat as compared to other nations. CNCERT’s 2011 report — which, presumably, is the data set China Economy and Informatization was drawing from — is roughly the same. The United States is mentioned only twice as the source of attacks mentioned in the report, and is not listed as a significant threat. Cisco isn’t mentioned at all, and CNCERT’s summary of 2011 states that “China’s internet and network security situation continues to be stable, without any major internet safety incidents” and that things are generally improving. That is certainly a far cry from the China-is-naked picture painted by China Economy and Informatization and its anonymous expert.

It’s worth mentioning that China Economy and Informatization magazine is administrated by China’s Ministry of Industry and Information Technology. As a part of the state-run media and a representative of government interests, the magazine’s objectivity is certainly questionable, but for the same reason, it’s possible that the magazine is offering a glimpse into the future, and some idea of what the justification for a Chinese government investigation of Cisco could look like.

Of course, it is certainly true that a lot of the software and hardware used to access the web comes from the United States, though that’s probably not a sinister imperialist plot as much as it is a reflection of the fact that the United States has been a center of innovation and development in computing and internet technology for decades. Still, it’s understandable that this would make other nations, including China, nervous. But why the specific focus on Cisco as a threat in the China Economy and Informatization article? It’s not entirely clear.

CNCERT’s reports don’t cite the company as a specific threat, and the magazine’s evidence against Cisco is sketchy at best. Cited reports of Cisco interference are limited to a 2005 internet outage for some Beijingers that was traced to a piece of Cisco equipment, and IPTV drops for Xiamen Telecom users in early 2011 that were also blamed on Cisco technology. These temporary outages must have been annoying for the minority of users they affected, but it’s unclear how they represent a threat to China’s national security. Later, the article alleges that Cisco has “an extremely close relationship with the NSA,” but the only evidence cited for this is that 71 US congressmen (or about 13 percent of Congress) own shares of Cisco stock.

The article also states that reporters “learned” Cisco’s operating system is full of security flaws, although it does not say how reporters acquired this information or what its source is.

All of this is not to say that Cisco equipment doesn’t pose a threat to Chinese information security. Although the article does a poor job of supporting its case and it seems probable there are political reasons behind its publication, Cisco probably does have a close relationship with the US government, and as the article rightly points out, the Patriot Act can compel American tech companies to turn information about overseas users over to American intelligence organizations, which could indeed pose a threat to other nations’ national security.

As you might expect, the comments piling up on this article are quite divisive, with some net users agreeing that Cisco and other American companies should be investigated, and others accusing the author of being a party stooge and suggesting that replacing American technology with Chinese tech might only make things worse.

Regardless of whether Cisco or other American companies actually pose a security threat to China’s IT security, Chinese companies like China Unicom are already moving away from Cisco equipment and replacing it with domestic brands. This may in part be because of security issues, but it’s also because the domestic technology industry has been developing by leaps and bounds, and domestic companies that weren’t real players five or ten years ago are now capable of competing with Cisco and other international brands, at least when it comes to domestic contracts.

Will the Chinese government investigate Cisco and other American tech companies? It is not yet clear, but such an investigation is not unlikely. China’s government does have a history of pointing out what it sees as American hypocrisy; for example, each year it issues its own human rights report on the US timed to correspond with the US’s yearly human rights report on China. Moreover, the use of a state-run publication to promulgate these allegations against Cisco certainly implies that the government is watching this issue carefully.

[via Sina Tech]

Chinese phone and telecom equipment makers Huawei and ZTE are having a rough go of it overseas. A recent US Congressional investigation alleged that the companies’ technology may have security flaws that could be easily exploited for the purposes of spying or data theft, and now the Indian government is expected to announce soon whether or not it will be opening investigations of its own into the two companies.

India’s interest in the companies was inspired by the US report, which will be discussed at the upcoming meeting between the Indian Department of Economic Affairs and the Foreign Investment Promotion Board. Both Huawei and ZTE continue to deny all wrongdoing, and both companies have agreed to share their source codes with Indian investigators. Huawei global chief security officer John Suffolk told The Times of India that the company had also shared its source code with other countries in the past.

It’s not hard to see why ZTE and Huawei would pull out all the stops to ensure that they continue to have a future in India: the country has more than 1.2 billion people and a developing mobile market that could represent billions of dollars in revenue. Both Huawei and ZTE spokesmen have said previously that it makes no sense for the companies to permit spying because if discovered, such activity would shut the companies off permanently from huge markets like India and the United States. But Indian regulators, it seems, are just as concerned as some American congressmen about the ties both companies have with China’s government and military. It remains to be seen whether India will launch its own investigation, but if it does, it will be interesting to see what gets turned up.

This kind of scrutiny and suspicion is something more Chinese tech companies are likely to face as they begin to move outside of China. Whether it’s fair or not, concerns about associations with China’s authoritarian government have already blocked numerous Chinese companies’ attempts at acquisitions and expansions abroad, and that trend does not seem likely to shift anytime soon.

[CIOL and Times of India via Sina Tech]

Some popular domestic-brand phones.

Over the past couple of years, Chinese companies have been cranking out smartphones like clockwork while global brands like Nokia and LG have busied themselves with losing market share left and right. The result, according to research firm Canalys, is that as of Q3 2012, domestic brands account for 60 percent of China’s smartphone market.

The top five smartphone brands are Samsung, Lenovo, CoolPad, Huawei, and ZTE according to the research firm. Samsung is a Korean company, of course, but the other companies are all domestic brands.

Whether this trend will continue is anyone’s guess. Lenovo’s recent performance would seem to be an indication of growing Chinese dominance, as its mobile division has been kicking ass recently. ZTE, on the other hand, is bleeding staffers and money, and cutbacks to the mobile department (or straight-up bankruptcy) could lie in the company’s future.

[via Sina Tech]

ZTE has not been having a great month. After being accused by US lawmakers of spying (which is bad enough), it announced its projected third quarter financial results, and boy do they make for grim reading. Net profit down between 254 and 263 percent compared to last year. Losses of more than $260 million. It was the company’s worst quarter in eight years. These are the sort of statistics that scare the crap out of investors, which is why ZTE’s stock price has dropped by more than 20 percent in recent days.

These are also the kind of stats that make companies start thinking — and employees start worrying — about layoffs. Rumors have been swirling of a plan for massive layoffs involving more than ten thousand employees losing their jobs. And while ZTE was quick to deny this, there are signs that some serious belt-tightening is coming. Reports suggest ten percent of the company’s employees have already seen their salaries slashed by 20 percent. CEO Shi Lirong and other upper management folks have taken 50 percent pay cuts and promised not to raise their own pay until the company is in the black.

So what’s the reason for ZTE’s sharp slide? Being accused of being a security risk certainly hasn’t helped, but actually neither Huawei or ZTE is actually blocked from doing business in the US, and the US congressional smack talking isn’t likely to affect ZTE’s business elsewhere until there’s some hard data to back it up. Actually, the company’s mobile handsets look to be a bigger problem, as what just a few years ago was rapid growth has turned into declining sales and a huge reliance on mobile operators. A shocking 90 percent of ZTE’s phones are sold through telecom carriers, which means that when consumers are out choosing phones on their own, they’re overwhelmingly not choosing ZTE. It also means a lower profit margin than ZTE could be enjoying if it were selling lots of devices directly like Xiaomi does.

Taking its cues from that company, ZTE seems to be hoping that cheap Android handsets will save it. But it is late to that market and thus far none of its offerings have been able to make that emotional connection to consumers that successful smartphones like the Xiaomi, the iPhone, and some of Samsung’s handsets have.

ZTE has also been having trouble with its telecom equipment sales. To a greater extent than with phones, these sales are influenced by everything from the global economic climate to specific mobile carriers’ plans, and ZTE has found that especially in China — previously quite a strong market for the company — the economic slowdown in concert with the move towards 3G has resulted in lower levels of incoming investment. Again, ZTE hopes to offset this with a move towards consumer-side products that have a faster and more stable turnover rate, but whether or not its phones can attract consumers in such a crowded market remains an open question.

[Securities Daily, Investor Report, and China Industry and Commerce Times via Sina Tech, Sina Tech, and Sina Tech (respectively)]

China Mobile shows off a 4G-equipped car at a recent event (Image: Techinasia.com)

Phone-maker and telecoms firm ZTE (HKG:0763; SHE:000063) might be reviled in the US, but it’s still loved by fellow Chinese companies. To prove that, China Mobile (NYSE:CHL; HKG:0941) has just awarded ZTE the contract to construct China Mobile’s 4G TD-LTE networks in five Chinese cities: Beijing, Tianjin, Guangzhou, Shenzhen and Shenyang.

According to ZTE’s announcement today, this new tender also means the company will produce 20,000 4G base stations for China Mobile during its slowly expanding test phase. That’s currently going on in 13 Chinese cities ahead of an expected national 4G launch in, according to China’s minister of industry and IT, 2014 or 2015.

ZTE beat out bidders from around the world for this major TD-LTE contract, such as Ericsson, Nokia Siemens, and its compatriot Huawei.

Authorities are taking the 4G rollout very slowly as it tackles the issue of slow uptake of 3G in China. Official stats from all three mobile telcos in the country reveal that there are just over 130 million 3G subscribers in the country, with more than 60 million of those on China Mobile, the world’s biggest mobile telco. That’s a fairly big number, but it’s actually quite a small slice of China’s one billion mobile subscribers.

China Mobile might be the only mobile telco in China that will use the homegrown TD-LTE protocol for 4G, though that is not yet clear. China’s TD-LTE standard is being adopted outside of China – but if China Mobile is all alone in using TD-LTE in China, then it could face a re-run of its awkward lack of quality phones caused by it using the homegrown TD-SCDMA 3G standard. That has caused it to never get the official iPhone deal from Apple, and the iPhone does not support TD-SCDMA at all.

Earlier today, U.S. Congressional investigators fired their latest shot at Chinese tech companies ZTE and Huawei, saying the companies pose a threat to American telecommunications security. Evidence that will be turned over to the FBI apparently indicates that equipment sold by both companies is stealing data and sending it back to China, although the committee is just passing along allegations of this and apparently didn’t look into it itself. Anyway, the committee recommended that “U.S. government and American firms avoid using equipment from the Chinese firms for tasks that involve large amounts of sensitive data.” It also expressed concern as to why ZTE and Huawei, supposedly private companies, have Communist Party committees within their corporate structure.

Needless to say, ZTE and Huawei were not excited about this, and Huawei has already suggested that the allegations against it are baseless. Many Chinese net users seem to agree. Many see the announcement as a kind of protectionism, although it’s worth mentioning that many Chinese headlines are suggesting implicitly that the U.S. Congressional investigatory committee’s recommendation means the U.S. has banned Huawei and ZTE products (which isn’t actually the case). In one early weibo post that has been retweeted hundreds of times as of this writing, a product manager at one tech site wrote:

Large airplanes, high speed rail, cars, organic medicines, and telecommunications are high-value products, and thus fields that Europe and the U.S. definitely don’t want to allow China to develop. When any Chinese product [in these fields] comes out they will find an agent to manufacture [negative] public opinion, make the problem seem bigger until [the Chinese product] is strangled. There are also many [in China] who make money off the sales of foreign products, so they’ll stand on the front lines of the fight to smother Chinese products. This is the reason that the high-speed rail crash was made into a big deal.

As you might expect, he’s getting a lot of crap for that last line about the high-speed rail crash (as well he should be), but overall, this does seem to be the prevailing sentiment when it comes to the accusations about Huawei and ZTE. A few have pointed out that when it comes to issues of protectionism in tech, perhaps the country that has blocked Facebook, Twitter, and a dozen other hugely popular overseas web services probably shouldn’t be throwing stones. But hypocritical or not, some folks are definitely angry about what they perceive to be the mistreatment of honest Chinese companies at the hands of the U.S. Congress.

Personally, while I sort of sympathize — I too think that Congress sucks — I’m not sure they’re wrong about this. Even without seeing the evidence for Huawei and ZTE products conducting spying, I do think it’s fair to be skeptical about companies with such close government and military ties. If Colin Powell were to found a tech company and begin exporting products to China, I have to imagine China’s reaction would be pretty similar, especially if there was a U.S. political committee as part of the company.

Moreover, much of the reporting and retweeting in China is making this seem like much more than what it actually is: a couple guys on a committee making some allegations in public before passing their investigation on to the actual pros at the FBI. The committee’s report does not speak for the entire Congress, let alone the entire U.S. government or the U.S. as a whole, but it is being perceived and sometimes reported that way on the Chinese web.

Whether there’s much truth to the Congressional report’s allegations remains to be seen. In the interim, though, it will be interesting to see if this news gains enough traction in China to get that country’s nationalists to stop yelling about islands for a little while.

On Wednesday, ZTE spokesman David Dai Shu announced that the company will be partnering with Mozilla to develop and release a mobile operating system. The system will be released later this year, or in early 2013. ZTE also said it was working with a regional telecom operator somewhere outside China that would release phones using the new ZTE-Mozilla platform, but didn’t reveal which company it was or what region it would be servicing.

Details are very scarce so far on what this new OS will look like, though Mozilla are the folks behind Firefox so you can probably make some educated guesses. But ZTE’s spokesman made it clear that ZTE was not abandoning other operating systems, and would continue to release handsets for both Android and Windows Phone.

ZTE has also partnered with Mozilla to release devices for Mozilla’s Firefox OS, and those devices will be coming early next year. However, the joint ZTE-Firefox operating system is apparently different from Firefox OS (although we expect there to be numerous similarities between the two when they’re both released).

ZTE is of course not the first big Chinese company to push out its own mobile OS, Alibaba’s Aliyun OS and Baidu’s OS are Android alternatives we’ve known about for some time already. But are consumers going to be interested in choosing among these new OSes, especially when Android and iOS already offer very robust, compelling user experiences? We’ll have to wait and see.

[via Sina Tech, Reuters, image via Reuters]

2G vs 3G vs Wifi

Among all the mobile visitors to Baidu, we also see a strong trend in greater 3G usage, now up to 15.6 percent of pageviews, up from just 6 percent exactly a year ago. If those visitors are broken down by iOS and Android versus everyone else, it should be no surprise that 3G usage wins out:

Phone brands

Apple accounts for a strong 8 percent of such visits to Baidu sites, which is impressive for just a few models of iPhone and iPad. That makes it the third most-used brand of mobile device, by Baidu’s observations. Nokia still (though not for much longer) reigns over Samsung:

Breaking down the Android space, it should be no surprise that Samsung and HTC rule the roost. Huawei is a very strong third, with 9.8 percent; but that’s down a bit from the previous quarter. The smaller homegrown phone-maker Xiaomi sure is making an impact, with its one single model now accounting for 4 percent:

But the iPhone remains the king, just as it was when I last looked in 2011 Q4. At that time, the iPhone was the biggest model observed visiting Baidu, with 4.48 percent, but now it has rocketed to 9.6 percent in the newest stats. The Xiaomi M1 makes an appearance as well:

Mobile OS

Android is, as we expected, now bigger than ever before – the new stats show that 21.4 percent of all Baidu’s mobile hits were on Android devices. The Symbian S60 platform, as seen in many recent Nokias, holds on to a shrinking third spot. But the presence of the generic “feature phone” label, and other JAVA-based OSes like MTK and S40, shows that non-smartphones – like the Nokia 5233 that’s ranked second only to the iPhone in terms of popular models – are still widespread across China. That gives smartphone makers a lot of scope for growth.

Changing Telcos

The search giant is seeing a sea change in the dominance of China Mobile (NYSE:CHL; HKG:0941) – it’s now seriously ebbing away, flowing to a rising China Telecom (NYSE:CHA; HKG:0728):

For the full PDF report, head to the ‘Baidu Open Mobile’ page.

It has been another record-breaking quarter of smartphone sales in China with more than 42 million shipped in the country in Q2 2012. That’s from the newest report by the analysts Canalys. That represents 199 percent year-on-year growth in smartphone sales in China, and 32 percent up on the previous quarter.

Canalys also notes that:

China accounted for 27 percent of the 158 million global smartphone shipments, compared to 16 percent for the United States.

Samsung (005930:KS) remained the top smartphone vendor in China with 17 percent market share of sales. (Backing up web impressions stats we looked at last year showing that Chinese consumers love the Samsung Galaxy SII). But it can’t be complacent, as its sales were pretty flat. In second-, third, and fourth-place are, respectively, ZTE, Lenovo, and Huawei – all local brands. Lenovo saw astonishing 2,665 growth in shipments – but then it’s always easier to improve on a previously crappy performance. Apple fell to fifth place despite being up 102 percent year-on-year. HTC grew 389 percent, mainly on the back of its new Desire V phones which look to be replicating the success of the first Desire model. Nokia and Motorola both fell sharply.

Here’s all that condensed into our one simple graphic for China [1]:

The one primary winner among all this is Android, Google’s mobile OS, which is now on 68 percent of all smartphones sold globally. Apple’s iOS, by contrast, is on just 26 million of them.

Samsung is on top worldwide with “over 45 million” smartphones sold – that’s 35 percent of the pie. Apart from Taiwan’s HTC, no Chinese brands cracked the top five. Yet. Interestingly, that differs from IDC recent report for the same period that declares ZTE a new-comer in the global top five smartphone brands.

[Source: Canalys; via TechCrunch]

Chinese manufacturer ZTE (HKG:0763; SHE:000063) issued an announcement today pointing at something that we missed in the recent Q2 mobile shipment figures from research firm IDC. The company points out that for the first time it has broken into the top five of the world largest smartphone makers.

IDC notes that ZTE’s jump can largely be attributed to its strong performance at home in China, as well as improved international sales in the US and Latin America. Unfortunately, looking at the company’s business overall tells a slightly different story as profits are estimated to be down 60 to 80 percent compared to last year, which may be due to possible issues with China’s major telecoms.

Who did ZTE knock off to get there? If you guessed RIM, then you have made a logical inference!

In the first quarter of 2012 RIM sat in fourth position with 6.7 percent market share, just ahead of HTC at 4.8 percent. But both HTC and ZTE have leapfrogged the Canadian phone maker to the tune of 5.7 and 5.2 percent respectively for the second quarter.

Of course, the other big winner in the smartphone sweepstakes (as you may have heard by now) is Samsung which gained 7.5 percent market share in Q2.

ZTE has stated publicly that the numbers are a result of China’s big telecom operators (Specifically China Mobile and China Unicom) delaying invitations for cooperative bids and the closing of some deals until the second half of the fiscal year, meaning that the profits ZTE generated from similar deals last year didn’t make it into this year’s first half numbers.

Others have speculated there’s more to it than that, and predict layoffs within the year, although there doesn’t seem to be much to substantiate the layoff rumors just yet. It’s worth remembering, too, that ZTE is very international and was thus impacted more significantly by international financial troubles like the European financial crisis than most other Chinese tech firms.

But if ZTE is telling the truth about its flagging profits that also indicates a problem in a way: the firm is clearly heavily reliant on contracts with China’s major telecoms. As domestic smartphone makers increase exponentially, many of them with more appealing brands than ZTE, the company could find itself less appealing to big telecoms and boxed out of the contracts that clearly make up a big percentage of its current revenue stream.

The company recently announced a 4G smartphone, and is apparently banking on getting in on the ground floor as TD-LTE increases in popularity and (hopefully soon) becomes available to Chinese users.

[Sina Tech]

The Grand X LTE (T82) phone adopts the latest MSM8960 chip from Qualcomm, which is based on advanced 0.28nm technology. It also claims to be faster and more energy efficient compared to other smartphones on the market.

The handset runs on Android 4.0, and it is powered by a 1.5 GHz dual-core CPU, and features 8 megapixel main camera that supports 1080p HD video shooting and playback, along with a front camera that supports 720p HD video calls. The phone has a maximum download rate of 100M, and a 1900mAh large-capacity battery.

According ZTE’s announcement, the company has been investing heavily in LTE devices since 2008, and holds 7 percent of all global LTE patents among vendors. And if you happen to be in Shanghai to visit the Mobile Asia Expo from June 20 to 22, you can also see the full range of ZTE LTE products there.

He Shiyou, the executive vice president and head of the terminal handset division, says:

LTE is growing very fast in Asia and ZTE emphasizes technological development in this area. We believe 4G communications provides a tremendous opportunity for the telecommunications industry in Asia.

[Photo Credits: Ubergizmo]

The men — ZTE’s Dong Tao and Chen Zhibo and Huawei’s Xiao Chunfa — were accused of involvement in a bribery scandal that saw they attempting to gain advantages for their companies with state-owned Algérie Télécom. The men were tried in absentia, found guilty, and sentenced to ten years in prison, as well as fined five million dinars (about $65,000). The companies Huawei and ZTE have also been fined and banned from partnerships with state-owned companies in Algeria for two years.

Unsurprisingly, the companies have denied the bribery charges, and Huawei told Light Reading that the charges were “very serious” and that it was investigating them. Supposedly, international arrest warrants have also been issued.

Whether they’re guilty or not, Dong, Chen, and Xiao can probably rest easy; it seems unlikely that China would extradite them. But their conviction on corruption charges will only accelerate the swirling suspicions that Chinese tech companies are untrustworthy.

[Light Reading via Sina Tech]

The ZTE U880 for China Mobile. (Image source: Zol.com.cn)

China Mobile (NYSE:CHL; HKG:0941), as the world’s biggest mobile telco by subscriber figures, often demands dozens of phone makers do a little dance, and it selects a few of them to come back to its hotel room and engage in a bit of hardware cooperation. So to speak. It’s actually called the quarterly TD-SCDMA handset tender. And reports in the Chinese media suggest that the winners this time are ZTE, Haier, T-Smart, and Konka – all of which will produce one affordable 3G phone for China Mobile, with as many as six million perhaps being ordered in total this quarter.

That’s a lot of units to shift, making it a valuable boost to the (usually) local phone brands who take part and get selected. Lenovo didn’t make the cut this time round. ZTE has already done a lot for China Mobile’s 3G subscriber figures with the likes of its budget ZTE U880, also now as the ZTE Blade (pictured above). Haier is not well known as a phone brand, but has been pushing into mobile a lot more since last year. T-Smart and Konka, meanwhile, are much smaller gadget makers that might only be familiar to very low-budget phone buyers – Konka being notorious as a sometime maker of Nokia rip-offs, helped by the very Nokia-like font in its brand logo.

The same report suggests that Chinese chipmaker Spreadtrum (NASDAQ:SPRD) will be a big winner in this new China Mobile order, with its TD-SCDMA budget chipset thought to be powering the four chosen handsets. Last year we looked at how Spreadtrum’s new ARM 9 600MHz processor would likely help all three of China’s telcos roll out made-to-order, low-price Android smartphones to boost their not-too-stellar rates of 3G adoption. Currently, up to 2012 Q1, China Mobile has 59.56 million on its TD-SCDMA 3G network, with China Unicom (using the more global WCDMA frequency) close behind on 48.86 million.

[Source: Sina Tech - article in Chinese]

Microsoft (NASDAQ:MSFT) has just wrapped up its own launch event in Beijing for its new mobile operating system, WP7. It marks the official Chinese debut of the software, which will hit the shelves by the end of the month on new devices from Nokia, HTC, and ZTE.

Here are some of the event highlights, along with photos from various sources on Sina Weibo:

The hour-long launch focused on usability and readiness, emphasising that 2,000 Chinese-made apps – out of over 70,000 WP7 titles – have already been made, allowing potential switchers in China to be able to do all the social networking, gaming, and online shopping that they’d expect on a new smartphone:

Among the new apps was one on display from e-commerce site 360Buy (pictured below), and plus there are a number of updates to the early-bird Chinese WP7 apps that we looked at last summer:

WP7-powered phones from Nokia (HEL:NOK1V; NYSE:NOK), HTC (TPE:2498), and ZTE (HKG:0763; SHE:000063) all got a quick live demo:

China Telecom’s (NYSE:CHA; HKG:0728) deputy GM, Yang Xiaowei, hit the stage to explain in brief that his company will launch a CDMA version of Nokia’s Lumia 800 next week in conjunction with Nokia itself:

Weird interpretative dance. Apple doesn’t give you stuff like that!

ZTE’s contender will be this, the WP7-powered Mimosa:

HTC’s will be the HTC Triumph, which is a remake of the Titan phone:

Microsoft’s SkyDrive cloud service got some stage time, with the focus on its 25GB of storage compared to only 5GB on Apple’s iCloud:

That’s it for now. Nokia is expected to be in action this time next week launching its Lumia WP7 phones in China, probably with China Telecom, and maybe the other two mobile telcos as well.

[Most images from Popmobile’s Weibo page - thanks!]

According to IDC’s smartphone shipment projections (see chart below), we can expect China to push the United States down into the number two spot by a very slim lead. IDC’s senior market analyst Wong Teck Zhung explained:

PRC smartphone shipments are expected to take a slim lead over the U.S. in 2012 before the gap widens in the coming years… There will be no turning back this leadership changeover.

As for India, you can see that it is expected to make a pretty big jump to around 9 percent by 2016. IDC cites the future ‘aggressive roll out’ of 3G networks from local carriers, as well the increasing availability of low-cost smartphones.

The report qualified that the cost of smartphone ownership in emerging markets still needs to come down, however, and it’s hoped that regional vendors like Huawei, ZTE, Micromax, and Spice can help improve this situation over time.

Photo: Engadget

So for those keeping count, this is the third quad-core smartphone from an Asian manufacturer that we’ve mentioned in the past 24 hours (besides the Huawei Ascend D and the HTC One Series [1]). But now Chinese manufacturer ZTE (HKG:0763; SHE:000063) is bringing some heat at Mobile World Congress as well, with its own quad-core processor smartphone, the Era.

We’ve reached out to ZTE for more details, but according to Engadget the Era handset is powered by a 1.3GHz Tegra 3 quad-core processor, sports a 4.3 inch screen, and an 8-megapixel camera.

I’m not aware of details regarding availability and pricing, but readers may recall that a few months back ZTE claimed that it was going to double its smartphone sales during 2012, with its main focus being the US market. While the company still has a long way to go in the smartphone space, recent figures from Gartner show ZTE to be a big mover among the world’s mobile players, accounting for four percent of the overall handset market after Q4 2011, as you can see in the chart below.

China’s largest mobile ad platform, Madhouse, has released new stats which give a fresh picture of the smartphone landscape in China. It shows that, up to the very end of 2011, there has been a recent strong surge in Android usage, and that consumers are buying both cheaper and more high-end phones as iOS and Android phones spread across the social (and wage) spectrum.

The stats were taken from a very broad range of apps and websites that make use of Madhouse’s mobile ad platform, allowing the Chinese company to collate geographic, handset, and software data. And so this relates to observed usage, not sales figures. Some highlights include the 64.2 percent market share of Android devices (more than double that of all iOS ones), and another stellar quarter for Samsung (005930:KS) thanks to its range of Android phones.

You might like to contrast the Android aspects of the data with those sourced from Umeng, a rival Chinese ad and referral platform, which collects usage sessions data in the same way. Last time we looked at stats from Umeng, we crowned Samsung’s Galaxy S as the king of Android phones in China, but the Madhouse figures beg to differ.

Here are the five key areas of iOS and Android usage in China, whipped into graphic form by the Madhouse crew:

By Region and Province

It’s a bit of a surprise that Beijingers cause so few ad impressions. Perhaps the capital’s residents don’t browse the mobile web so much, are resistant to clicking ads, or can’t see their smartphone’s screens through the smog. No surprise, though, that the wealthier provinces make up the top four.

By Handsets and Phone Brands

But that doesn’t mean that only those with fancier phones go online, of course. Though Apple’s (NASDAQ:AAPL) iPhone 4 is the leading single model (albeit down 13.1 percent on the previous quarter), second place goes to the lowly Huawei C8500. In contrast to the data from Umeng, the Samsung Galaxy S is only the fourth most popular phone.

By Cost of Phone

As a corollary to the previous graph, we see the greatest growth in cheap phones costing from 1,000 to 1,499 RMB (US$159 to $238), such as the afore-mentioned Huawei C8500.

By Size of Screen

Meanwhile, higher-resolution screens were booming as well, presumably among more monied folk. Phones that have screens wider than 640 pixels include the likes of the Motorola MT917 and the HTC Sensation.

By Android or iOS Version

This data being from Q4 2011, we see that most iPhone users were on the fairly recent iOS 4.3, which was the last before iOS 5 rolled out. However, on the Android platform we see the effect of all those budget phones as the relatively ancient Android 2.1 was still (by a tiny margin of 0.4 percent) the most used version. The newest iteration for phones at that time was 2.3 (with 3.0 being for tablets).

But the headline news is that, judging by these metrics, Android is well over twice as popular as iOS in China – and a broad price range of handsets will accelerate that even further as yet more people snap up, say, the Galaxy S II and new budget phones from local brands Huawei and ZTE in the coming year.

As a side-note, Madhouse observed that just over half – 52 percent to be precise – of its tallied ad impressions were done over wifi, not 2G or 3G. Grab the full report from the Madhouse newsletter for February.

Photo: mycricket.com

2011 was a pretty big year for most smartphone vendors, with increased consumer adoption leading to strong growth for many industry players. Back in the fall we noted that both of the low-cost Chinese manufacturers ZTE and Huawei were projected to grow the most. Indeed, we saw ZTE (HKG:0763; SHE:000063) in particular overtake the mighty Apple in mobile handset marketshare worldwide, jumping to 4.9 percent according to numbers from IDC (see chart, lower right [1]).

And today Bloomberg is reporting ZTE claims it will double its smartphone sales over the next year, with the US becoming its primary market, overtaking its home market of China where it holds about 35 percent market share. Back in September, ZTE launched its first phone in the US market on mobile carrier Cricket, the ZTE Score (pictured).

Note that according to third quarter numbers, ZTE still has much ground to make up in the smartphone wars, although the future is a little shaky for RIM and Nokia, who still occupy a large chunk of the smartphone market (see chart, lower left).

In addition to expanding to the US, ZTE aspires to make headway in Europe, Brazil, and Japan. Over the past year, we saw the company push low-cost Android devices in developing markets as well, such as Indonesia and India. It will indeed be interesting to see what 2012 year brings.

Want a fake Nokia N9 that has a rip-off iPhone (or also HTC Sense) UI? Then some random shanzhai manufacturer has just what you desire. (Image source: Micgadget)

China’s ramshackle cottage industry of low-grade phone and gadget makers – known as shanzhai in Chinese – looks to be on the verge of extinction with one report saying that the southern city of Shenzhen has gone from hosting thousands to just twenty such shady manufacturers in the past year. It comes as consumers in the country become more aware of branding and quality, and also due to crackdowns on shoddy or pirated goods and other illegal activities in which some of these shanzhai manufacturers engage.

It’s hard to define precisely what these cottage industry factories do. Some are genuine OEMs or parts makers that create things like phones as a sort of side-line, perhaps using their own cast-off parts. Others are opportunists that copy a popular phone to make a quick buck. A few used blatantly ripped off names, such as NOKLA; although most just made up a random logo with no thought to long-term branding. According to Techweb, which today writes on the demise of these shady gadget makers, a shanzhai manufacturer could copy a phone and get it ready for production in just two weeks – in contrast to the year or more that it takes established manufacturers.

Shanzhai manufacturers were always superb at giving consumers what they wanted, and so they contributed as much – or more – to the fall from grace of Nokia in China as, say, Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG). That’s because whereas China’s wealthier citizens bought smartphones, a lot of its poorer and rural folks made do with shanzhai ‘feature phones’ that gave them what they needed: dual or triple SIM support so as to juggle the cheapest calling plans; TV antennae; dozens of colours or snap-on accessories; pick and choose a fake UI skin that aped iOS, Symbian, or Android. It was grassroots innovation – so long as you didn’t expect your new phone to last for years. The fly-by-night gadget makers gave all those features, and more, for prices that way undercut Nokia (HEL:NOK1V; NYSE:NOK) and other feature phones.

The End is Nigh

But all that seems about to unravel, and it will be to the benefit of makers of cheaper devices, such as ZTE (HKG:0763; SHE:000063), Huawei, and perhaps Nokia as well.

The Techweb report says that a lot of factories in and around Shenzhen are going under, leaving thousands out of work, and collectively owing a lot of money to employees and investors. There appears to be four main reasons for this:

• A clampdown on illegal activities and piracy - With so many shanzhai manufacturers breaking numerous laws – from copyright infringement to tax evasion, the forging of IMEI numbers to the smuggling of parts or phones – increased police pressure is putting a lot of them out of business.

• Cleaning up Shenzhen ahead of the Universiade - A lot of the afore-mentioned clampdowns were actually clean-up campaigns related to the Universiade games which took place in Shenzhen in August of last year. Major events like these often cause a police sweep of normally overlooked illegalities.

• Consumers worry about quality - With a number of high-profile food safety concerns in China, consumers are perhaps thinking about their gadgets as well. After all, if a shanzhai phone explodes and rips your ear off, you’re unlikely to find the manufacturer let alone be able to win compensation.

• Better cheap phones from established brands - And, lastly, there are now cheap handsets with more diverse features from a number of well-known brands. They’ve finally realised they they need to listen to consumers more, and give them some useful features such as dual SIM slots.

We’ve already seen decreasing demand for these cheapo phones in China, but as long as there’s some measure of demand, some entrepreneur will choose to make a profit from it. And so we don’t think shanzhai is dead yet – perhaps it’s just about to depart Shenzhen and move inland.

[Source: Techweb - article in Chinese; image from Micgadget]

And this year's Android winner in China is... Samsung! Especially this Galaxy S, which seems to be China's hottest Android smartphone this year.

The Infographic of the Day series visually expresses important stories from Asia and the world of technology.

The Chinese mobile analytics company Umeng has released new stats which give us a clear picture of the Android user-base and the devices being used in China.

It shows us that in Q3 2011 Samsung (005930.KS) and HTC (TPE:2498) dominated the Android scene here, together accounting for about 53 percent of all phone traffic detected by Umeng. Bizarrely, it also reveals that Android tablets have become less popular this quarter, with decreased usage from Q2 to Q3.

Umeng only covers apps which utilize its mobile ad network – which we reviewed before – so this is not a measure of sales, more of active usage. But that’s actually fine, as it covers over 10,000 common apps that are downloadable from a range of sources and alternative Android app stores. And so it gives a pretty representative view.

Android Tablets vs Android Phones
Yes, Android tablets – which seem to be as popular as stale cakes – saw even less usage in China in Q3. The Ionesco-esque rhinocéros in the room is that the iPad is still booming, whilst Android tablets are not quite so appealing to consumers. Meanwhile, in the graph on the right, we see the top ten Android phone brands in China:

Phone Models
Samsung’s GT-I9100 – better known as the Galaxy S – is the most popular single model of Android phone in China. Huawei snuck into a surprise second place with its cheap but low-end C8650:

Tablet Models
Another victory for Samsung in terms of tablet models, with its seven-inch Galaxy Tab taking the top spot. It’s another home-grown competitor in second place, but this time it’s from Lenovo (HKG:0992):

Powerful Androids
It seems people are more likely to have really powerful tablets than phones. The processor speed (the CPU) of most phones is spread quite evenly, suggesting a broad price range of devices. The afore-mentioned Galaxy S phone has a 1 GHz CPU, making it pretty speedy:

Phone Screen Resolution
Further indication that many people in China are on budget handsets comes from the fact that about 40 percent of people are using phones with a resolution of 320 by 480 pixels or less. Higher rez screens, such as seen on the new Motorola MT917 for China are creeping in slowly, meaning that local developers need to remember to create more detailed graphics for apps and games:

Tablet Screen Resolution
Here’s the same scenario amongst tablet users here:

Pricey vs Cheap
From looking at the models that are on the Umeng network, the company has figured what kind of money people are currently spending on their Androids:

Across China
No surprises here, where the richest areas in China show the most usage of these smartphones and tablets. In descending order, the provinces are: Guangdong, Jiangsu, Zhejiang, Beijing, and Shanghai, which are highlighted in that blue rectangle:

How Has All That Changed From 2010?
Good question, dear reader. Looking back at Umeng’s report from Q4 2010, we see that Motorola (NYSE:MMI) and HTC had the most popular models. So it has not been too great a year for either of those to have been usurped by Samsung in 2011. Here’s the old view from 2010:

Download the full reports – and others from the archive – from Umeng at the link below.

[Source: Umeng report - page and report in Chinese]

A $100 Android device? That’s so passé. That’s because $50 Android smartphones are on the way for 2012. A brand-new pair of budget chipsets devised by the Chinese manufacturer Spreadtrum (NASDAQ:SPRD) will bring down the cost of entry to the world of smartphones very soon, with manufacturers able to make – says Spreadtrum – “$40 to 50” handsets that are expected to hit stores in China sometime next month. The chipsets – which hold an ARM 9 600MHz processor, and can support only the older Android 2.2 OS – have just starting shipping to OEMs.

One of the pair is the SC8805G (pictured above) which supports China Mobile’s (NYSE:CHL; HKG:0941) TD-SCDMA 3G network. The country’s largest mobile telco has already certified it for use on its network, and will likely subsidize a range of very low-price Android smartphones that will certainly be cheaper than its previous promotions for 1000RMB ($157) devices, such as the Huawei U8110, which is better known as the IDEOS (pictured below).

Previously one of China's cheapest Android phones, the IDEOS will soon by usurped by new $40 to $50 smartphones.

It’s not yet known which OEMs will be first to adopt Spreadtrum’s new chipset – but manufacturers have known they were coming for months in advance and will have been prepping devices in good time to ship in January, ready for Chinese New Year. Likely candidates include Chinese firms such as ZTE (HKG:0763; SHE:000063), Haier (SHA:600690; HKG:1169), and Huawei as well.

This development should increase the rate of 3G adoption in China, which has so far been quite slow. Currently, China Mobile has 43.2 million 3G users (in most recent stats for Q3 2011), the highest of China’s three carriers, despite running a made-for-China 3G spectrum not used anywhere else in the world.

The other chipset is the SC6810 for GSM handsets and which supports only 2G/GPRS plus wifi, and will likely power super-cheap Android phones on China’s other two networks as well.

In a press release to mark the shipping of these cheapest-ever Android-based chipsets, Spectrum’s president and CEO Dr. Leo Li, remarked that they were a first move into smartphones for his company, as well as a game-changing “new price segment that will make smartphone devices more accessible to consumers in China and emerging markets.”

Increasingly, Chinese manufacturers are breaking away from being OEMs and are also casting off the shoddy mantle of making shanzhai – fake, or low-rent – gadgets. That’s because the likes of OPPO, Tian Hua, ZTE, and many more, are aiming to make your next smartphone. In so doing, these ‘designed in China, made in China’ companies are hoping to emulate – and then topple – the likes of HTC (TPE:2498) and Samsung (SEO:005930).

And thanks to both Android and WP7, they have a chance of being the smartphone that more people in the US and Europe slip into their pockets.

Here are six Chinese brands who’re now pushing, and enhancing, their smartphone range more aggressively:

OPPO

(Image source: Engadget)

The Donguan-based OPPO sure likes ambitious marketing, recruiting Hong Kong starlets and even Hollywood heart-throbs for its marketing campaigns. But aside from those clever campaigns, its phones have been lacklustre, and its brand-name is still as low as it can go among Chinese consumers.

But its Android-powered X903 showed potential (pictured above), and it looks like it could find a niche – with later iterations – on American or US telcos as a budget smartphone for those who love hard keyboards.

Tian Hua

Tian Hua has been nicely cashing-in on its W700 smartphone (pictured above) this year, manufacturing it for Alibaba as the first Aliyun phone, for China Unicom (HKG:0762; NYSE:CHU) as a mid-range carrier device, and soon for the Indian telco Micromax.

Now that it has found its stride, it’s a contender for pushing further overseas – although it shows no sign of doing so yet.

Haier

(Image source: Phandroid.com)

Qingdao-based Haier (SHA:600690; HKG:1169) showed some flair earlier this year with the nicely-skinned UI on its seven-inch Haipad Android tablet.

And, indeed, being a larger company than the above two brands, it’s already on US shores – albeit with some low-spec and none-too-alluring phones. But it’s a start.

ZTE

Let’s get more realistic now and talk about a company who’s already making big moves in the US: the Shenzhen-born ZTE (HKG:0763; SHE:000063). Already China’s second-largest telecommunications business, it has hooked-up with UK, US, Canadian, and French telcos already. Its biggest-ever launch happened just this month as its mid-range, large-screen ZTE Warp (pictured above) hit Boost mobile.

ZTE looks the most likely to emulate the success of its Taiwanese brethren at HTC – by building its brand quickly with mid-range Android smartphone that are reasonably stylish and don’t look too off-puttingly cheap.

Huawei

Huawei is finally shaking off the shackles of being the guys behind the $100 (or 1,000 RMB) ultra-budget phones, such as its IDEOS. With such devices costing a reported 700 RMB to manufacture (before even adding in R&D and other overheads), it’s clearly better off building higher-end devices and spreading its name. To that end, the Huawei Honor (pictured above) is its biggest push, hoping to steal sales from LG or Samsung with a 1.4GHz processor behind a decent 4-inch screen. But it’s initially aimed at Russia, China, and the Middle-East; we learned earlier today that it’ll ship in December.

About the name… Huawei remains controversial in the US and elsewhere, unable to lose the stigma of being founded by a Chinese army soldier and retaining close ties to authorities here. That’s hampering Huawei’s telecommunications business – where it competes with Cisco, and Ericsson – and losing it contracts in overseas markets that fear security breaches. Perhaps its smartphones can be a softening touch to win round consumers (and politicians).

Lenovo

Not a smartphone, but a leaked Tegra 3 tablet from Lenovo. (Image source: Engadget)

Lastly, here’s a very well-known name: Lenovo (HKG:0992). Now the world’s number two PC-maker, Lenovo – like Huawei – has been only gradually moving away from cheap smartphones that had to be subsidized by Chinese telcos. It was an odd stage to be in: supposedly making some of the world’s best business-oriented laptops whilst simultaneously making some crappy phones that devalued its brand-name. The stylish LePhone was an interesting gambit, though it largely failed in the face of cheaper devices that weren’t tied to perennially unpopular carrier contracts.

But Lenovo is still lacking in convincing phones, and seems intent on complementing its PC hardware with some powerful Android tablets for the global market instead. There’s a Tegra 3-powered slate reportedly due by the end of the year (pictured above).

iSuppli forecasts that by 2015 global smartphone shipments are expected to grow from 478 million (currently) to 1.03 billion. It’s a higher profit sector than feature phones, and gives scope for international expansion.

Of course, there are still many challenges ahead – such as a lack of world-class local processing power; though Taiwan’s Mediatek (TPE:2454), or China’s Rockchip could grow in-line with strengthening local manufacturers (to truly maximize lower costs).

It’ll be interesting to see how keen – or resistant – western and pan-Asian consumers are to buying Chinese phones.

Chinese telecommunications companies Huawei and ZTE will help Softbank build it’s new 4G network. Softbank announced the new 110 Mbps network at an event yesterday, saying that it would launch in November.

The network will based on the AXGP format, which is compatible with the Chinese LTE TDD standard that Apple will reportedly support.

The announcement of the joint contract revealed what might be an underlying drama between Chinese rivals Huawei and ZTE. The latter had an interesting choice of words regarding the announcment, saying that it is the “primary strategic partner” for Softbank in building the new network, this according to a Bloomberg report.

Huawei had no such comment about the extent of its partnership, but its press release made no mention of ZTE. To be fair, there’s nothing that says it has to) — I just thought it was an interesting omission. When contacted Huawei by Penn Olson this evening, Huawei could not disclose the size of the contract, and not surprisingly, it declined to comment on its competitor’s comment.

It’s not insignificant that earlier this year Huawei sued ZTE alleging patent infringement relating to its LTE technology.

On a related note, both of these Shenzhen-based companies are expected to lead the smartphone industry in growth this year. For Huawei in particular, this venture in Japan is another example of how the company is stepping up its business operations overseas in comparison to at home (see right).

[Photo: mycom.co.jp, ascii.jp, Chart data from Huawei.com, PDF]

A few months back we looked at first quarter numbers from IDC regarding year-on-year growth among the world’s top smartphone makers. At that time, we noted the strong growth of Samsung and HTC (at 350 percent and 229.6 percent respectively), which likely correlated with the widespread growth of the Android platform.

Now new projections from Digitimes Research for the year 2011 still show stellar growth for those two companies at 191.3 and 106.2 percent projected for the year. But what’s even more notable is the growth that Digitimes is expecting for Chinese makers Huawei and ZTE (neither of which were specified in IDC’s Q1 release).

It’s expected that Huawei will see a 400 percent rise in shipments, moving 18.7 million units. ZTE should be close behind, expected to rise 330.3 percent with 14.2 units shipped.

Analyst Luke Lin elaborates on Digitimes’ forecasted figures:

Both China brands are benefiting from explosive growth in demand for Android devices, close ties with China’s local mobile operators as well as [the] competitive prices of their products.

It’s important to keep in mind however that these two companies, still have a long way to go before they can play with the big boys. According to the report, Apple – which will surpass Nokia as the top smartphone vendor – will move 86.4 million phones for the year 2011. Nokia, the only company in the report forecasted to see negative growth (see above chart), will move about to 74.4 million — still nothing to slouch at. Expect Samsung to leapfrog the Finnish phone maker next year if things continue like this.

Reliance 3G Tab

The past couple of days have been good to tablet lovers in India, as a couple of new offerings were announced from Samsung and ZTE. The former just announced the launch of two new Galaxy Tabs, the 750 and 730 models (known as the 10.1 and 8.9 elsewhere). While ZTE is partnering with Reliance Communications on the Reliance 3G Tab.

Of course, Samsung’s Galaxy Tab is the more attractive device, with both models featuring 3G connectivity, powered by a 1Ghz dual-core processor and sporting a gigabyte of RAM. The 750 and the 730 are priced at a steep Rs 36,200 ($800) and Rs 33,990 ($750).

And this is where ZTE holds an edge. Reliance is to sell the budget Chinese-made 7-inch tablet for 12,999 (or about $287). It will also come with a 3G plan discounted at 50 percent. The specs clearly can’t compare with the Galaxy, as it has just a 800Mhz processor and 512 megabyte of RAM. It comes with a four gigabyte memory card, but can accommodate up to 32 gigabytes. It will run on Android 2.3 and can also function as a phone, which may attract some users.

Like in many other countries, the tablet space is getting pretty crowded in India, with Blackberry, MSI, Acer, HTC, and Motorola all vying for position. But the offerings from Samsung and ZTE are both especially attractive in their own way — Samsung for its superior quality, and ZTE for its affordability.

Earlier today we reported about ZTE’s latest offerings in Indonesia. It seems the Chinese manufacturer is stepping up its game in emerging Asian markets. We’ll see how it stacks up against the rest of the competition in India.

Reliance 3G Pad

Android phones have started mushrooming in Indonesia, ranging from local products to famous brands. ZTE, a Chinese mobile phone vendor, is getting in on the action, preparing Android phones and tablets at affordable prices for the Indonesian market.

ZTE’s latest two phones are the Freddo and Blade. Both are powered by the Android 2.2 (Froyo) operating system. Freddo has a 2.8-inch screen with a 3 megapixel camera, and it will launch at a price of IDR999,000 (US$117). Meanwhile, the ZTE Blade, which has a larger 3.5-inch screen and 3.2 megapixel camera, is priced IDR1.4million (US$164).

The ZTE Light Plus Tab tablet is the second generation of ZTE Light Tab. The Light Plus Tab also has a 7-inch screen, and is now using the Android 2.3 (Gingerbread) OS. But it’s not rocking Android’s very latest tablet-specific version 3.0, which is a pity.

The smartphones will be released on August 16, while the tablet will follow in September.
Susanto Susilo of ZTE Indonesia says:

All three products will be bundled with an XL SIM card. The bundling package includes free unlimited Internet for three months.”

Given the enthusiasm Indonesians show for new mobile phones, ZTE has a good opportunity to make inroads in this market. Moreover, tablet products always seem to sell well in Indonesia, especially if there is a special promotion as there was with the Huawei Ideos S7 Slim recently.

Don’t be surprised if the ZTE Light Plus Tab grabs some attention among Indonesian users too.

The order is believed to be for six different handsets, of 500,000 to 600,000 units each. All of them will be 3G smartphones, on the homegrown TD-SCDMA frequency that China Mobile uses, and they will all be low- to mid-level phones on the cheaper end of the smartphone scale.

Mobile TV is the most unique feature that the phones will bring. Again, this is a China-developed technology – the CMMB standard for mobile TV transmission – that is being pushed by the state-owned China Mobile.

The mobile TV roll-out started in March of this year, across 300 cities and to huge fanfare in (state) media – see this Sina Tech report from the time (article in Chinese).

It’s not clear which OS this new batch of mobiles will be running, but it is very likely that they’re also rocking China Mobile’s own Android modification, dubbed OPhone, which has mobile TV support baked in – as seen in the two photos of the OPhone-powered Lenovo O1 in this post.

China Mobile has struggled to get appealing handsets onto its TD-SCDMA network, but this year finally got some attractive top-end Motorola and HTC smartphones.

Between the previous sales figures and this new crop of mobile TV smartphones, China Mobile actually looks set to reach its initial goal of selling five million of them by the end of this year. Perhaps by then I will also have seen someone actually watching live TV on their phone, which I’ve not yet spotted.

[News source: Marbridge Consulting; Photo source: Zol.com.cn]