The Engadget Interview: Lixin Cheng on ZTE's US future at CTIA 2013

Last week at CTIA, we sat down with Lixin Cheng -- CEO of ZTE USA -- for a candid discussion about the company's future in the US. The conversation started with ZTE's current portfolio in the US, which consists of 18 SKUs -- primarily inexpensive Android smartphones (most with LTE) for the prepaid market. Mr. Cheng mentioned that the company's doing quite well in the US thanks to an 85.7 percent year-to-year growth in market share. ZTE is now in third place among prepaid handset manufacturers with a market share of 17 percent. He explained that carriers are seeing revenue growth from prepaid services which now account for 22.5 to 29 percent of revenue. This puts the company in a strong position for the future, despite last year's investigation by Congress. So we asked Mr. Cheng if and when ZTE would bring flagship phones like the Grand S or Grand Memo to the US in partnership with the four major carriers. His reply:

That's good news indeed. Hit the break for more, including our video interview and full transcript.

When quizzed about the kind of future devices we can expect to see from the company in the US, he mentioned that ZTE wants consumers to have choices and shared his admiration for Apple and Steve Jobs, adding: "If one day iOS open[ed] to us we would develop for that system." From our discussion it's clear that the Chinese firm is keen on adapting to different markets -- ZTE's chairman once said: "Our global success is coming from local wisdom." In the US, this means the company's committed to working closely with carriers while keeping an eye on what consumers want: "ZTE always believed [in] harmony in the ecosystem."

Our conversation then shifted to user experience with Mr. Cheng using ZTE's gesture-based snooze feature and camera innovations (found on the Nubia Z5) as examples of how the manufacturer is making handsets easier to use. We asked what ZTE is doing to avoid feature creep (yes, we're looking squarely at you, Galaxy S 4) and he explained that the company's identified -- and is focusing on -- five areas of interest to consumers. While Mr Cheng declined (off camera) to elaborate about these areas, he provided this gentle reminder: "We're position[ed] [as] affordable premium." No risk of spec bloat, then.

There's plenty of extra meat for you to sink your teeth into below. Our video interview is a bit long but definitely worth checking out. We've also included a full transcript.

Myriam Joire: Hi there, it's Myriam with Engadget. I'm here with Li Cheng, the CEO of ZTE USA. Hi how are you today?

Li Cheng: Good, nice to see you.

Myriam: It's good to see you too; last time was CES.

Li: Yes, great.

Myriam: So tell us a little bit about the product portfolio right now at ZTE for the US. You obviously have quite a few phones available. They're all here -- many of them with prepaid carriers and virtual operators. What is your positioning right now with the US? What are you aiming for, and maybe where are you planning to go from here?

Li: Yeah, that's right. So according to [the] latest statistics, actually ZTE has grown year over year [by] 85.7 percent in the US market in terms of market share -- one of the faster growing OEM handset manufacturers in this marketplace. So it's very good for us right now, and showing that our strategy's working, and as you see that some of the phones here... those are most[ly] for the no-contract carriers, and that is an area we are focusing [on], and also our market share in this area is now number three and with about 17 percent. And [a] couple years back, when I was taking this job, all the carrier[s] ask[ed] me, "How can you deliver your smartphone to the no-contract or prepaid segment?" So at that point in time, most prepaid carriers only can sell feature phones, and now today, you cannot find anything in feature phones. It's all...

Myriam: So, all of these are Android, right?

Li: ...yes. We have helped to proliferate smartphone users in the US and also to the prepaid segment, which is [where] you see that significant increase of the revenue for the carrier also -- from 22.5 percent now to about 29 percent of the revenue from the carriers now coming from no-contract services. So our strategy here, in the past, [was] really dedicated to support[ing]a carrier's strategy, to put [in] a dedicated resource to support each carrier, and [to] understand what they need -- their challenges -- and now we work together with them and address consumer needs, and of course, we focus on carrier[s] but also we focus on end-user experiences -- from [a] hardware and a software point of view, and that is... we will continue to do that.

Myriam: My question is: obviously ZTE has shown some... -- these are all low-end and mid-range devices -- ZTE has shown some pretty beautiful high-end devices year after year at CES, Mobile World Congress and even at CTIA -- at your booth generally you have all phones from abroad as well. When are we going to get a chance to see those. I mean the Grand Memo comes to mind. I mean, obviously I'm sure you're talking to companies like Verizon, AT&T already obviously, maybe T-Mobile and Sprint as well to maybe get some of the more flagship-like devices. I mean ZTE has a history of making really high-end devices for the domestic market, and you have some expertise with LTE, which is critical to the US market. What's kind of holding you back into, maybe, competing with Samsung and LG and the other big players here in the US?

Li: Yes, I think that's a good question. And so as you see we have a large Grand S at CES and also Grand Memo at Barcelona, and we are actually commercially shipping those products now in other parts of [the] world. So I have promised you at CES that we're going to bring the Grand S or Memo series into [the] US, and we are working on that, and I think that very soon we will announce some good news. And you see the product here today is no contract, and we'll also get into the post-pay in the traditional market.

Myriam: Can you share anything about... what are you targeting? Are you targeting large phones, flagship phones, camera-centric phones? Is there any specific area you think you can compete with, the big... the Koreans basically right now, really a few of the big ones and Apple, obviously.

Li: Yeah, as I said many times in the past, I have a full respect [for] Apple and Steve Jobs because... it's because [of] Apple, because [of] Steve, [who] really put a revolutionary kind of solution to the smartphone market. In the past everybody also actually developed [the] touch phone, touchscreen phone, right? And the smartphone. But until Apple launched iPhone then it's really getting...

Myriam: It became bigger, yeah.

Li: ...yeah bigger, and so I... so that's great to develop this market and get the consumers excited. And we also believe it will be much health[ier] for [the] ecosystem that we have choice for the consumer, different kind[s] of options -- iOS, Android, Windows and also the open other operating system[s] -- we really always strive to support different kind of operating system[s]. If one day iOS open[ed] to us we would develop for that system also. So that's our dedication to the market place, and then of course we also follow different kind[s] of market conditions and try to develop the right strategy and to support different market[s] around the world. ZTE's a global player; we're number four globally, and of course we also realize the difference between different market[s]. We... Our chairman said, "Our global success is coming from local wisdom." So for example [in the] Chinese market, the strategy we are doing there is different from [the one in] the US. And so [with the] US, we're more focused on the carrier. Through [the] carrier we reach the consumers, and then focus on customer experience. But in China [and] other part[s] of the world, that carrier may [be] less involved, and that we'll be more focused on the direct... to the customer channel and also to the customers. That's why... and sometimes you see that the phone we're launching in other parts of [the] world will be earlier than [the] US because, that... we can... actually ZTE is [in] full control on the driving seat, but in the US we need to [be] working with [the] carrier[s] and very specifically about their strategy and segmentation, and then normally it maybe takes [a] longer time. But as you've seen [in] the last few years our market share is growing and our brand name is more well known through the... to the carrier and also to the consumers, and they are now actually coming to me and saying "Li Cheng can you show me more?" and "Can you tell me more [of] what's happening." And then they... instead of in the past [when] they were just telling you "Li Cheng you've got to help me do this and that." So I think you see that it is developing, that it's changing, and I do believe that it's also great for the consumers in the US. And another part is that we're more deeply now partnered with local partners, for the apps and for the chipset, for the operating systems. We are one of the first to sign a license agreement with Microsoft for the...

Myriam: Windows Phone.

Li: ...yeah, for the... even for the Android product and we are also working with a lot of gaming companies here and [are] try[ing] to develop something... [a] unique phone which is [a] unique, optimized experience for the gamers that when they [are] using [a] ZTE phone they will be [having the] best experience for some particular gaming. And we are also... [we] did a lot of innovation on the camera side, and we [are] also focused on end consumer experience -- very smooth things but we'll improve there [with] user experience. For example, I believe you've used [the] iPhone, and when you have [an] alarm when you wake up in the morning and there is a snooze function, that you have to wake up and touch that in order to make the snooze function, right? That doesn't serve the purpose, but we have developed a usage interface, used as a gesture. And so you just, you even don't open your eyes -- you just wave your hand and then it snooze[s] for another ten-15 minutes, right? That's [a] small things that we are really working on to improve user experience. All these small things will add up to provide a unique ZTE hand... smartphone experience.

Myriam: So you talked about user experience, I was actually going to touch on that. You look at a phone like the Galaxy S 4. It's not about user experience. I mean, Samsung says it is, but it's about features. It's about piling up more and more and more software features and about putting every hardware feature that's modern and available on a phone. I'm not against the idea of putting all the hardware functionality that you can in a phone, but the way they are doing the software features, it's... they're mimicking the hardware, they're mimicking the spec sheet approach. So I think there's room there for someone to come which has a lot of resources like ZTE or another comp... competitor and find, like, an entrance into the US market that doesn't use that approach. So perhaps you can elaborate a little bit on what you mean when you say "we're trying to perfect the user experience." Obviously it's not about the feature set. It's about how the product feels and operates, right?

Li: I think that, Myriam, you have a perfect point. I think that's exactly our value [we] bring to this market. That's why we're very quiet but very successful in our gained market share in the marketplace. So we did some studies, and so we... looking to the... what is [it] really [that the] consumer cares [about]. So we have a list of things, that [itemizes] -- from number one to number 5 and that also goes down to number 10 -- what kind of features [they] really like. It's not what it's talking about in the media, but it's actually what the consumer use[s] from day to day. I think that's why, we've spent a lot of time and also in resource[s] and investment to improve those features and then bring that really true, unique user experience to the consumers. Another thing, if you['re] piling on all the hardware and latest technology on that, you're going to increase your cost, and so what we do... we are position[ed] [as] affordable premium. So the experience is very important and... to the carrier and to the consumers, and [what's] important [is] that... that the features and experience matters to you. It's not [what]matters to us, right? So I think that's something we focus on right now. And for example, we are working with some carriers -- again back to the gaming experience -- and we also did a lot of investment on camera and also continue to work with carrier[s]. Also different segment[s] of consumers have different kind of priorities of the features and also the user experience. We [are] unique. ZTE's way [to] organize that... we will be able to support so many SKUs in the US market, but for some other OEMs, they only can concentrate with very few global SKUs, and hopefully those SKUs will win the market for all. I think that is a challenge for some OEMs -- they're kind of competing with us because we have organized a way that we can support multi SKUs in the US. So far we have about 18 SKUs now active sitting in the US and we continue to launch new products.

Myriam: So one last question: Since you're starting to deal with the carrier... I mean, you've obviously have been dealing with the operators for a while in the US, but you're starting to deal with the big, big carriers now obviously with... from our discussion it seems that way. How is that experience for you? The reason I'm asking is because us at Engadget and generally the... our readers, people who are tech savvy who really understand the market, we find the carriers very frustrating, we find that they impose too much on the consumer of their way, and Samsung's actually done something very unique there that they are so powerful now -- their brand is so powerful -- that they're able to have a single device, which is their vision on all the carriers. How much... I mean, obviously , you're not in that position. How much... compromising do you have to make right now of your core values that you shared with me to accommodate these carriers in the US?

Li: So ZTE always believed [in] harmony in the ecosystem. So we want to see... everybody has to active[ly] participate in this mobile internet ecosystem because [it] is [the] only way. If everybody['s] winning in this, then [at the] end of [the] day, consumers would get more. Because if you... if we, say, only focus on consumers, that there is no one going to focus and launch your phone and bundle [it] with some wireless broadband services with you, [then] consumers would not have that experience. Ok, even if you have this kind of identif[ier] that this is a hero product [but] there is no OEM [that] can deliver and manufacture [it], that's also not good. And now of course content, apps and all those things all have to add it together. So we do believe it's not about [a] winner, one winner take[s] it all. So we have to compromise -- you used the word -- and try to balance the interest from different inner group[s]. But as I described earlier at [the] end of the day, you have to win the consumers. So we focus on consumer needs, and then we have to support carrier strategy because we have different kind[s] of packages, different service packages and plans for different segment[s] of the usage of the data or voice. So we try to give them the right hardware and software to support that kind of segmentation. And also nowadays everybody wants LTE, but the band is different and also the resource is scarce. So we... we also utilize our technology expertise to optimize using those kind[s] of experiences. And then of course, we're working with different, operating system[s], app[s] and then try to compile this together. I... I do not believe... we're not here today... we will not [be] doing that in the future, just pushing our own interest[s]. I think we, ZTE, emphasize harmony of the whole ecosystem. I think that will be good for everybody.

Myriam: No, I agree. I... I just think the problem... the conflict exists with the carrier often imposing on manufacturers and... certain add-ons that they feel are important, but they're not very beneficial for the consumer. And so then it conflicts with the fact that you're trying to bring the best experience to the consumer. We see this all the time. I'll give you examples: any Android phone on any carrier today, you pick it up, and there's apps you can't remove that are carrier apps, and they take up memory. And, there's been recently some discussion about how much memory is there on the Galaxy S 4, right? And that's what I'm talking about. Samsung's trying to make the best phone for the customer, but the operators are taking away memory by imposing applications that maybe some customers want, but some customers don't want. So that's kind of, I think, the challenge. The challenge is 'how do you get this harmony going, and that's kind of why I wanted to... to get your input, but you did share that so thank you.

Li: Yeah I think that... that definitely it's a challenge. I'm not going to defend [the] carriers, I'm not going to defend Samsung. But one thing is... you're right. That's really the challenge to balance, and compromise and harmonize the ecosystem, and that our growth in the past ensuring that ZTE manage[s] this challenge well. And we have always managed that.

Myriam: Great, well listen, I really appreciate your time. It's been wonderful getting your insight here at CTIA. Thanks again for the interview.

Li: It's always my pleasure.

Myriam: Alright, cheers.

Joseph Volpe and Landon Peck contributed to this report.