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Watch out, Apple! Here come Chinese smartphones

ZTE Grand S
Source: ZTE
ZTE Grand S

Apple. Samsung. Who will be the next big smartphone maker in the U.S.? Analysts say it could be a Chinese company.

Chinese smartphone maker Xiaomi already outsells Apple in China, and while it hasn't expanded outside of China yet, other Chinese smartphone makers have a growing presence in the U.S.

So far, their tendencies toward lower-priced Android devices not tied to a mainstream carrier contract have kept them off the radar for most in the U.S.

(Read more: China's Xiaomi 'new disruptive force' in the market)

But Apple and Samsung may have reason to be concerned about the Chinese makers, said Wharton professor of marketing Z. John Zhang.

"The point is they could very well use the same strategy as automakers and introduce a high quality product for a low price," Zhang said. "Nobody is really invincible."

Chinese companies are increasingly showing they are up for the game.

In mid-October, Chinese cellphone maker ZTE introduced to the U.S. two phones with higher technical specifications than their previous handsets marketed there. The devices, Grand S and Nubia 5, are available off-contract for around $400.

(Read more: 'Phablet' sales soar amid smartphone screen wars)

Huawei, another major Chinese player, has brought 4G LTE to MetroPCS customers with several budget smartphones, most recently the $129 Vitria.

Apple had 32.9 percent of the U.S. smartphone market share in the third quarter and Samsung had 32.6 percent, according to market-research firm Strategy Analytics. ZTE locked in the No. 4 spot at 5.8 percent and Huawei came in seventh with 3.3 percent. Worldwide, however, Huawei comes in at No. 3, with ZTE at No. 8, according to Strategy Analytics.

US Smartphone Vendor Marketshare %

Company
2012Q3
2013Q3
Apple 33.70% 32.90%
Samsung 27.80% 32.60%
LG 8.00% 9.00%
ZTE 4.40% 5.80%
Motorola 7.10% 4.10%
Others 19.10% 15.50%
Total 100.00% 100.00%

ZTE is hoping to overtake LG for the No. 3 spot in the U.S. market in just three years. It's already making moves to hit this goal, starting with expanding its brand recognition, said ZTE's U.S. CEO Lixin Cheng.

One way the company is looking to boost its brand is by aligning itself with a national sports team. Cheng and other ZTE representatives accompanied the NBA's Houston Rockets on their preseason tour in Asia and distributed their new phones to players.

"ZTE's biggest challenge—and greatest opportunity—is building our brand's visibility among U.S.-based consumers and influencers alike," Cheng said. "The Houston Rockets sponsorship is one key example of ZTE's commitment to elevating awareness among U.S. consumers."

Huawei has used similar tactics.

This summer, Huawei sponsored the Jonas Brothers' tour with meet-and-greet events and prizes. The handset maker also announced a similar partnership in early November with Marvel's latest movie "Thor: The Dark World."

More smartphone wars ahead

But capturing the attention of U.S. consumers takes more than just a big name connection or other flashy marketing tactics.

Samsung took eight years to build its product and U.S. brand recognition, said Zhang, who previously provided marketing training for the Korean company.

ChinaFotoPress | ChinaFotoPress | Getty Images

Like Samsung, ZTE and Huawei began in Asia as cellphone-component makers, giving them a manufacturing edge against U.S. handset makers, like Apple.

For example, ZTE can make products six to 10 months faster than its competitors, Cheng said.

Both Chinese companies also have more flexibility in customizing their products.

As for Huawei, the company's 20 years of experience in the information-communications-technology industry give it advantages in developing a better 3G or LTE device that's affordable, Huawei spokeswoman Elizabeth Wu said in an email statement to CNBC.

The companies' next strategy is expanding their distribution channels and adding more phones to mainstream carriers AT&T, Verizon, Sprint and T-Mobile. Chinese-made phones from these carriers often sell under other names, limiting brand recognition.

(Read more: Cybersecurity questioned after UK Huawei deal)

To reach this next tier, Chinese brands will need to increase their quality, analysts said.

Recent U.S. releases show that Chinese brands are moving in that direction: This year, Huawei released its first Windows phone, and ZTE's new Nubia 5 features a 13-megapixel Konica-Minolta sapphire lens, which makes the device one the top handsets for photography, although critics say it falls short of DSLR claims.

(Read more: Apple slips on a ring of blue glass)

"ZTE is in the place where Apple doesn't want to touch. They're moving the quality up increasingly and coming into the competition," said Michael Morgan, senior analyst with ABI Research.

However, Chinese companies still face many challenges with brand recognition and adapting to the ways Americans purchase smartphones.

"It's definitely not a cakewalk," Wharton's Zhang said. "You can't come in and clear the market. I don't think Apple or Samsung will let you do that without a huge fight."

(Read more: Google launches new Nexus 5 smartphone)

—By Evelyn Cheng

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