Nokia Corp introduced its first phone that runs on Microsoft’s Windows Phone operating system to China. The Lumia 800C, will operate on China Telecom’s CDMA network, the first Windows phone to use the system. The phone has features tailored to Sina Weibo, Youku, and Renren. Although Nokia continues to hold the largest share in China’s market for mobile phones, it is gradually losing ground to both local and overseas manufacturers such as Huawei Technologies, Samsung and Apple. Microsoft’s share of the Chinese smartphone market fell to just 2% last quarter from 13% four years earlier. “With the development of China’s mobile broadband network, the country is embracing 3G,” said Charles Zhang, Chairman and CEO of Sohu.com. Although public attention has been diverted to Apple’s iPhone, Zhang said he believes Nokia will be able to retain its strength in the smartphone industry. “Nokia is back,” he said.

ZTE Corp said it would increase the gross profit margin of its handset business this year. The company’s net profit fell 36.6% to CNY2.06 billion last year. “The company’s handset revenue grew very fast (in 2011), but its gross profit margin dropped,” said CEO Shi Lirong. The terminal business contributed 31.3%, or CNY26.93 billion, to ZTE’s total revenue, compared with 25.3% a year earlier. However, the gross margin for ZTE’s terminal business dropped to 15% in 2011, from 19% in the previous year. The handset business is part of the terminal business, along with tablet computers and other portable devices. “ZTE will enhance its technological innovation and we want to develop new smartphone models earlier than our rivals,” said Shi. The company was the world’s fourth-largest handset manufacturer by shipments in 2011, but most of its mobile phones are aimed at low- to mid-end customers. Telecom equipment for carriers was still the biggest revenue source for ZTE, accounting for 53.9% of its total in 2011. Its overseas revenue reached CNY46.76 billion, or 54.2% of its total revenue, in 2011, up 24%.

China’s smartphone industry is at risk of becoming embroiled in intellectual property disputes since many of the most important patents are held by foreign companies such as Google and Microsoft, according to the “Mobile Terminal White Paper”, issued by the China Academy of Telecommunication Research under the Ministry of Industry and Information Technology (MIIT). China shipped more than 110 million smartphones in 2011, more than the combined number of smartphones in the past several years. The country is the world’s largest production base for mobile devices. In 2011, China produced 1.13 billion mobile devices, including mobile phones and tablet computers. Those made up about 70% of the devices that were shipped globally. Domestic brands, such as ZTE, Huawei and Lenovo, made significant progress in producing mobile phones, especially mid-to low-end ones. ZTE’s mobile device business contributed 31.3%, or CNY26.93 billion, of its total revenue in 2011. In 2005, international brands occupied more than half of the Chinese market. But in 2011, China shipped 455 million mobile phones, among which domestic brands made up 72%. Telecom experts have warned Chinese companies that they may be hit with charges of violating intellectual property rights. Most smartphone patents held by domestic makers have to do with designs or physical forms and few are related to the central technologies. Xu Zhiyuan, Senior Engineer at the China Academy of Telecommunication Research, said international mobile companies often invest heavily in acquiring patents in the hopes of curbing competition through the use of patent lawsuits. “In the mobile device industry, there are patent lawsuits everywhere,” Xu said.  Though Chinese telecom carriers, as well as some internet companies such as Baidu and Alibaba Group, have developed their own mobile operating systems, their combined market share lags far behind the share enjoyed by the three most prominent international operating systems ― Apple’s iOS, Google’s Android and Microsoft’s Windows Phone. In the fourth quarter of last year, more than 68% of the smartphones sold in China ran on the Android operating system, according to a report by Analysys International. Nokia’s Symbian operating system holds a market share of 18.7% and Apple’s iOS has a 5.7% share, the China Daily reports.

Huawei has yet to see the same success in its handset business as in network equipment, as it reported shrinking operating margins following costly launches of new smartphones and tablet computers. Huawei’s carrier network business grew a mere 3% last year, underscoring the need for the company to diversify. Last year, it generated 74% of its CNY203.9 billion revenue. The company said last year that it wanted to become the world’s third biggest handset brand in 2015, but it faces formidable competition. ZTE also wants to become the third-largest supplier of smartphones by volume, a slot currently occupied by Taiwan’s HTC, the Financial Times reports. ZTE is launching a new Android-based model called the Mimosa X in July that it hopes will improve margins and help to establish ZTE as a serious player. ZTE and Huawei compete on a range of products and services but the former’s revenues of CNY86.3 billion last year are much smaller compared to those of Huawei. The company aims to sell 40 million to 50 million smartphones this year and 100 million units in 2015. Huawei said it shipped around 20 million smartphones last year. Huawei’s enterprise-business revenue last year rose 57% year on year to USD1.59 billion, of which 40% came from the Chinese market. The company said it would launch its first smartphone featuring a chip made by HiSilicon, a wholly-owned subsidiary of Huawei, in the third quarter, but did not disclose the price.

Huawei Technologies’ Founder Ren Zhengfei is splitting the role of Chief Executive with a panel of three executives who will rotate at six-month intervals. Deputy Chairmen Guo Ping, Xu Zhijun and Hu Houkun will join Ren as Co-chief Executives. Ren remains Deputy Chairman of Huawei, according to the company’s annual report. Ren founded Huawei in 1988 after retiring from the military in 1984 and built it into the world’s second-largest maker of equipment for phone networks behind Ericsson. Huawei initially implemented a rotating chief executives system last year in which Ren mentored the executives, according to a memo dated December 25, 2011. Huawei’s profit fell to CNY11.6 billion last year, less than half the CNY24.7 billion it reported a year earlier, according to the annual report. Profit fell as the company spent more on research and development (R&D) and funded the global expansion of  smartphones and computer services for businesses. Sales rose to CNY203.9 billion, from CNY182.5 billion. Hu took the first rotation as Chief Executive from October to March; Xu began the second rotation earlier this month; and Guo is scheduled to take the title in October. The rotation repeats after that. Huawei disclosed the members of its senior leadership team and board of directors for the first time a year ago as it raised transparency to offset security concerns in markets such as the U.S. That information showed Ren was related to at least two members of the firm: CFO and Executive Director Meng Wanzhou is Ren’s daughter, while Ren’s brother, Ren Shulu, sits on the supervisory board.