ZTE has ambitious goals for its devices business

ZTE states that its total mobile handset shipments in 2008 were 45 million (up from 31 million in 2007 and 16 million in 2006). The company claims to have shipped 27 million devices in 1H09, and is targeting 60 million for the full year. Although much of the growth is from China, ZTE has also achieved growth in other regions including Western Europe with operators such as Vodafone and TMN, where a significant proportion of devices are co-branded.

Such growth is impressive, especially given that we expect the devices market to decline 9.1% globally in 2009. ZTE is clearly gaining volume share and it plans to be a top-five handset provider by 2011, and a top-three provider by 2013.

ZTE believes it has a number of sustainable competitive advantages that will enable it to achieve these ambitious goals.

One point of differentiation with leading manufacturers is ZTE's aim to be, 'The best customized mobile phone manufacturer in the World'. It has already worked with operators for lower-end products but has achieved fewer wins for more sophisticated devices.

There are advantages of this customisation strategy, including less reliance on the success of a few 'hero' products - but there are also potential drawbacks. For example, ZTE's brand strength may not grow as strongly as otherwise. There is also the threat of operators moving away from this market as they focus on their core business of voice, messaging and data. Additionally, unlike leading vendors, this strategy makes it harder to develop a device services strategy (which ZTE lacks) to build both loyalty and potentially extra revenues. In addition, most distribution, even in developed markets, occurs independently of operator channels, so customisation should only be part of a broader strategy.