ZTE says 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 customization 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 customization should only be part of a broader strategy.
ZTE has strong R&D capabilities. Scale is important and ZTE states that it has 7,000 employees in its handsets division, many of whom are in R&D.
Being a wireless infrastructure provider also gives knowledge of the industry, technical expertise, and potentially the ability to sell devices to infrastructure clients.
Although international vendors have narrowed the gap, ZTE also still has price advantages, and will continue to be able to compete on this basis. Interestingly, ZTE has also shown willingness to break the model of manufacturing in China, with handset factories in Brazil, Venezuela, Zambia, Kazakhstan, Algeria and India.
Domestically in China, ZTE has strong relationships with China Mobile, China Telecom and China Unicom. This should lead to continued growth, enhanced by 3G rollouts and increasing handset subsidies.
ZTE has also shown strong integration capability in launching smartphones using Linux and Microsoft Windows Mobile. It states that it has the ability to deploy handsets with other operating systems including Android or LIMO, pending demand. ZTE must be aware that commitment to too broad a range of platforms may dilute scale advantages. Accordingly, its limited investment in Symbian is warranted.
One of the fastest-growing device segments is datacards. According to Ovum’s recently published Big-screen mobile broadband devices forecast: 2009–14, global shipments of big-screen mobile broadband devices will grow from a base of 43 million in 2008 to 180 million by 2014 – a CAGR of 27%.
ZTE’s goal is to capture 30% of this market in 2009, which equates to 16 million. according to Ovum estimates. With over 7 million datacards shipped in 1H09 (it claims shipments of 10 million in 2008), it is among leading vendors and on track to reach its goal.
As with handsets, ZTE has a strong position in China and in TD-SCDMA. However, it states that 40% of its datacard sales revenues in 1H09 were from developed markets in North America, Europe and Japan. It has delivered devices to T-Mobile, Telenor Group and Cosmote, among others.