Date
24 October 2017

Money is key for small fish in smartphone ocean

China’s smartphone makers are seeking fresh funding from venture capitalists as the homegrown firms try to scale up their businesses amid intensifying competition in the market. There is renewed buzz in the sector after Xiaomi saw its valuation hit the US$10 billion mark following its financing initiatives, and Lenovo (0992.HK) announced the purchase of US handset maker Motorola Mobility.

Among the firms unveiling new plans is Meizu, a Guangdong-based smartphone maker which has been in the market for more than five years and signaled its presence even before Xiaomi hit the street. Its founder Joe Wong recently said in a microblog post that that he will return to the company after the Chinese New Year to consolidate the firm, improve its sales and marketing activities and introduce external investors to grow the Meizu brand.

With a focus on product development, Meizu can have further room for growth if it secures new funding, Wong said. 

While Meizu is far from a household name and is rarely heard outside China, it was one of the front-runners in China’s smartphone market. The company introduced smartphone devices in 2008, two years before Xiaomi was founded. Meizu products won user recognition when its M8 handset hit the street in 2009. The firm has been known for its keenness to interact directly with users to improve the products based on first-hand customer experience.

That said, Meizu has remained a relatively small-scale operation. Without sufficient external funding to grow its business, the company has lagged behind other local smartphone brands in recent years. 

Competing in China’s smartphone market is a money-burning game. Companies have to spend significant sums to establish the brands and grow the business; otherwise they will remain as small and niche players.

Xiaomi, for one, has shown the way to others by making the right moves. The company raised US$2.3 billion in four rounds of financing between 2010 and 2013 and took its valuation from US$250 million in 2010 to US$10 billion by the end of 2013, making it the most valuable start up firm in China.

The company has shown what a big difference a good warchest can make in helping a phone maker grow. Securing funds in stages with impeccable timing, Xiaomi was able to quickly build up brand awareness, enlarge shipments and grab market share.

Last year, Xiaomi shipped approximately 20 million mobile phones, and in 2014 it aims to double that figure. The company also ranked the third in terms of mobile data usage traffic in China, behind Apple and Samsung, according to Alibaba’s Taobao mobile data analysis, which tracks its users’ browsing habits and their devices. Meizu, meanwhile, did not make it to the top 10 chart.

Apple and Samsung currently control more than half of China’s smartphone market, based on mobile data usage, while the remaining half is shared by a wide range of local and foreign brands. And new players are still rushing in.

Tiger Liu, a former executive of phone maker OPPO, is starting a new venture One Plus. The start-up’s first product, which is scheduled to hit the street in the second quarter this year, will use top-class components and design but will be priced at an affordable level. The company has also teamed up with an overseas operating system developer to customize the phone’s software development for the international market.

One Plus could emerge as one of the rising stars in the China smartphone market and pose a challenge to Xiaomi, or it could end up being left behind like Meizu. The prospects will hinge on whether it can charm investors and attract enough funding support at an early stage.

– Contact the writer at [email protected] 

RC

EJ Insight writer

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