Mobile: Easou, UC Talk Merger, Xiaomi Grows 宜搜与UC据传洽谈合并 小米手机目标翻番

The mobile Internet is buzzing today with a couple of interesting news bits, including one that could see an emerging new giant forming with talk of a potential merger between search site operator Easou and UC Mobile, maker of a popular mobile web browser. Meantime, other media reports say up-and-comer Xiaomi aims to double its sales this year, as it looks to move from niche player to a more mainstream maker of lower-cost, high performance smartphones.

All of this shows that the mobile Internet is shaping up as one of China’s most dynamic high-tech areas, as both service and hardware providers jockey for position in an area that is likely to eventually equal or even overtake traditional desktop web surfing. What’s particularly exciting in this case is that there are no clear early leaders in this space, meaning we could see some interesting new names come in to grab a major piece of the market.

The potential rise of such a major new player could well be underway if reports are true that online search provider Easou is in talks for a potential merger with UC Mobile. (English article) The reports are rather vague, citing an unnamed industry insider saying high-level executives from Shenzhen-based Easou, led by CEO Wang Xi, visited the Beijing headquarters of UC Mobile this week to discuss a possible tie-up.

It’s not really clear from the reports what was being considered, if such a meeting really did occur. It’s quite possible that other forms of tie-up besides an outright merger may have been discussed. I suspect the talks are probably still in relatively preliminary stage, though the participation of Easou’s CEO would indicate that perhaps they are past the exploratory phase.

From my perspective, the most interesting element in this story is that both Easou and UC Mobile are frequently mentioned as exciting, dynamic companies in their respective areas. UC Mobile has been frequently mentioned as a potential merger partner, and is reportedly looking for the right company to leverage its popular mobile browser. Meantime, Easou was the market leader in mobile search in the middle of last year, with 35.5 percent of the market. Desktop search leader Baidu (Nasdaq: BIDU) was close behind with 33.8 percent, followed by Tencent’s (HKEx: 700) Soso search engine with 25.8 percent.

The fact that a startup like Easou had the biggest share underscores that the mobile Internet is still a very competitive area with no clear leader. Accordingly, a tie-up or merger between Easou and UC Mobile could create a very compelling company that could easily emerge as the leader over both Baidu and Tencent in the mobile Internet space.

From Easou and UC Mobile, let’s move on to Xiaomi, which has risen rapidly over the last year since the introduction of its first smartphone, a low-cost, high-performance model called the MI-One. Xiaomi sold about 7 million of the smartphones last year, and is trying to maintain its momentum with the recent introduction of its second model.

Media are quoting a company executive saying that Xiaomi is aiming to double its smartphone sales this year to 15 million units, as it tries to move beyond its niche status to a more mainstream brand both inside and outside China. (English article) That strategy looks necessary if Xiaomi really wants to grow and become a major name in the space. But it will also put the company into more direct competition with much bigger domestic names that are also making major campaigns into lower cost smartphones, including homegrown giants ZTE (HKEx: 763; Shenzhen: 000063), Huawei and Lenovo (HKEx: 992).

Xiaomi has been successful so far by cultivating a relatively “cool” image among younger consumers and by limiting the supply of its phones to create perceived shortages. But it could easily find its bid to go more mainstream may be more difficult than it realizes, and I wouldn’t be at all surprised if the company has trouble meeting its ambitious 2013 target of doubling smartphone sales.

Bottom line: A potential tie-up between Easou and UC Mobile could create a major new mobile search player, while Xiaomi could have trouble meeting its aggressive 2013 smartphone sales target.

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This article was first published in the online edition of the South China Morning Post at

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