SMARTPHONES: Smartisan Gets New Funding, But From Where?

Bottom line: Smartisan’s new funding and plans to produce 5-6 smartphones a year look like an anomaly in the highly competitive market, and it’s unlikely to survive as a standalone entity over the next 5 years.

Smartisan gets new funding

I was a bit surprised to read that a clear second-tier smartphone player, the uppity Smartisan, has received 100 million yuan ($147 million) in new funding, as we begin the latest week of summer. I haven’t seen this company’s name or many second-tier players like OnePlus in more than half a year, though their collective names have come up quite a bit in the bigger smartphone numbers.

That’s a reference to the “other” category in the quarterly smartphone figures put out by data tracking firms like IDC, which show that this collective group that includes all names lumped together after the top 5 is rapidly losing share. In IDC’s latest China market data that came out last week, the top 5 vendors, Huawei, Oppo, Vivo, Xiaomi and Apple (Nasdaq: AAPL), collectively controlled 73 percent of the market. “Others”, including the likes of Smartisan, had to divvy up the remaining 26.9 percent. But what was most notably was that 26.9 percent marked a sharp decline from last year, when this group controlled 36.2 percent.

China’s smartphone market is no small matter, comprising about 100 million in unit sales each quarter. That means about 27 million units sold between all the myriad smaller players in the last quarter. So it’s probably fair to say that none of those players can make more than 8 million in sales per year, or perhaps 10 million at the most for the players just after the top 5. Smartisan definitely falls into that category.

All that said, let’s take a closer look at this company, whose big claim to fame is its founder, Luo Yonghao, a fiercely proud individual known for his series of recorded English language instruction sessions that were popular in the 1990s and early 21st century. Luo was hoping to capitalize on that somewhat snobbish appeal with his Smartisan brand, which was supposed to be positioned as an upscale, somewhat elitist name, despite the fact that Luo had little or no experience in the sector before the launch.

The latest reports say the company has secured 1 billion yuan in new funding. Luo announced receipt of the funds, but didn’t give their source. That leads me to suspect that Luo himself may be providing the money, or perhaps is getting it from some of his business associates who have their own reasons for providing the funds to a company with little or no hopes for success.

More Models

Luo says the money will allow him to join the big leagues in launching five to six new models each year, and tries to tantalize by saying that his phones will soon feature some kind of artificial intelligence (AI) function. The reports also add this is the third fund-raising for Smartisan, following three previous rounds that netted 280 million yuan.

Lots has been written about Smartisan in the past, in no small part due to Luo’s famous background. The company apparently took on e-commerce giant Alibaba (NYSE: BABA) as a stakeholder about a year ago, which certainly looks like a vote of confidence. But then again, I’m not a huge believer in the wisdom of Alibaba’s investment strategy, which always seems a bit hodgepodge and designed to place its billions of investment dollars wherever it can.

My IDC source tells me apparently Smartisan apparently did post some quarter-on-quarter growth in the second quarter of this year, but that its first-quarter figures weren’t that high to start. It only controls about 1 percent of the market, equating to about 1 million units for the quarter. Still, any growth for such smaller players is probably a positive sign in the current market.

All that said, the overall picture for all of these smaller players still isn’t too promising in the current climate, where Oppo, Huawei, Vivo and a resurgent Xiaomi are all taking share from smaller players like Coolpad (HKEx: 2369) and OnePlus. I’m hardly convinced that Smartisan can buck that inevitable trend, especially if it plans to produce 5-6 models per year. But perhaps industry people know something that I don’t, and Smartisan will become one of the few surviving niche players when the dust finally settles. But I wouldn’t bet on it.

 

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