Alibaba to invest $590m in phone maker Meizu

Analysts say deal will help e-commerce giant expand YunOS operating system

China's largest e-commerce company Alibaba Group Holding Ltd announced on Monday that it had inked a $590 million investment deal with budget smartphone maker Meizu in a bid to evolve its ecosystem.

Experts said that the two companies will benefit from the cooperation, if there is a big jump in the sales of Meizu phones, many of which are now loaded with Alibaba's YunOS operating system.

Alibaba will provide resources and support in e-commerce and mobile Internet to Meizu, in an effort to hone the integration of hardware and software and to advance its mobile strategy, the company said in a press release e-mailed to the Global Times on Monday.

Smartphone maker Meizu, located in Zhuhai, South China's Guangdong Province, will offer support for the promotion of the YunOS smartphone operating system and off-line sale channels to Alibaba, the press release said.

Another investor, a fund under leading brokerage firm Haitong Securities Co, also invested $60 million in the firm, Meizu said on its official Sina Weibo account on Monday.

In a report published on news portal caixin.com on Monday, Li Nan, vice president of Meizu Technology Co, was quoted as saying that Alibaba is a financial investor, and the company will engage in a series of cooperation with Alibaba.

Li Yi, secretary-general of the China Mobile Internet Industry Alliance, said Alibaba's intention has to be strategic, rather than just a financial investment.

"Alibaba believes a mobile operating system is the foundation of an ecosystem, therefore it has to find a handset for its YunOS. Investing in a handset device manufacturer helps Alibaba to realize its object of enlarging the user base of its YunOS," Li told the Global Times Monday.

"Some other brands like Huawei, Lenovo and Coolpad are either cash-rich or on the way to developing their own smartphones, or restricted to being just a hardware device manufacturer," Li said, "Meizu's brand-building and marketing methods make it resemble [smartphone rival] Xiaomi."

Xin Haiguang, a Beijing-based independent Internet industry analyst, said the cooperation will intensify the already stiff competition in the Chinese smartphone market.

Among domestic handset makers, Meizu has some brand value and a certain amount of users, Xin told the Global Times Monday.

"If the money was thrown into hardware R&D, it should be able to make a difference in Meizu's products," Xin said, "whether its shipment volumes can be boosted is the key."

Meizu announced on its Sina Weibo account on Monday that it had sold out 10,000 units of its new sub-brand Meilan smartphones in just one minute via its official site and flagship store at Alibaba's e-commerce platform tmall.com.

Meilan was unveiled in December 2014 and the phone, which has a version powered by the YunOS system, is sold for 699 yuan ($111.80).

An industry-wide reshuffle is not likely, as manufacturers of low-end offerings each have their established niche markets and are difficult to force out, according to Li.

But the focus should be on how to successfully convert some of the Xiaomi fans to Meizu, Li noted.

Alibaba has witnessed the success of some companies such as Xiaomi which rolled out a wide range of products including smart TVs and air purifiers, Li said.

In terms of sales for 2014, Beijing-based Xiaomi Inc led the market with 60.8 million units sold, followed by South Korea's Samsung Electronics with 58.4 million units and Beijing-based Lenovo Group with 47.3 million units, according to a report by IHS Technology in January.

Meizu's shipments stood at just below 2 million in the last three months of 2014, Reuters reported on Monday.