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Alibaba To Pay $590 Million In Chinese Smartphone Maker Meizu Acquisition

Alibaba Group Holdings Ltd. is set to acquire Meizu Technology Co., the Chinese smartphone marker in a $590 million deal. The move will boost the ecommerce giant’s goal of getting its mobile operating system to be accessed by millions in the China smartphone market.

Alibaba To Pay $590 Million In Chinese Smartphone Maker Meizu Acquisition

Alibaba, the largest online company in Asia will be a minority stakeholder at Meizu and will integrate Meizu’s hardware with the YunOS, Alibaba’s software. In 2014, Meizu launched the Blue Charm and the MX4 but the company is still not categorized in the top five smartphone companies in China as of September in that same year.

The internet wholesaler is relying on the YunOS to expand its product base beyond gadgets and clothes, to venture into healthcare and entertainment. This expansion is in a bid to take control of the 557 million Chinese smartphone market.

Alibaba has a market value of $211 billion but the company has faced challenges in expanding the reach of its mobile software to Chinese users given that up to 10 percent of mobile devices in the country operate on Google’s android system.

According to Li Yujie, a senior analyst at RHB Research Institute in Hong Kong, “It makes sense for Alibaba to work with Meizu given that it is one of the better known homegrown mobile phone makers in China.”

Yujie further added that, “This not a big investment. There is a possibility that Alibaba will invest in smaller smartphone manufacturers as well, in future.”

Joseph Tsai, Alibaba’s Vice Chairman said that the internet wholesaler had the goal of delivering the YunOS to millions of China smartphone users. This complements the government’s objective of boosting local technologies to compete against industry giants Apple and Google.

Chief technology officer at Alibaba, Wang Jian said, “Investing in Meizu is a significant expansion of Alibaba Group and is an important step in our mobile strategy.” So far, the size of Alibaba’s stake in the company is yet to be disclosed.

With additional support from Alibaba, Meizu is looking to face up to competitors such as Oppo and Xiaomi.

Meizu is  based in Zhuhai and sold up to 1.5 million smartphones in December 2014.  Its smartphones use MediaTek Inc. chips, camera sensors manufactured by Sony Corp and Sharp Corp displays. In 2015, the company is aiming to sell 20 million smartphone units.

So far, Meizu controls between 1 and 2 percent of the China smartphone market and faces stiff competition from market leader Xiaomi. Xiaomi became the most valuable tech startup in December 2014, with a valuation of over $46 billion and a market share of 16% of the China smartphone users base.

Meizu’s Chief Executive Officer, Yongxiang Bai said, “This strategic collaboration with Alibaba will help our company to develop our devices and business ecosystem.”

Other smaller smartphone manufacturers including Shenzhen Sang Fei Consumer Communications Co, which manufactures smartphones under the Philips brand name, have adopted the YunOS.

 

Market impact

In its fiscal reporting for Q3 2015, Alibaba Group reported revenue of $2.2 billion, which was slightly lower than what market analyst had anticipated at $4.45 billion.

Company shares have fallen by as much as 11% mostly due to the government’s warning that Alibaba is not adequately monitoring the sale of knock off goods. The revenue figures have distracted investors from the impressive bullish figures coming from the company.

However, Alibaba is a growth company that offers promising opportunities for investors. With earnings per share of $0.81, a gross merchandise volume that increased 49% in Q2 and Q3, income operations of $1.5 billion and up to 334 million active buyers in Q3, investors need to look at the long-term potential of the company.

With Alibaba acquiring the likes of Meizu and other companies, there are multiple opportunities for expansion, which may translate to profitability for investors.

 

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