What is the intention of the gathering of major manufacturers in the mobile phone industry? Is it purely for profit or is there another purpose?

What's the purpose of mobile phone manufacturers' gathering? Profit or other intentions?

【PhoneAuto】Recently, news about cross-border smartphone manufacturing has been constantly heard. Some companies are struggling to avoid being eliminated, while others are confidently entering the market based on their own advantages. Although the performance of the smartphone market has been relatively low in recent years due to the overall economic environment, this has led to various smartphone manufacturers constantly engaging in “internal competition” to prevent themselves from falling behind.

As for those representatives who are crossing borders, they also want to take the opportunity to “get involved”. Some want to enrich their business structure and diversify their profit risks, while others have their own business needs and do not want to be restricted by others. However, regardless of the starting point, the final result is generally only two kinds – success leads to a share of the cake, and failure can only lead to a sad exit.

Due to the maturity of electric vehicle technology and government subsidy support, cross-border car manufacturing can be said to be a “trend” in recent years. Xiaomi and Huawei in the smartphone industry, Baidu and Didi in the Internet industry, and the real estate giant Hengda in the past are all directly or indirectly participating in this popular cross-border “project” in different ways.

In fact, compared to the current trend of cross-border car manufacturing, cross-border smartphone manufacturing is more like an old-fashioned product. During the era of feature phones, various brands crossed borders to enter the smartphone industry, such as Konka, which started with televisions, Lenovo, which originated from computers, and AUX, which made air conditioners. I believe that many of us have seen these brands’ phones in TV shopping advertisements more than 20 years ago. Today, some of these old cross-border brands are still struggling in the smartphone industry.

Konka phone – Konka R9 Fashion Edition

As we enter the era of smartphones, there are even more manufacturers who cross over into this field. LeTV, Hammer, as well as Gree Electric and Baidu, which were recently rumored to have disbanded their smartphone teams. Therefore, it can be said that there have been almost no shortage of crossover players in this industry. Although most have already failed, it has also enriched the development and innovation of the mobile phone industry, just like how LeTV was the first to use the Type-C interface, and Hammer’s unique UI design, which has been praised and missed by users all along.

LeTV phone – LeTV Pro3

Just like today’s trend of car manufacturing, there are also various ways to cross over into phone manufacturing. The first is the most direct and crude way – 100% self-research and production, which is also the preferred way for most crossover manufacturers. Just like Meizu, which switched from the MP3 market to the mobile phone market, after all, only in this way can the control over the design and production be large enough, and there is also enough space to display creativity. Therefore, Meizu was very unique at that time, attracting a large number of supporters and followers.

Meizu phone – Meizu MX2

The second way is to cooperate with mobile phone manufacturers for custom-made phones. The most impressive example of this type of approach for the author is the batch of 360 custom-made phones. At that time, Zhou Hongyi said that the so-called custom-made phone is a concept, meaning that “360 does not make its own phones, nor does it put its own brand on other phones.” Therefore, 360 custom-made phones were varied, with Nokia, Huawei, TCL, Haier, and Newman as its cooperative partners. However, due to the diversity of brands and models, the reputation of 360 custom-made phones was mixed, ultimately resulting in an abrupt end.

360 Exclusive Phone – Huawei Shine

The last method is more common among small brands – OEM. Generally speaking, chip manufacturers represented by Qualcomm and MediaTek have universal design specifications. Therefore, small manufacturers without independent research and development capabilities can purchase a chip solution, such as Qualcomm’s QRD solution, and then purchase a set of public models. The two are combined, and a branded smartphone is born by adding their own logo.

Since the emergence of commercial activities, “profit-seeking” has always been the ultimate goal of business behavior. Therefore, mobile phone manufacturers naturally produce mobile phones for profit. Why do these cross-border companies not stay in their own “stronghold” and extend their “hands” to the small machine of mobile phones? In my opinion, the cross-border manufacture of mobile phones by various companies can be divided into two stages, with 2015 as the dividing line, and the goals of the two stages are different.

The time span of the first stage is relatively long. During the nearly 20-year period from feature phones to smartphones, the purpose of most manufacturers crossing the border was very simple, which was to see the booming development of the mobile phone market and to get a share of the pie. Brands such as Konka, Tianyu, and Gionee in the feature phone era all launched their mobile phone business for this reason. In the era of smartphones, “Zhonghua Cool Alliance,” which once occupied a large market share of domestic mobile phones in the form of contract machines, is also the same. Xiaomi, which now crosses the border to make cars, had the same purpose when it was founded.

In the second stage, under the background of the Internet of Everything, the purpose of manufacturers crossing the border is no longer as simple as before. Based on their own products, they hope to create their own product ecosystem by developing their own smartphones.

In my impression, LeTV seems to be the first non-smartphone manufacturer to spread and expand the concept of ecology. LeTV’s ecology is basically a vertical integration of platform, content, terminal, and application. As a result, LeTV became the only profitable video website in China at that time. According to the financial report, in the third quarter of 2014, LeTV’s total operating revenue increased by 122.42% compared to the same period in 2013, with a growth rate far ahead of other video websites. Therefore, LeTV initiated the project of producing smartphones in 2014 and officially released the first generation of LeTV phones on April 14, 2015.

Recently, Gree Electric, which announced the dissolution of its smartphone team, also released its first smartphone in 2015. Compared with LeTV’s desire to create LeTV ecology on the software side, Gree wants to create its own smart home center based on its main business of air conditioners. By developing other smart home products, it prepares for the future smart home era. As a handheld terminal, the phone can be used to control the entire smart home device. Therefore, Gree does not want to control its products in other people’s products, and producing smartphones is the only way out.

Similarly, there is now a trend of smart cars. Regarding entering the smartphone industry, Li Shufu, chairman of Geely Group, once said: “Better development of smartphones can bring better development of car machines, better development of car machines can promote the continuous improvement of the level of intelligent cabins, and thus help improve the competitiveness of intelligent electric vehicles.”

That’s why Geely chose to directly acquire Meizu and transplant Flyme, which Meizu is proud of, onto the car and create the car version of Flyme. It even proposed the concept that “the smartphone is the sixth domain of smart cars.” Another new car-making force, NIO, is more direct. It directly established NIO Mobile Technology Co., Ltd. last August and announced its official entry into the smartphone market. The first NIO phone is expected to be released and delivered in the third quarter of this year.

Whether it is Gree, the “OG” of air conditioners, or the new car-making force NIO, it is not easy to establish a foothold in the smartphone industry and create products with good market feedback. Indeed, these various “giants” that have come across the border are all leaders in their respective industries, but after entering the smartphone industry, everything needs to start from scratch.

Nowadays, the industrial chains of various industries are already very mature. It is not difficult to simply make a mobile phone, but it is difficult to make a user-friendly phone and a phone that is recognized by the market. Making a phone is not like building blocks. It is not enough to simply install various top-notch components together. The mutual adaptation of components and software-level tuning are also very important.

As for Gree, its only requirement for a mobile phone is durability. As a control terminal of smart home systems, Gree’s mobile phones do not need flagship configuration or excellent image technology. They only need to be stable without lagging, and be durable and resistant to falling. Such requirements sound easy. However, the mobile phone made by Gree has a low appearance value, average configuration, and a high price. There is also no promotion activity, so it has always been lukewarm.

It is difficult to convince users to give up their long-term use of a certain brand of phone and switch to a product that positions itself as an intelligent home operation terminal, especially for an item with high daily usage intensity like a phone. Although Gree has denied rumors about dissolving the phone team, if there is no change, Gree’s phone may really “leave quietly, just as it came gently, wave its sleeves without taking away a cloud.”

As for NIO, funding may be its biggest problem. The phone industry is a capital-intensive industry. Producing 100,000 units is not a lot in the phone industry, but if calculated at a cost of 1,000 yuan per phone, it would require converting 100 million yuan of funding into product inventory. Xiaomi, the leader in the Chinese domestic phone industry, has just solved its inventory problem. Secondly, although NIO is at the forefront of the new car manufacturing forces, with a total revenue exceeding 49.27 billion yuan in 2022 and a new car delivery volume exceeding 100,000 units for the first time, reaching 122,500 units, its net loss is 14.437 billion yuan. Therefore, funding will be the biggest constraint for NIO to launch its phone business.

In addition, consumers care about the actual experience of the phone, and the intelligent phone market has matured after so many years of development. But this is a difficult point for newcomers. Secondly, car companies participate in the phone business to create a more comprehensive and intelligent ecosystem experience, but how to make users accept your phone product is also a difficult point to overcome. After all, other phones can also achieve basic control of vehicles by installing an app, so whether users will pay for NIO phones because of NIO cars is still unknown.

Overall, although the smartphone industry is in a slump, the fierce competition within the industry is precisely because of this. Manufacturers are focusing on their own product capabilities and constantly “internalizing.” For newcomers who have just entered the industry, they will face “hell-level copies.” Nowadays, these crossover giants, such as Xiaomi announcing their entry into the car manufacturing field, have a slightly latecomer meaning.

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