You may have heard a lot about Xiaomi phone but not Meizu. Huang Zhang, founder of Meizu, published a post on its users BBS in 2011 claiming that Xiaomi copied Meizu M9 and their business model after Leijun, CEO of Xiaomi, visited his company as a potential investor (screenshot of the post). There are actually certain degrees of similarity between Xiaomi 2 and Meizu M9 both in appearances and functions.
Founded in 2003, China’s smartphone manufacturer Zhuhai Meizu Technology Co., Ltd. made its debut in electronics as an MP3 player manufacturer based in southern China’s Zhuhai City. The company zeroed in on the development and research of middle- and high-tier handsets since 2008, jumping onto the smartphone bandwagon. The output value of Meizu soared 128.8% YOY to well over 1 billion yuan in the first half of 2012 (source in Chinese). The company is trying to make its foray into the international markets, including South Korea, Russia and Israel.
Domestic handset makers have undergone robust growth in recent two years, upending previous images as shoddy products. However, the competition between Chinese handset manufacturers, such as Xiaomi, Huawei, ZET and OPPO, was intensified amid the development. Xiaomi 2S and OPPO Find 5, flagship products of the two Chinese peers, have become strong competitors to Meizu MX2, a hit of the company.
Moreover, the profit margins of terminal makers like Meizu are squeezed by the monopoly of telecom operators. Huang Zhang recently lambasted China Mobile for scrutinizing and pre-installing “garbage” apps in customized handsets, warning to terminate the cooperation with China Mobile Limited in customized phones.
Although most handset makers compromise and keep mum about the issue, the benefit game between phone makers and telecom operators has surfaced with the challenge from Meizu. Telecom operators are crucial marketing and distribution channels for terminal manufacturers. More than 60 percent out of 400 million handsets will be sold via China Mobile, China Unicom and China Telecom, who will also offer subsidies for customized gadgets.
Most smartphone makers have a bittersweet sentiment towards customized phone orders from telecom carriers. Because the carriers set quite low prices for customized terminals, squeezing the interests of handset producers who have to give away their products at a loss in some cases, said Zhang Yi, CEO of iMedia Research (in Chinese).
The market leaves handset makers no choice but to rely on scale business. Profits are only available when shipment of a certain phone to telecom carriers reaches more than 3 million sets, while the first 3 million sets are either being given away for free or meager profits, according a report by MIIT, Chinese Ministry of Information and Industries.(source in Chinese)
But it is impossible for medium-scaled companies like Meizu, which accounts for less than 2 percent share of the Chinese handset market, to guarantee profit margin via capital-based scale business.