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Spillikins №147. Chinese Phones – Semi-prepared Meals

The last week was so rich for news I could hardly grasp it all. I will not be covering the tenth VAS Forum as I think it deserves a separate article. I will also leave aside the issue HTC is experiencing right now as we have partly covered them earlier unless you make me know you want to get more on this topic. So let’s get down to the main stories but first I want to talk about a certain video.

In the US it is legal to use your competitors’ products in your ads and many companies take advantage of it. Samsung told us what they think of Apple iPhone in this here ad which I think is a great example of good humor and irony:

Chinese Phones Under Local Brands – Pros and Cons

China has become the leading manufacturer of phones and it is way ahead of any other country. For some people Chine is the continental China only while others also include Taiwan. And although some will say that there are more business opportunities on the island not to mention a much better expertise and yes there are certainly differences in the ways business gets done in these two territories but I think we should consider them as a whole when it comes to phone manufacturing.

There are a lot of companies in the world who sell phones developed and manufactured in China under their own brands. Most of such business is done not by carriers but by retail networks and wholesale distributors who simply adapt these phones to the demand of their local market. By adapting I don’t mean only language localization but also marketing and adding some features demanded on their specific markets. For example, in Russia Fly and Explay are good examples of this practice. Such companies do not have any production lines but they know exactly what people want to buy. Recently the cost of entering the market following this business strategy has fallen dramatically thanks to the great number of factories in China and very strong competition between them. Not so long ago a Chinese factory struggled to get production up to 500K units a year while today they produce millions. There is a lot more demand now and subsequently a lot more rivalry between factories. China has become a melting pot with platforms for both regular and touchscreen phones (MTK which is a very big topic to discuss). Unified platforms are extremely successful mainly thanks to their very low production costs. It’s the reason we now have phones with two, three or even four SIMs, analogue TV and other bells and whistles. Very often Chinese phones are associated with poor quality because we usually see Chinese phones packed with all kinds of hardware at a price of a low range major manufacturer phone. Naturally you get the quality you pay for. However, you should not generalize and think all Chinese phones are like this. There are companies that sell by mere price dumping and there those that sell very decent phones at moderate prices. Unfortunately, the latter only market within China and are represented by partners overseas. So many people make their opinions of Chinese phones judging by semi-finished products.

Let’s now look at how this is done in real life. I give two examples: Explay as the good example and Gresso as the bad one.

The Russian Gresso is a phone boutique that makes new bodies for Nokia phones and then sells them for 5 to 10 times the money of the original phone. In 2010 I reviewed one of them called Gresso Grand Monaco.

Gresso Grand Monaco phone

In 2011 the company decided to expand the product range and released two protected phones: Gresso Extreme X3 and X5. Both phones are manufactured by the Taiwanese Power Idea Technology specializing in this sort of phones. So Gresso basically buys semi-finished phones and adapt them to the Russian market. However, Gresso seems to have missed a crucial point about such phones – they are not ready to release products and Power Idea expects their clients to finish them on their own. These phones are semi-finished meals and the one who puts his brand on it should also do the cooking.

So Gresso bought two models LM121B(X3) and LM801B (X5) but the contract specifies that the company cannot sell them as is. Big factories produce all models in different IDs (body design, colors etc.) to maximize profits. Some people will like a sports design while others will go for a neutral design – everyone is happy and the phones don’t compete with each other.

What Gresso did then is make packages and manuals in Russian, get phones certified (costs about $3-4 thousand per model). They also had to finish these semi-prepared phones before releasing them. But they didn’t and as a result their phones feature miscellaneous fonts and the translation quality is lamentable some menus are not translated at all. You can see what I mean on the video below about Gresso X5:

The wholesale price for LM801B is below $100 for a batch of at least 10K units. The minimal batch can be negotiated and be as low as 5K units or even less if you buy from small factories but working with them is risky as the quality might be very poor.

But let’s see what Gresso did to minimize their costs at finishing the semi-finished phones. Gresso did not care to make a good quality package their phones come in the cheapest cardboard boxes. Moreover, boxes are the same for all models – they only say Gresso Extreme and don’t specify what model is inside. This is the cheapest sort of packaging.

Compare this box to the one Explay Q230 comes in (Q230 costs €50 in retail while Gresso X5 is about €370). The box features an image of the phone inside, on the back there are the phone’s full specs translated properly and info on the manufacturer. The difference is quite noticeable – good quality cardboard and printing. And rest assured Explay received their semi-finished phones in the cheapest package as well only they cared to replace it with proper boxes.

You can spot a Chinese semi-finished phone immediately from the menu as in this Gresso phone – you can easily recognize the MTK platform the phone is built on.

Explay, on the other hand, spent a few months to create their own unique interface. It’s not that expensive but requires time and extra work.

I hope by now you understand why I call Chinese phones semi-finished? They offer lots of features that can and should be adapted and improved for the demand of the local market. Some new comers to this business don’t even care to localize the menu simply translating the most frequent menus.

Unfortunately, Gresso slacked off and put very little effort into their phones. I have listed some of the issues with their phones which I typical for newcomers on this market who don’t have either good understanding of how to do business in China. But all those are petty stuff as compared to the big issues with their phones which I think should be made illegal as they present a willful misrepresentation of products.

Until I started testing Gresso phones I could not imagine that their phones might not have the stated by the manufacturer protection level. Megafon, a Russian retailer, posted on his website that Gresso X3 and X5 have the protection levels of IP67 and IP54 respectively. However, Gresso’s website says that they comply with IP57 and IP54 standards. I requested the phone’s certificates from the manufacturer but several weeks later I still haven’t received any response from the company. I believe that since Gresso put their brand on the phones they must double check all the specs and don’t state anything about a phone’s capabilities unless they are damn sure it’s right.

As a matter of fact, X5 should not be submerged into water at all – it is simply not water resistant. The initial press release actually stated that, later however it suddenly received the IP67 standard but this info later mysteriously disappeared just when I started asking questions about the phones’ actual specs. The fact that X3 is IP57 compliant does not concord with Gresso’s website statement that this phone can withstand a seven meter fall on concrete floor. The IP57 standard simply does not offer that kind of protection. The phone’s design will not allow the battery cover to fall off during an impact so the battery will hit it and in all probability break it. X5 is quoted by the manufacturer to be able to withstand a 10 meter fall but if X5 actually had the IP67 protection level it could be able to do a lot better than that. This makes you wonder who and how certified these phones and whether the lab that did was licensed for this kind of work. And it should not be me asking these questions having released phones on hands but the manufacturers themselves long before their phones hit the market.

To be honest, I did not plan to criticize certain manufacturers or their products. I wanted merely to point out typical mistakes of a market newbie who buys semi-finished phones and does not care to finish them properly. I leave aside the issue of super profits, after all, the company sells phones with practically no changes and asks several times more for them but it’s commerce and if customers are willing to pay who am I to tell them that the phones are terribly overpriced? But I am going to cover these issues in my reviews of thee phones.

I want to conclude with the funny fact that one of the Gresso models does not even have any info on the battery capacity. It is really a laughable case – the phone manufacturer did not provide such info and Gresso, on the other hand, did not lift their finger to find it out.

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Nokia 800 Has Overtaken All Phones in the World

I am trying not to transfer my notes from the blog to the Spillikins, but the story is so enthralling, that I could not help repeating myself. Several new details will be added as well. In the previous Spillikins we touched upon low sales of Nokia 800, but during the week conflicting evidence emerged.

Nokia 800 sales boosted by PR

The strongest indication of the popularity enjoyed by Nokia 800 was a photo from an Orange Store in UK accompanied by a commentary that the phone is not available now as all items were sold.

Source: mobiset.ru

Surprisingly, but the photo confirms my ideas from the previous week. A campaign featuring the free XBOX360 turned out to be predictably successful. The question is what will happen with the model without such a support. Only time will tell. So far Nokia is trying hard to project an image of a successful company. Nokia used all measures when Forbes mentioned that sales are weak and WP7 from Nokia faces uncertain future.

Nokia: Will Anyone Buy The Windows-Based Lumia Phones?

The market expected bad news from Nokia and share prices slid down. It is the worst case scenario for the company and its PR had to be clinical in its rehabilitation of Nokia 800.

They only had to cite the article, which mentioned that sales are high and beat all Android solutions together with Apple iPhone. It is sensational! The original article is available here.

An unknown person noticed that in online stores of several carriers Nokia 800 is number one. The conclusion was made that it sells better than other models. This news became very hot and Nokia employees helped the cause (Mark Squires, Comms Director Nokia was one of those who placed the entry in his Twitter account).

I am pretty sure that PR professionals from Nokia know what they are doing. On the other hand they are distracting the attention of consumers from real troubles of Nokia. One of them is an application from Nokia to be delisted from the Frankfurt stock exchange. The official press release mentions that share sales were limited and displayed a downward trend. If the application is approved Nokia will no longer feature on Frankfurt stock exchange in the first half of 2012. Nokia has already left stock exchanges of London, Paris and Stockholm. Its shares can be only bought from the NASDAQ, OMX Helsinki Stock Exchange and NYSE.

What does it mean? The answer is obvious that Nokia is not popular among European investors and is only present at home in Helsinki and in the US where American Depositary Receipts are in use. This news seems uninspiring for consumers, but the stock market was impressed and the share price continued going down. This week will be crucial in determining if Nokia can get at least 5$ for a share or they will break another negative record in its history. You can follow the shares fluctuations here.

I would like to remind you that the market capitalization of Nokia is less than 20 billion dollars, which is a fraction of company’s assets. Nevertheless, it is the market value of the manufacturer. That’s why PR department of Nokia has to be at its best. For example, Nokia proclaimed itself as the leading smartphone manufacturer in China with 28.6% of the market in the 3rd quarter (6.8 million items) against 17.6% from Samsung. There is no point to be proud here, because Nokia was always strong in China. The main point is that until recently Nokia was number one in the world. Now its PR department will have to work hard to prove that. I suggest coming up with the press release mentioning that Nokia is the leader inside its office buildings with Nokia 800 leading the way, because this wonderful model cannot leave people indifferent (remember not to mention that all employees received it for free).

From the startling analysis of Nokia 800 sales by a blogger let’s turn to more serious problems, namely fast battery discharge in the model. For the first time the issue was mentioned in the official Nokia blog when users started complaining that the battery was dead after several hours of use. The original article is available here.

The answer from Nokia was traditional: we had no mass issues, but in December a new update will improve the battery performance with one more to follow in January. It is a carbon copy of the case with Nokia N8, which was hastily thrown onto the market and the number of bugs was overwhelming. Both models have a similar fate. Let’s compare them.

Nokia N8 and Nokia 800 are viewed as flagships. Nokia N8 had to show that Nokia is back and is still going strong. There were no official sales figures released for Nokia N8, because they were shockingly low. N8 was a flop and the average price of Nokia smartphones is much lower than that of its rivals. Moreover the market was attacked by numerous PR tricks, for example third party info about 4 million N8 sold and so on. The same is happening around Nokia 800 now. In the past when Nokia could be indeed proud of itself separate figures were available for successful models. These days no one will mention sales data for Nokia 800 or Nokia N9.

Similarly to N8 we hear that Nokia 800 breaks all preliminary records against the background of positive feedback. The structure of online feedback is similar for both models. It is not logical, but somehow we end up with the same ratio of positive feedback, articles and reviews. I think we are dealing with the PR tricks from Nokia and not the real perception of the phone. We will soon learn the truth if we do not see the true picture.

HP Makes Losses from TouchPad, but Increases its Market Share

The story of the tablet from HP (unsuccessful product sold off for 99$) proves that you can compete with iPad in price. According to NPD HP took 17% of the market in the US between January and October of 2011, whereas Samsung had 16%, Asus 10%, Motorola 9% and Acer 9%. The lion’s share belongs to Apple.

I must remind you that such a surge in popularity of TouhPad was witnessed during the two days when its price plummeted. The success does not represent the performance throughout the year. In the 4th quarter HP lost 1.67 billion dollars as a consequence of acquiring Palm and WebOS. The fate of the OS is unknown, but we cannot expect it to survive. Despite the variety of companies eager to snap it up the OS is rather dead than alive.

Additional reading:

Have a nice week! Winter holidays are coming, which means we have a lot of work to do before that.

Do you want to talk about this? Please, go to our Forum and let your opinion be known to the author and everybody else.

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Spillikins №147. Chinese Phones – Semi-prepared Meals

Contents:

Chinese Phones Under Local Brands – Pros and Cons

Nokia 800 Has Overtaken All Phones in the World

HP Makes Losses from TouchPad, but Increases its Market Share

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