Chinese e-commerce giant Alibaba Group said Monday it will buy a minority stake in smartphone manufacturer Meizu Technology Corporation Limited for $590 million.
Alibaba said it and Meizu will collaborate to integrate the smartphone maker’s hardware and Alibaba’s mobile operating system. Alibaba said it will provide Meizu with expertise in the fields of e-commerce, mobile Internet, mobile operating systems and data analysis so Meizu can develop its smartphone ecosystem.
Alibaba did not disclose the size of the stake it is buying. This is the latest in a string of recent acquisitions for Alibaba, which raised $25 billion in an IPO in September.
Mobile e-commerce is becoming an increasingly important part of Alibaba’s business, although sales through mobiles typically have lower margins than other transactions. Alibaba ended 2014 with 265 million mobile monthly active users, an increase of 95 percent from a year earlier. Still, analysts stressed that Meizu is a minor player in the highly competitive Chinese mobile phone market.
According to research firm Canalys, Meizu commanded less than 2 percent of the Chinese smartphone market in the fourth quarter of last year. The top five vendors in China over that time period were Apple Inc, Xiaomi, Samsung Electronics Co Ltd, Huawei Technologies Co Ltd. and Lenovo; together they accounted for nearly 60 percent of the market, said Nicole Peng, a research director at Canalys.
Peng said she feels Meizu has more to gain in the near term from the transaction than Alibaba.
“The impact will have to depend on how much stake and influence Alibaba has on the business decisions of Meizu in the coming years and whether they are making sense. I believe it would be difficult for Meizu to rival the major players in the near term given the competition condition in China. It will take some time to see the real return of Alibaba’s investment,” she said.
Shiv Putcha, associate director at IDC in Singapore, expressed concern over how much the deal will help Alibaba.
“Alibaba is playing catch up in the mobile space and is well behind Tencent and Xiaomi. So they can’t afford to cede the space to them. Also, they will need to line a lot more [original equipment manufacturer] rather than simply put all their eggs in one basket [with Meizu],” he said.
But Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong, said the acquisition is just part of the company’s overall mobile strategy and it needs to be considered in the proper context.
“They want to have a good mobile penetration so that’s why they value mobile access points very much….Obviously Meizu is not the leading player, it’s just one of the good ones. It’s one of the many ways Alibaba can get more mobile users,” she said.
Jian Wang, chief technology officer of Alibaba, said the acquisition is an important one.
“The investment in Meizu represents a significant expansion of the Alibaba Group ecosystem and an important step in our overall mobile strategy as we strive to bring users a wider array of mobile offerings and experiences,” he said.
China is the world’s largest smartphone market. The government-run China Internet Network Information Center (CNNIC) said earlier this month that China had 557 million mobile Internet users as of December. That’s an increase of 56.72 million users over the end of 2013, according to CNNIC.
For the December quarter, Alibaba’s gross merchandise value (GMV), or the sum of all Alibaba’s online commerce transactions, rose 49 percent to $127 billion. Mobile GMV accounted for 42 percent of total GMV, up from 36 percent in the September quarter. Alibaba released those figures as it reported a lower-than-expected 40 percent growth in December quarter revenue of $4.22 billion.
According to Meizu’s website, the company was established in 2003 and it expanded into the smartphone market in 2008. Meizu said it has more than 1,000 employees and 600 retail stores. It also said it has a “global presence” extending to Hong Kong, Israel, Russia and Ukraine.