Alibaba places China smartphone business bet with $590m Meizu deal

A shop assistant waits for customers at a Meizu store as Meizu MX3 smartphones are seen on display in the foreground, in Shenzhen, Guangdong province. Photo: Reuters/File

China's Alibaba Group Holding Ltd is taking a $590 million stake in an obscure domestic smartphone maker as the e-commerce giant tests ways to expand its mobile operating system in a shrinking, cut-throat handset market.

Extending a previously muted push into hardware, Alibaba said on Monday it will buy an unspecified minority stake in smartphone maker Meizu Technology Co. Dwarfed by rivals like Xiaomi Inc, privately owned Meizu's slice of China's smartphone market is estimated by analysts at below 2 percent.

The deal, unlike US rival Amazon.com Inc's foray into smartphones with its own-brand Fire Phone, is designed to help Alibaba push its mobile operating system within China through Meizu's handsets. In return, Zhuhai, Guangdong-based Meizu will get access to Alibaba's e-commerce sales channels and other resources, the companies said in a joint statement.

For China's e-commerce king, with a market value of $213 billion market value, the $590 million price tag may be a costly entry fee. Meizu's reach in China, and likely that of the Alibaba operating system, is severely blunted by domestic leaders Xiaomi, Huawei Technologies Co Ltd and Lenovo Group, as well as multinational giants Apple Inc and Samsung Electronics Co Ltd.

"You could say they're spending $590 million to experiment a bit and see what happens - it's an expensive experiment, right?" said Michael Clendenin, Managing Director at Shanghai-based RedTech Advisors.

"My concern is that some internet players are confusing being able to just spend a couple hundred million dollars to buy a piece of hardware that looks pretty cool but is essentially a copy of what Apple has done and what Xiaomi has done," he said.