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January 5, 2017

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Looking smart, no matter what the cost

JOURNALISTS and distributors alike were somewhat surprised when Gionee pegged the price of its new flagship model M2017 at 6,999 yuan (US$1,014) — higher than the starting price of an iPhone 7.

"It's time for Chinese brands to break the monopoly of global brands in the premium segment,” said Liu Lirong, chairman of the Shenzhen-based smartphone vendor that sold 40 million units in 2016. “We are well prepared for this."

Gionee is one of the Chinese smartphone companies tapping into demand for phones costing more than US$500. The move is a challenge to Apple and Samsung, amid booming consumer demand and increased component costs on the back of a cheaper yuan, industry officials said.

Previously, Chinese brands focused on entry-level and mid-market phones, costing less than 2,500 yuan. But that strategy limited their profitability, sales scope and brand profile.

It's no secret that many consumers are willing to pay more than 15,000 yuan for a luxury version smartphone offered by Huawei or Gionee on auction websites. Those sales were especially noticeable during the releases of new iPhones.

Chinese brands have come into their own. In global smartphone sales, they have cornered seven of the top 10 spots, with about 40 percent of the market in premium phones, according to Bloomberg, citing researchers.

Domestic brands such as Huawei, Oppo and Gionee offer products with unique design and sought-after features like super-large battery capacity, encryption calling and messaging, and artificial intelligence services.

They are catering to a market where business executives, fashionistas and consumers who want to flaunt their wealth care about features on smartphones more than price tags

Gionee's US$1,000 M2017 features battery capacity of 7,000 Mah (milli-ampere-hour), double the level of the iPhone 7, and enhanced mobile security for data and communications privacy. Free screen replacement is guaranteed within one year of purchase. The luxury version M2017, with crocodile skin design, costs 16,999 yuan.

"We are targeting business executives unwilling to use iPhones,” said Liu. “Our price can't be lower than that of an iPhone."

He said he expects the company to sell 1 million M2017 models in 2017.

His confidence stems, perhaps, from Gionee experience with its premium model marketed at a more than 4,000 yuan. Its sales easily surpassed several hundreds of thousands of units in 2016, the company said.

Meanwhile, Huawei has launched its flagship model Mate 9, with a premium price tag of up to 9,000 yuan. It was co-designed with luxury carmaker Porsche. The model sold out quickly, fetching 16,000-20,000 yuan on auction websites.

"We were shocked by the market response,” a Huawei marketing official told Shanghai Daily. “We can't get any Porsche-designed models now, even internally."

Huawei also released the industry’s first artificial intelligence smartphone last month. Intelligence technology covers voice and facial recognition, automatic notification from key information gathered by social websites, instant messages and a Siri-like intelligent assistant.

The Magic smartphone costs 3,699 yuan, a record price for Huawei's sub-brand Honor. The Honor brand, which used to cost less than 2,500 yuan, targets younger consumers.

"Young people deserve better user experiences and more intelligent smartphones," said Zhao Ming, Honor's president.

Oppo, the country's top smartphone vendor by sales, is also steering away from the low end of the market, according Vice President Wu Qiang.

Oppo has been using a professional “selfie” front camera phone and rapid battery charging technology to attract young consumers.

Even iPhone 7 Plus, the top model of iPhone, is lagging behind Chinese rivals in areas such as battery capacity and charging, “selfie” cameras, hi-fi music and encrypted space for data security. The battery crisis and subsequent recall of Samsung Galaxy Note 7s created space in the premium end of the market for local brands, analysts said.

To some degree, the devaluation of the yuan in the past year has pushed domestic phone makers into the high-end market. The cheaper yuan ups the cost of imported materials and components for smartphones.

For each 10 US-cent rise in the dollar against the yuan, the cost of production of one smartphone increases by 20 yuan, said Liu Jiangfeng, CEO of smartphone vendor Coolpad.

Coolpad has launched a new model with high-end Harman-developed headsets, focusing on digital entertainment features like high-quality music and e-sports.


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