Coolpad Group Ltd (酷派) plans to use a new joint venture to quadruple online smartphone sales in China this year and help narrow the gap with leader Xiaomi Corp (小米).
The venture with Qihoo 360 Technology Co (奇虎360), owner of China’s second-biggest search engine, would boost online sales of Dazen-brand (大神) smartphones to 20 million units this year and drive an increase in total sales of about a third, Qihoo 360 Technology chief financial officer Jiang Chao (蔣超) said in an interview. Coolpad has a target of moving up one level to second place in China Internet sales this year, Jiang said at the company’s Shenzhen headquarters on Monday.
Qihoo agreed in December last year to buy a 45 percent stake in the e-commerce operations for US$409 million, as Coolpad brought in a partner with more skills in Internet services after Xiaomi’s surging online business cut into shipments. Coolpad, which had relied on wireless carrier outlets for sales, established the Dazen brand for Internet orders last year, and plans to open 20,000 of its own stores to bolster retail demand.
“Our company didn’t have wireless application teams and we didn’t know how to develop mobile software,” Jiang said. “Now Qihoo has come into this new joint venture so we can use Qihoo managers and R&D employees to develop very good wireless software.”
Hitting the online sales goal would boost Coolpad’s total smartphone sales to more than 60 million units, up from 45 million handsets last year, Jiang said. Xiaomi chief executive officer Lei Jun (雷軍) has set a goal of boosting total sales to 100 million smartphones this year, from 61 million last year.
Coolpad fell to fifth place in China’s smartphone market last year, with 9.4 percent market share, from third place in 2013 when it held 10.7 percent, according to International Data Corp (IDC).
Traction in Coolpad’s online sales push has been slow, because its previous focus on sales through operators made it weak in marketing and branding, Singapore-based IDC analyst Tay Xiaohan said.
“The tie-up with Qihoo will help Coolpad to a certain extent, since Qihoo has a strong base of users and stronger branding than Coolpad,” Tay said.
Qihoo only entered the Internet search-engine market in 2012, taking on leader Baidu Inc (百度). By the third quarter of last year, Qihoo had captured 16.7 percent of searches, according to data from Bloomberg Intelligence. That cut Baidu’s share to 75.8 percent, down from 84.1 percent in the third quarter of 2012, when Qihoo entered the market.
Coolpad could use the lift.
The stock is rated hold or sell by 11 of the 18 analysts tracked by Bloomberg, and only seven recommend investors buy it. In the next 12 months, the shares are projected to climb 15 percent to HK$1.72 in Hong Kong trading, from Monday’s close of HK$1.50, according to 12 analysts’ price estimates. The shares fell 1.3 percent to HK$1.48 by 10:28am in Hong Kong yesterday.
Coolpad would also target Xiaomi offline, Jiang said. The company plans to invest 300 million yuan (US$47.9 million) to open 20,000 stores to sell its phones by the end of next year, Jiang said. Coolpad plans to open the first 5,000 Ivvi brand shops by the end of the year, with another 15,000 planned for next year, he said.
The outlets would carry three brands of devices made by the company: Coolpad, Dazen and Ivvi, Jiang said. Having a retail presence would complement the online push, he said.
Instead of targeting new stores in first-tier cities such as Beijing, where high-income consumers gravitate toward Apple Inc and Samsung Electronics Co, Coolpad plans to focus on third and fourth-tier cities, where those brands do not reach consumers with lower incomes. The retail shops might sell between 5 million and 10 million devices this year, Jiang said.
“People like to see things online, but they also want to be able to see and experience the real phone offline as well,” Jiang said. “Online-to-offline is the future.”
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