Smartisan Hammered In Smartphone Price Wars
China’s bloody smartphone price wars could soon claim their first victim, with word of massive price cuts from Smartisan, a highbrow brand that launched earlier this year with backing from a well-known personality. Despite its relatively late arrival to the crowded space, Smartisan has gotten surprisingly strong media attention since its launch in May, though not all of it has been positive.
One of the company’s main backers is Luo Yonghao, whose name is well known to many young Chinese professionals due to his popular series of English language instructional tapes. Just months after its launch, Smartisan made news after admitting it was experiencing production problems due to capacity bottlenecks. Last month the company also made a minor splash when Luo got in a high-profile online spat with an influential gadget critic who wasn’t impressed by Smartisan’s models.
Now in the latest turbulence for the young company, media are reporting that Smartisan has slashed prices by 1,000 yuan, or about $160, for all of its models. (Chinese article) That translates to a one-third price cut for its cheapest 3G model, which will now sell for 1,980 yuan. A 3G model with more memory was slashed to 2,080 yuan, and the company’s lone 4G model has seen its price lowered to 2,480 yuan, both after similar reductions. The company said some recent phone buyers will get partial refunds to compensate them for the sudden big reductions.
Luo was quite frank in discussing the sudden reductions, unlike nearly all the other companies that have slashed prices but said little about their decisions. In several interviews, Luo says his company wasn’t quick to set up enough sales channels for its phones, causing it to miss out on the period of strongest demand in the months after their launch in May.
He also said that Smartisan’s relatively high prices caused some people to hesitate on whether or not to buy the phones. Luo and his team put together a relatively strong package in a bid to create a brand that was more sophisticated than the millions of cheap look-alike Android models now flooding the market.
Smartisan created its own operating system (OS) to differentiate itself from Android, and also tried to cultivate a highbrow image by drawing on Luo’s relatively academic background. During the product’s launch, he liked to highlight the T1’s craftsmanship, and pointed out that his company’s name came from a combination of the 2 English words “smart” and “artisan”. But apparently all that product development and marketing wasn’t enough to convince consumers to pay a big premium for this new and unknown brand.
Frankly speaking, I’m not too surprised at this particular development. Chinese consumers are already very price sensitive, and even much better-funded names like Huawei, ZTE (HKEx: 763; Shenzhen: 000063) and Xiaomi have had a difficult time cultivating loyalty for their upscale models and brands. The only names that have had success in that regard are industry veterans Apple (Nasdaq: AAPL) and Samsung (Seoul: 005930), and even the latter has started to slip lately due to the intense competition in China.
I’ve been predicting for a while that the current state of competition in China is unsustainable, and this latest move by Smartisan reflects the overheated market conditions. The latest reports cite Luo discussing better planning for his company’s second-generation model, the T2, which is due out next year. But if the current trends continue, I wouldn’t be surprised if we never see the T2 come to market and Smartisan becomes the first victim of the shake-out that will hit the Chinese smartphone market sometime next year.
Bottom line: Smartisan could become the first major victim of a shake-out likely to hit China’s overheated smartphone market next year, following massive price cuts for its recently launched upscale models.
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