October 29, 2018 / 9:29 AM / in 23 days

China's OnePlus, backed by Qualcomm and T-Mobile, launches smartphone in U.S.

HONG KONG, Oct 29 (Reuters) - A five-year old Chinese smartphone company whose high-end products are little known outside a tech-savvy niche is entering the U.S. market on Monday with the backing of two key local allies: chipmaking giant Qualcomm and mobile operator T-Mobile.

The foray by Shenzhen-based OnePlus comes after U.S. mobile carriers AT&T and Verizon this year backed away from plans to work with China’s Huawei on high-end phones in face of pressure from the U.S. government, which considers Huawei a security risk..

But the OnePlus alliance, to be announced today in New York, shows how many U.S.-China business relationships, including those involving the most advanced technologies, are marching ahead despite the U.S. China trade war. OnePlus has quietly become the No. 3 client for Qualcomm’s most expensive mobile phone chips, behind Samsung and LG Electronics, according to data from market researcher Canalys.

Qualcomm president Cristiano Amon last week introduced 29-year-old OnePlus founder Carl Pei to centre stage at its annual partners’ summit in Hong Kong, where Pei told the audience his company would be among the first to a launch a phone fit for fifth-generation (5G) mobile technology using Qualcomm chips.

In an interview, Pei declined to comment on specifics of U.S. carrier relationships. But T-Mobile executives will be part of the Monday event and sources said the company would sell OnePlus phones. Such carrier partnerships are critical to making an impact in the U.S. smartphone market.

“I don’t know if it is a good time for anybody else,” Pei said of the prospect of entering the U.S. carrier-bundled phone market - the dominant channel for sales there. “It is a good time for us.”

The phone to be unveiled Monday, called the 6T, will sell for a price above $500 but packs features that are typically present only in pricier handsets. Xiaomi, a Chinese rival that also focuses on feature-packed phones at bargain prices, has said it plans to launch in the U.S. next year, but did not respond to a request for comment on whether those plans are still in place.

OnePlus is unusual among Chinese tech companies, which typically focus on mass-market products for domestic customers. OnePlus, by contrast, only sells premium phones that cost $400 or more, almost exclusively online except in India, and derives two-thirds of its revenue from outside China.

It has become the top seller of premium smartphones in India with a 40 percent market share, a price-sensitive market where top-of-the-line phones from Apple and Samsung have gained little traction, according to data from Counterpoint.

Globally, in the above-$400 phone category, Apple dominates with 43 percent of the market, followed by Samsung (24 percent), OPPO (10 percent), Huawei (9 percent), Xiaomi (3 percent) and OnePlus (2 percent), Counterpoint said.

Within the company of about 1,000 employees, fewer than 100 are dedicated to sales while more than half are in product research and development, according to Pei.

OnePlus is affiliated with OPPO, a Chinese smartphone-maker and a major force in mid-end phones, which are sold globally and cost about $300. Canalys analyst Mo Jia said that relationship was critical in helping OnePlus keep its costs low.

Pei said OnePlus shares procurement channels and supply chain with OPPO, which allow it to manufacture in China and India at lower costs than others.

According to Chinese company registration records, the two companies have common shareholders, including the retired Chinese electronics magnate Duan Yongping, who also has ownership in Vivo, another major Chinese smartphone vendor. Both OPPO and Vivo are know for aggressive offline marketing and massive sales channels that reach small town customers in China, India and other developing markets.

QUALCOMM’S QUANDRY

Qualcomm is eager to back OnePlus as it seeks to maintain its lead in the premium mobile chip market.

“Most premium smartphone players, including Apple, Samsung and Huawei, have their own silicon now and are largely using that for their higher-end smartphones,” said IDC senior research manager Kiranjeet Kaur.

Qualcomm, which pioneered key mobile technologies, is locked in a bitter royalty dispute with Apple, which increasingly designs its own processors.

Huawei, which replaced Apple as the second-largest smartphone maker in the world behind Samsung in the second quarter, sells high-end phones with its own Kirin chipsets, while some lower-end models use Qualcomm chips.

Even though Huawei said it had no plan to sell its chips to outsiders, the company is increasingly moving from being a customer to a competitor to Qualcomm as the telecom industry moves to 5G technology.

Qualcomm president Amon described the delicate situation as “a relationship of co-opetition” at the summit last week.

OnePlus, which claims to have sent the world’s first 5G tweet in a test on Friday, said it will launch a 5G phone next year.

Pei shrugged off any concerns that U.S. consumer sentiment would be affected by the China-US trade conflict. “At the end of the day, all you can control is your own.”

Pei, who was born in China and raised in Sweden, said the brand is cross-cultural and international: “When we started, we saw that through social media, you can talk to everyone around the world, as long as you can speak their language.”

Reporting by Sijia Jiang; Editing by Gerry Doyle

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