In January 2015, TCL purchased the rights to the Palm brand from HP. The next year, the Chinese consumer electronics maker announced that it had also bought BlackBerry’s mobile phone unit, and would assume all design, manufacturing and customer service duties.
So what has the Chinese firm been doing with these two outdated mobile brands? In August, BlackBerry announced that it plans to launch a full touchscreen device (that is, without its signature keyboard) that will be water and dust resistant. That same month, rumours also started circulating that Palm devices would make a comeback in 2018.
In an interview with Engadget, a tech blog, François Mahieu, TCL’s chief communication officer, said he expects some iPhone and Samsung Galaxy users to switch to the new Android-based BlackBerry once the device becomes available, thanks to its “durability and longevity”.
Others think it is a case of too little too late. “BlackBerry releasing a new phone is like Nokia rising from the dead. Chinese consumers don’t need nostalgia; they need innovation,” opined the Beijing Times.
TCL is best known for being one of China’s pioneers in global acquisitions. In 2003 the Huizhou-based TV manufacturer acquired the television business of French electronic maker Thomson. A year later it would also form a joint venture with Alcatel to make mobile phones under the French firm’s brand.
While TCL has become a strong TV brand (the company says it is the third biggest TV maker in the world), it has been less competitive in the smartphone market. It mostly competes in the low-end handset segment, exporting to the US and Europe under the brand Alcatel – selling to mobile carriers like T-Mobile and AT&T. In fact, about half the phones the firm sells in the US come with some form of carrier branding, says Counterpoint Research.
In China, however, its presence in the handset market is virtually nonexistent. Beijing Times reckons that it sells just five million units in the domestic market annually (Huawei sells about 20 times that). As a result, the majority of its revenue for the handset business comes from overseas.
According to its own data, TCL sold 70 million handset units in 2016, but only 55% of those were smartphones, which means the company still derives a big chunk of its business from low-tech ‘feature’ phones (with much slower speeds and more limited capabilities).
“Everyone knows that the feature phone market – from both revenue and gross margin perspective – is an ever-shrinking and futureless business,” one financial commentator wrote on Sina.
Sales in the handset division already reflect that shrinking trend. In 2016, TCL Communications reported that shipment revenues dropped 15.8% to Rmb20.4 billion ($3.07 billion). And in the first half of this year, sales further decreased to Rmb6.8 billion. “For three consecutive years, gross margin has continued to narrow. Operating profit, too, has been in decline. We realise that this is largely the result of decreased corporate competitiveness,” TCL reflected on the disappointing result.
“TCL has never gained a strong foothold in the mobile phone market. It is more like a processing plant with great manufacturing capability. However, it has made little inroads when it comes to technological development and branding,” telecoms analyst Fu Liang told the Beijing Times. “In the past, TCL has mainly competed by selling durable low-end models to gain market share. But as more and more users now prefer better and more powerful high-end products – along with the intensifying competition – the prospect for TCL’s mobile phone business becomes increasingly dim.”
So why is TCL still competing in the sector? Simply put, it believes that smartphones will play a supplementary role to its TV business. “Right now smartphones and smart TVs have many similar functions. Many of their applications are also similar,” chairman Li Dongsheng told Caixin Weekly in an interview. “Even though the business is losing money, we are constantly looking for a balance, and thus the communications business is something we can’t give up.”
But something had to give and TCL announced last week that it had sold 49% of its smartphone unit for about $63 million to three strategic investors including Unigroup, a semiconductor firm connected to Tsinghua University. Beijing News says the move suggests that TCL wants the new investors to jumpstart the business.
Fu believes that outside investors could be helpful in a restructuring effort. “The new investors can help TCL improve product research and development and also enhance its marketing capabilities,” the telecom analyst predicted.
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