A phone with nothing (1).
UK-based consumer tech company Nothing has its eyes set on the US with takeover ambitions. Apple’s iPhone.
The startup, the hardware venture of Chinese cellphone maker OnePlus co-founder Carl Pei, is in early talks with American carriers to launch the new smartphone in the U.S., Pei told CNBC, without naming any carriers.
In July, the Nothing Phone (1) introduced a mid-range device similar in design, price and features to Apple’s entry-level iPhone SE.
The company, backed by iPod creator Tony Fadell and of the alphabet VC arm GV has so far only launched its smartphone in Europe, the Middle East and Asia, not in the US or Canada.
“The reason we don’t launch in the US is because you need a lot of additional technical support to support all the carriers and their unique customizations that they have to do on Android,” Pei explained in an interview with CNBC. . “Before, we felt we weren’t ready.”
“We are now in discussions with some carriers in the US to potentially market the future product there,” said the Chinese-Swedish entrepreneur.
the likes apple and Samsung have already established relationships with major US carriers, making it difficult for smaller firms to compete.
But a third of sales of the recently launched Ear (stick) headphones now come from the United States, Pei added.
“It’s definitely a market where there’s a lot of interest in our products. If we launch our smartphones there, I’m sure we can get significant growth.”
According to figures shared exclusively with CNBC, the company expects its revenue to grow more than tenfold in 2022 — from about $20 million in 2021 to about $250 million this year. It also more than doubled its staff to more than 400. However, the firm is still losing money.
“The goal is to be profitable in 2024,” Pei said. “Right now, we’re not profitable. And this year, it’s even more difficult because of the currency exchange. We’re paying a lot of COGS. [cost of goods sold] In US dollars, but we make money in pounds sterling, euros, Indian rupees – so everything has devalued against the US dollar.”
The US dollar has risen this year; the dollar index — which measures the dollar against a basket of major currencies — is up more than 8.5% year-to-date.
Pei wants to challenge Apple’s iPhone in the US, but it’s a steep hill to climb.
“There’s a problem with Android and iOS becoming more and more dominant. They have a very strong coupling with iMessage, AirDrop, especially among Gen Z. That’s a growing concern for me,” he said.
“There may be a time when Apple has 80% of the total market and that doesn’t leave enough room for Android-based manufacturers to keep playing,” he said.
Apple was not immediately available for comment when contacted by CNBC.
Pei said he sympathizes with Elon Musk, who as Twitter’s new CEO has pressured Apple with App Store restrictions and a 30% fee on in-app purchases.
He added that in a few years Nothing will “need to think seriously about this problem and how we’re going to deal with it.”
“This will create a ceiling for our growth,” Pei said.
David vs. Goliath
Pei said his firm faced many challenges in bringing its products to market. One of the major setbacks it faced was when it turned to Foxconn, Apple’s largest iPhone supplier, to manufacture its phones.
According to Pein, Foxconn refused to do business with Nothing, citing past failures in the smartphone industry.
“Every startup manufacturer has worked with Foxconn,” Pei said. “But when it was our turn, they said no, because every startup they worked with failed. And every time a startup failed, Foxconn lost money on it, they couldn’t recoup their costs.”
Foxconn was not immediately available for comment when contacted by CNBC.
Covid restrictions around the world have also created a significant hurdle for the company. In India, where nothing makes its phones, the company couldn’t fly engineers due to travel restrictions, Pei said, so the company had to remotely operate its own factory on the ground.
“We had to really rush to create this,” said Nothing’s smartphone.
In Shenzhen, China, where officials imposed a strict lockdown, Nothing’s engineers had to discuss component designs and mechanics during the 45 minutes it was acceptable for people to go out to buy groceries.
With 600,000 units of Earbuds (1) and 500,000 units of Phone (1), it has sold no more than 1 million units globally to date.
Still, the startup is a small player and faces a bleak economic landscape where people are forced to severely limit their spending.
Smartphone shipments in Europe fell 16% in the third quarter of the year, although they rose slightly from the previous quarter on the back of a strong launch of the iPhone 14.
Samsung is Europe’s largest smartphone maker with a 35% market share, followed by China’s Xiaomi with 23% and Apple with 21%.