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China's ByteDance plans to develop its own smartphone

TikTok owner hopes pre-loaded apps will spur sales, but analysts are skeptical

ByteDance, owner of the popular TikTok streaming app, is one of the few Chinese tech companies to boast a large user base outside its home market. (Photo by Takaki Kashiwabara)

BEIJING/HONG KONG (Financial Times) -- China's ByteDance, owner of the popular TikTok streaming app, is taking a step into hardware to develop its own smartphone, according to two people familiar with the project.

ByteDance, whose $75 billion valuation ranks it as one of the world's biggest startups, plans to launch a phone pre-loaded with its own apps -- which include news feeds, short video platforms and games -- in a bid to further spread its reach.

The move comes as Chinese tech companies, spooked by the fallout from U.S. bans on exports to Huawei, are ramping up their self-reliance.

ByteDance is one of the few tech companies from China to boast a large user base outside its home market, including in India and the U.S.

While several big U.S. internet companies have sought to launch devices, success has mostly been elusive. Though Google launched the Android operating system that powers the majority of the world's smartphones, Facebook and Amazon's own-brand phones were both abandoned.

HTC and Samsung launched devices based on the Facebook Home platform, which like Bytedance's planned phone came pre-installed with its apps, but they flopped when it launched in 2013. Buyers similarly shunned Amazon's Fire phone, which was pulled a year after launch.

Analysts predict ByteDance's phone could have a similar outcome. "There's basically no space for them in the mass market," said Jia Mo, Shanghai-based analyst at Canalys.

"They lack experience and advantage in supply chain, in channels ... so their likelihood of being successful is very low," he added. "If they target only the niche market, maybe they have a chance by attracting niche customer groups through certain pre-installed software."

ByteDance's latest project, the brainchild of founder Zhang Yiming, follows its acquisition of a number of patents from Smartisan, a Chinese phonemaker, and subsequent recruitment of some of its staff.

Zhang has long dreamt of a phone with ByteDance apps pre-installed, according to one person with knowledge of the secretive project.

But Chinese tech companies' fears of hawkishness in Washington intensified last week when Google, in response to the U.S. ban, cut Huawei's access to anything more than its basic open source Android operating system. The move dealt a blow that some analysts believe could cost the telecom company its entire overseas sales.

Bytedance's own international expansion has been helped by its acquisition of U.S. lip-syncing Musical.ly app in 2017. But despite racking up huge numbers of downloads -- passing 1 billion in March -- it has run up against regulators in India and the U.S., where it was fined a record $5.7 million by the Federal Trade Commission for allegedly illegally collecting personal information from children.

Wang Xi, research manager at data consultancy IDC China, said the competitive domestic hardware market meant any newcomer would have to woo users with low prices and must-have content.

"So if they really will go down this path, I think they will probably let hardware lose money in the beginning and try to make up through service later," he said. ByteDance declined to comment.

Additional reporting in London by Tim Bradshaw

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