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Google plans cheaper smartphone to draw users into internet empire

Tech giant seeks to exploit Apple woes to drive hardware expansion

Google plans to release a cheaper version of its Pixel smartphone as demand for premium handsets flags. (Photo by Arisa Moriyama)

TAIPEI -- Google plans to unveil its first lower-priced smartphone this year as part of an aggressive push into hardware that it hopes will draw more users into its ecosystem, sources have revealed.

The U.S. internet giant is moving quickly to exploit the troubles currently besetting Apple, which has suffered disappointing sales of its new premium iPhone as consumers migrate to cheaper models and global smartphone sales tumble, industry sources say.

Google's new smartphone will be its first non-premium model aimed at price-sensitive customers and those in emerging markets. It is expected to be priced lower than Apple's cheapest iPhone, the XR, which starts at $749. The latest model in Google's own Pixel range, released last October, started at $799. Midrange to high-end phones are priced at between $150 and $700, while low-end models sell for less than $150, industry sources said.

The new phone will be the spearhead of Google's drive to expand the hardware using its operating systems. New products planned for this year include smart speakers, wearables and web cameras, sources familiar with the company's plans told the Nikkei Asian Review. Google also plans to launch a new premium phone in its Pixel range, as usual.

To further its hardware ambitions, the internet giant is scooping up Apple talent and expanding its production partnerships across Asia. Over the last two years Google has hired hundreds of hardware engineers and supply chain specialists from Apple, people familiar with the matter said. It also acquired 2,000 engineers from embattled Taiwanese smartphone maker HTC in 2017.

Google has only a small presence in the global smartphone market. Pixel shipments in 2018 were around 4.68 million units, or around 0.33% of the total market, research company IDC data showed. This compared with 3.45 million units, or 0.2% of the market in 2017.

The expansion of Google hardware will allow the U.S. tech giant to drive more users to its services, analysts said.

"Google ... sees it as a more direct way to collect user data and make its flagship software and internet services a bigger and more integral part of people's everyday lives," said Joey Yen, an analyst at IDC. "Google's hardware push will make it difficult for people to live without Google's services and ecosystem ... That's the big picture the internet giant always has in mind."

One person with direct knowledge of the matter told Nikkei that Google plans to release a new security camera later this year after it integrated the team from Nest Labs, the tech startup it acquired in 2014. Nest Labs has been building household-use security cameras since 2015.

The company will also roll out an updated version of its signature smart speaker Google Home this year, as well as a new smartwatch to compete with the Apple Watch, the person familiar with the plan said.

Google's range of smart speakers includes the standard Home option, the affordable Home Mini, and the Home Hub released last October as an answer to Amazon's Echo Show. Google's high-end Home Max is positioned against Apple's HomePod.

Data shows that Google is catching up fast on market leader Amazon. Google secured 29.8% of the global market in the July-September period, when it shipped around 5.9 million smart speakers, up 187% from a year ago, according to market consultancy Canalys. That puts it just behind Amazon's 31.9%.

Meanwhile, suppliers are hoping Google's hardware ambitions will offset the difficulties they face as a result of Apple's troubles. The world's top electronics contract manufacturers, including key iPhone assemblers Foxconn and Pegatron and MacBook maker Quanta Computer, have been hit hard as Apple struggles with a slowdown in China and its first decline in iPhone shipments.

Foxconn unit FIH Mobile, which produces Android phones including the Pixel, has increased production lines dedicated to Google products, one source said. The team at FIH Mobile that handles Google's business also receives bigger bonuses than teams serving other clients in the Android camp, such as Xiaomi, due to the U.S. company's healthier growth outlook, the source said.

Pegatron meanwhile secured orders to build Google's Home Hub last year and has longtime production ties with Nest Labs. Quanta helps Google manufacture a majority of Home smart speaker products and serves as its key data center server builder. Compal Electronics, an iPad maker, is in talks with Google to start making smart speakers.

Google is also more willing than Apple to shift production outside of China to avoid the trade conflict between Washington and Beijing, sources told Nikkei.

Pegatron recently agreed to build a facility in northern Vietnam that could house 20,000 local workers mainly for producing Google products, according to people familiar with the matter.

Quanta meanwhile has expanded its plant in the northern Taiwanese city of Taiyuan for a wide range of cloud computing-related products, including those from Google, sources confirmed.

FIH, Pegatron, Quanta and Google declined to comment. Apple was not immediately available for comment.

Nearly 1,200 jobs listed on Google's job openings page are related to hardware as of Feb. 12.

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