Lenovo-backed ZUK brand takes on the smartphone market

Lenovo's smartphone market share in China has been sagging on increased competition

The top of the ZUK Z1.

The top of the ZUK Z1.

Lenovo's latest smartphone strategy downplays the company name, instead spotlighting a new brand, ZUK.

On Tuesday, the newly established brand introduced its first Android phone, the Z1, which will arrive in China later this month, offering strong specs and an affordable price. International launches are expected later this year.

Any mention of Lenovo was absent at the product launch. That strategy may seem strange, given that Lenovo is already a well-known brand in China, its home market. Lenovo has long been the country's leading PC maker and at one point was its largest smartphone vendor.

However, the competition in China's handset industry has increased. Vendors including Apple and Samsung, along with dozens of other homegrown players such as Xiaomi and Huawei, are all fighting for a piece of the market.

The competition has started to take a toll on Lenovo's business. In this year's second quarter, it fell out of the top-five ranking for China's largest smartphone vendors, and grabbed only a 5 percent market share, according to research firm Canalys.

The challenge for Lenovo is developing a clear strategy, said Canalys analyst Nicole Peng. In China, the company has excelled at selling low-end phones, but its existing brand isn't as well known for offering higher-end devices.

"People are moving on and buying their second smartphone," she added. "They want that next phone to be much better. So Lenovo, at this stage, is finding it very difficult to compete."

It doesn't help that demand for smartphones is slowing in China. Lenovo CEO Yang Yuanqing has noted that the boom in the company's home market has abated. But that doesn't mean the company is done fighting.

Last October, Lenovo announced it was creating a new mobile devices company that would use a separate product brand name. Later officially christened Shenqi Gongchang, the company -- which is majority-owned by Lenovo -- would focus on selling products and promoting itself through the Internet via the ZUK brand.

ZUK -- each individual letter is pronounced separately -- has no specific meaning, and is meant to appeal to China's younger consumers.

"I think (ZUK) can help Lenovo be more out of the box, more creative," Peng said. "With the Lenovo name, it doesn't really help them be seen as a young refreshed brand."

Rival Xiaomi, now China's largest smartphone vendor, is among ZUK's competitors, but so is Huawei and ZTE, both of which have also created separate brands to appeal to Internet-savvy consumers.

Shenqi Gongchang, however, is confident it can cultivate a fanbase for the ZUK brand, and is focused on being an independent entity. The the Z1, is a pretty polished device, with an almost iPhone 6 Plus feel due to its 5.5-inch screen and metal frame. The product has fairly high-end specs, including a 1080p screen, a Qualcomm Snapdragon 801 processor, a 13-megapixel rear camera, and a large 4100 mAh battery.

To further entice consumers, ZUK has also thrown in a fingerprint sensor, and a USB 3.0 Type-C connector. The Z1 will be priced at 1799 yuan ($284), and goes on sale in China on Aug. 18.

However, the ZUK brand won't be contained within China. Shenqi Gongchang will hold an international product launch for ZUK within a month or two, and is targeting markets including Southeast Asia and Europe. The company for the moment has not announced definitive plans for the Americas, but a company official acknowledged that the new brand could also one day arrive in the U.S.

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