The Nothing Phone (1).
UK-based consumer tech company Nothing has its sights set on the US, with ambitions to take it over apples iPhone.
The startup, the hardware venture of Carl Pei – co-founder of Chinese handset maker OnePlus – is in early talks with American carriers about launching a new smartphone in the US, Pei told CNBC, without naming any of the carriers.
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In July, Nothing launched Phone (1), a mid-range device with a similar design, price, and specs to Apple’s entry-level iPhone SE.
The company endorsed by iPod creator Tony Fadell alphabets VC Arm GV has so far only launched its smartphone in Europe, the Middle East and Asia – not in the USA or Canada.
“The reason we didn’t start in the US is because they need a lot of additional tech support to support all the carriers and their unique customizations that they have to do on top of Android,” Pei explained in an interview with CNBC. “We felt like we weren’t ready beforehand.”
“Now we are in talks with some carriers in the US to possibly launch a future product there,” said the Sino-Swedish entrepreneur.
They like Apple and Samsung have already established relationships with major US airlines, making it difficult for smaller firms to compete.
But a third of sales of its recently launched Ear (Stick) headphones currently come from the US, Pei added.
“It’s definitely a market where there’s already a lot of interest in our products. And if we launch our smartphones there, I’m sure we could see significant growth,” he said.
The company expects its revenue to increase more than tenfold in 2022 — from about $20 million in 2021 to an estimated $250 million this year, according to figures exclusively shared with CNBC. It has also more than doubled its workforce to more than 400. However, the company is still losing money.
“The goal is to be profitable in 2024,” Pei said. “We are not profitable at the moment. And this year the currency exchange made it even more difficult. We pay a majority of our COGS [cost of goods sold] in USD, but we make money in pounds, in euros, in Indian rupees – so everything is devalued against the USD.”
The US dollar has recovered this year; the dollar index – which measures the greenback against a basket of major currencies – is up over 8.5% year-to-date.
take over Apple
Pei wants to challenge Apple’s iPhone in the US, but it’s a steep hill to climb.
“There is a challenge with Android where iOS is becoming more dominant. They have a very strong bond with iMessage, with AirDrop, especially with Gen Z. That’s something I’m increasingly worried about,” he said.
“There might come a time when Apple is about 80% of the total market and that just doesn’t leave enough room for Android-based manufacturers to play on,” he said.
Apple was not immediately available for comment when CNBC contacted him.
Pei says he sympathizes with Elon Musk, who as Twitter’s new CEO has put pressure on Apple over its App Store restrictions and 30 percent fee for in-app purchases.
He added that in a few years, Nothing might “need to seriously think about this issue and how we’re going to tackle it.”
“That will limit our growth,” Pei said.
David versus Goliath
Pei said his company has faced a plethora of challenges in bringing its products to market. One of its biggest setbacks came when it turned to Foxconn, Apple’s largest iPhone supplier, to make its phones.
According to Pei, Foxconn refused to do business with Nothing, citing previous failures in the smartphone industry.
“Every startup maker has worked with Foxconn,” Pei said. “But when it was our turn, they said no because every startup that has worked with them has 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.
Global Covid restrictions also presented a significant hurdle for the company. In India, where Nothing makes its phones, travel restrictions have prevented the company from flying out engineers, with Pei saying the company has to manage its factory remotely.
“We had to work really hard to make it,” he said of Nothing’s smartphone.
In Shenzhen, China, where officials have imposed strict lockdowns, Nothing’s engineers had to discuss component designs and mechanics during the mandated 45-minute periods when it was acceptable for people to go outside to buy groceries .
Nothing has sold over 1 million products worldwide to date, with the Earbuds (1) having sold 600,000 units and the Phone (1) having reached 500,000 shipments.
Still, the startup is a tiny player and faces a bleak economic outlook that will force people to drastically limit their spending.
In Europe, third-quarter smartphone shipments fell 16% year over year, although they increased slightly sequentially due to the strong launch of the iPhone 14.
Samsung is Europe’s largest smartphone manufacturer with a market share of 35%, followed by Xiaomi with 23% from China and Apple with 21%.