The latest move by Baidu, the mainland's leading internet search engine, to branch out into the smartphone business is more a long-term strategic shift than for short-term revenue gains.
Baidu last week announced plans to offer a cheap smartphone embedded with its proprietary cloud operating system, aimed at enlarging its user base in the fast-growing mobile internet market.
The company has teamed up with Taiwanese assembler Foxconn Technology and electronics maker Sichuan Changhong Electric on the mobile device, which will be priced under 1,000 yuan (HK$1,222). The smartphone will be distributed through partners, including telecom carrier China Unicom (Hong Kong).
It said many other 'mainstream mobile brands' are also in 'close contact' and that it plans to release smartphones utilising its cloud technology at different price ranges.
Kaiser Kuo, a spokesman for the Beijing-based firm, said Baidu has already been working with Dell on smartphones. 'We haven't set any targets for the smartphone business,' Kuo said.
The Dell-branded smartphone, which was launched late last year and comes embedded with Baidu's operating system, is priced at 2,999 yuan and is aimed at a consumer group with a higher price point than what it is targeting with the new line of smartphones.
Huang Meng, of market research firm Analysys International, said expanding into smartphones has more to do with strategic market positioning rather than an immediate revenue boost. 'I don't expect the smartphone business to exceed 1 per cent of Baidu's overall business,' Huang said.
Baidu's goal, according to Liu Xingliang, chairman of Beijing-based internet data analysis firm Hongmai Software, is to build a solid base at the low end of the market with its own phones that come with its own search engines.
Baidu has not said when the low-cost phone will be put out on the market, only that it will be available in the 'very near future'.
ZTE and Huawei Technologies dominate the country's low-end smartphone market. 'It is unrealistic to think an alliance between Baidu and hardware makers will challenge ZTE and Huawei,' Huang said.
Mainland telecom carriers already offer an array of smartphones priced under 1,000 yuan to attract low-end users as smartphone penetration in urban areas is substantial.
A number of domestic internet companies have already expanded into the smartphone market. E-commerce giant Alibaba Group launched its self-developed mobile operating system and smartphone last year, while online games and messaging company Tencent has introduced smartphones embedded with its QQ service platforms.
The mainland's mobile internet revenue - including mobile e-commerce, value-added service and gaming - rose 167 per cent year on year to 15.87 billion yuan in the first quarter, according to online market research company iResearch.