Phone Nothing (1).
UK-based consumer technology company Nothing is setting its sights on the US with ambitions to take over from Apple iPhone.
The startup, the hardware business of Carl Pei — the co-founder of Chinese cellphone maker OnePlus — is in early talks with U.S. carriers about launching a new smartphone in the U.S., Pei told CNBC, without naming any of the carriers.
In July, Nothing released the Phone (1), a mid-range device with a similar design, price and specifications to Apple’s iPhone SE.
The company, which is backed by iPod creator Tony Fadell and The alphabet VC arm GV has so far only launched its smartphone in Europe, the Middle East and Asia, not in the US or Canada.
“The reason we haven’t launched in the US is because you need a lot of additional technical support to support all the carriers and their unique customizations that they have to do on Android,” Pei explained in an interview with CNBC. . “We felt we weren’t ready before.”
“We are now in discussions with several carriers in the US to be able to launch a future product there,” said the Chinese-Swedish entrepreneur.
As of Apple and Samsung have already established relationships with large US carriers, making it more difficult for smaller firms to compete.
But a third of sales of newly 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 get significant growth,” he said.
The company expects its revenue to grow more than tenfold in 2022 — from about $20 million in 2021 to about $250 million this year, according to figures shared exclusively with CNBC. It also doubled its employees to more than 400. However, the firm is still losing money.
“The goal is to be profitable in 2024,” Pei said. “We are not profitable at the moment. And this year it was even more difficult because of the currency exchange. We pay a lot of COGS. [cost of goods sold] in USD, but we make money in pounds, in euros, in Indian rupees – so everything has devalued against the USD.”
The US dollar has risen this year; the the dollar index — which measures the greenback against a basket of major currencies — is up more than 8.5% year to date.
Taking on Apple
Pei wants to challenge Apple’s iPhone in the US. But it’s a steep hill to climb.
“There’s a challenge with Android, where iOS is becoming more and more dominant. They have a very strong lock with iMessage, with AirDrop, especially among Gen Z. So that’s a growing concern for me,” he said he.
“There may be a time when Apple has 80 percent of the total market, and that just doesn’t leave enough room for Android-based manufacturers to keep playing,” he said.
Apple was not immediately available for comment when contacted by CNBC.
Pei says he sympathized with Elon Musk, who, as Twitter’s new CEO, pressured Apple over App Store restrictions and a 30 percent tax on in-app purchases.
He added that in a few years, Nothing needs to “think seriously about this problem and how we approach it.”
“It will create a cap on our growth,” Pei said.
David against Goliath
Pei said his company faced a multitude of challenges in bringing its products to market. One of the major setbacks it faced was when it approached Foxconn, Apple’s largest iPhone supplier, to manufacture its phones.
According to Pei, Foxconn refused to do business with Nothing, citing past failures in the smartphone industry.
“Every startup manufacturer has worked with Foxconn,” Pei said. “But when it was our turn, they said no, because every startup that worked with them failed. And every time a startup failed, Foxconn lost money on it, they couldn’t recover their costs.”
Foxconn was not immediately available for comment when contacted by CNBC.
Covid restrictions around the world have also been a significant hurdle for the company. In India, where Nothing makes its phones, the company has been unable to send engineers due to travel restrictions, with Pei saying the company has to manage its factory remotely.
“We really had to rush to create this,” he said of Nothing’s smartphone.
In Shenzhen, China, where officials imposed strict lockdowns, Nothing’s engineers had to discuss component design and mechanics during the 45-minute periods when it was acceptable for people to go outside to buy food.
Nothing has sold more than 1 million products globally to date, with its Ear (1) headphones selling 600,000 units and Phone (1) reaching 500,000 shipments.
Still, the startup is a small player and faces a bleak economic outlook where people are forced to severely limit their spending.
In Europe, smartphone shipments fell 16% in the third quarter year-on-year, although they rose slightly from the previous quarter on the back of a strong iPhone 14 launch.
Samsung is the largest smartphone maker in Europe with a 35% market share, followed by 23% from China, Xiaomi and 21% from Apple.