Anyone can make smartphones now

Walk through a metal gate, sidestep a pile of boxes, take an elevator to a floor of serviced offices and enter the latest battleground for Samsung Electronics.

In a small suite in Shenzhen, southeastern China, Cathy Chang is helping clients from around the world create their own smartphone brand. Choosing from a menu of options akin to ordering a pizza, Shenzhen Zuoer Technology’s customers can get into the handset business for as little as $1,000. No experience needed.

Zuoer is among the dozens of little-known Chinese companies that are tapping into a catalog of standardized components to build smartphones from $20 apiece. For a minimum order of 50 units, Zuoer assembles its own plastic outer shell with other manufacturers’ LCD screens, circuit boards and batteries, helping any client anywhere take on Samsung in the $410 billion global mobile phone market in less than six weeks.

“The emergence of low-end phone vendors is chipping away at Samsung’s share,” said John Butler, who tracks the smartphone market for Bloomberg Intelligence. “These new entrants are quite small in comparison to a giant like Samsung, but their collective impact is weighing on Samsung’s results and those of other major vendors.”

Starting with Google’s free Android operating system and adding standardized chips based around technology developed by ARM Holdings Plc, companies such as Zuoer, Shenzhen Oysin Digital Technology and Oteda Industrial can put together phones without the legions of software and hardware engineers that Nokia Oyj, Motorola Mobility and BlackBerry relied on a decade ago.

Thanks to touch-screen technology made popular by Apple’s iPhone, they can also eschew the complicated and expensive business of designing and making physical keypads.

This simplification and standardization has opened the manufacturing floodgates, creating a multitude of Chinese rivals for Samsung, Nokia and Motorola. Among them: Xiaomi, which became the world’s third-largest smartphone distributor in less than five years, and OnePlus, which developed a 35-country reach in its first two years.

“It’s cheaper and faster because the supply chain has become so mature and standardized,” Mosetefa Zhang, head of international sales at Oysin, said over Chinese tea in a high-rise building in Shenzhen’s Huaqiangbei electronics district.

Down the hall from Oysin, the sales offices of yet another half-dozen assemblers are plying products so similar that price has become the main point of difference.

The path to simplicity started a decade ago when MediaTek, a Taiwanese semiconductor company that dominated the DVD chip business, entered the phone components market. Instead of selling only off-the-rack chips like larger rival Qualcomm, MediaTek offered reference designs, recipes detailing what other components to buy and how to put them together. Qualcomm later followed suit.

At the same time that MediaTek was creating a new chip business model, Google bought a little-known company called Android Inc. that was developing an operating system more flexible than other offerings.

With the two largest challenges taken care of, small teams could suddenly do the work of giant research labs, and making a mobile phone became as easy as building a Lego house.

Bloomberg