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Carl Pei’s Nothing plans to launch smartphone in US to tackle iPhone

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The Nothing Phone (1).

Nothing

U.K.-based consumer tech company Nothing is setting its sights on the U.S., with ambitions of taking over Apple’s iPhone.

The startup, the hardware enterprise of Carl Pei — co-founder of Chinese cell phone maker OnePlus — is in early conversations with American carriers about launching a latest smartphone within the U.S., Pei told CNBC, without naming any of the carriers.

In July, Nothing launched Phone (1), a mid-range device with a design, price and specs much like Apple’s entry-level iPhone SE.

The corporate, which is backed by iPod creator Tony Fadell and Alphabet’s VC arm GV, has only launched its smartphone in Europe, the Middle East and Asia thus far — not the U.S. or Canada.

“The rationale why we didn’t launch within the U.S. is because you wish plenty of additional technical support, to support all of the carriers and their unique customizations that they should make on top of Android,” Pei explained in an interview with CNBC. “We felt that we weren’t ready before.”

“Now we’re in discussions with some carriers within the U.S. to potentially launch a future product there,” said the Chinese-Swedish entrepreneur.

The likes of Apple and Samsung have already got established relationships with large U.S. carriers, making it harder for smaller firms to compete.

But a 3rd of the sales of its recently launched Ear (stick) headphones currently come from the U.S., Pei added.

“It’s definitely a market where there’s already plenty of interest for our products. And if we launch our smartphones there, I’m sure we could obtain significant growth,” he said.

The corporate expects its revenues to leap greater than tenfold in 2022 — from about $20 million in 2021 to an estimated $250 million this 12 months, based on figures shared with CNBC exclusively. It has also greater than doubled its employees to greater than 400. Nonetheless, the firm remains to be losing money.

“The goal is to be profitable in 2024,” Pei said. “We usually are not profitable without delay. And this 12 months was made even harder as a consequence of the foreign currency exchange. We pay plenty of our COGS [cost of goods sold] in USD but we earn cash in kilos, in euros, in Indian rupees — so the whole lot devalued against the USD.”

The U.S. dollar has rallied this 12 months; the dollar index — which measures the greenback against a basket of major currencies — is up over 8.5% year-to-date.

Taking over Apple

Pei desires to challenge Apple’s iPhone within the U.S. However it’s a steep hill to climb.

“There is a challenge with Android where iOS is just becoming increasingly more dominant. They’ve very strong lock-in with iMessage, with AirDrop, especially amongst Gen Z. In order that’s a rising concern for me,” he said.

“There could be a time where Apple is like 80% of the general market and that just doesn’t leave enough space for Android-based manufacturers to maintain 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 latest CEO has put pressure on Apple over its App Store restrictions and 30% fee imposed on in-app purchases.

He added that, in a few years’ time, Nothing could have to “have a serious take into consideration this problem and the way we tackle it.”

“It’ll create a ceiling to our growth,” Pei said.

David vs. Goliath

Pei said his firm has faced a plethora of challenges in bringing its products to market. One in all the foremost setbacks it faced was when it approached Foxconn, Apple’s largest iPhone supplier, to fabricate its phones.

In line with Pei, Foxconn refused to do business with Nothing, citing past failures within 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 each time a startup failed, Foxconn lost money on it, they weren’t in a position to recoup their costs.”

Foxconn was not immediately available for comment when contacted by CNBC.

Covid restrictions across the globe also presented a major hurdle for the corporate. In India, where Nothing produces its phones, the corporate was unable to fly out engineers as a consequence of travel restrictions, with Pei saying the corporate had to administer its factory on the bottom remotely.

“We actually needed to hustle to create this,” he said of Nothing’s smartphone.

In Shenzhen, China, where officials have imposed strict lockdowns, Nothing’s engineers had to debate component designs and mechanics during mandated 45-minute periods when it was acceptable for people to go outside to purchase groceries.

Nothing has sold over 1 million products thus far globally, with its Ear (1) earbuds selling 600,000 units and the Phone (1) reaching 500,000 shipments.

Still, the startup is a tiny player, and it faces a bleak economic outlook where individuals are being forced to limit their spending drastically.

In Europe, smartphone shipments sank 16% within the third quarter year-over-year, although they were up barely from the previous quarter on the back of the iPhone 14’s strong launch.

Samsung is Europe’s largest smartphone maker with 35% market share, followed by China’s Xiaomi’s 23% and Apple’s 21%.

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