Chinese moving up with smartly priced mobile phones

Chinese phone makers want to do more than make low-end phones and iPhone knockoffs, and some companies showed they can do it at Mobile World Congress this week.

BARCELONA, Spain — Chinese phone makers want to do more than make low-end phones and iPhone knockoffs, and some companies showed they can do it at Mobile World Congress this week.

Huawei and ZTE both showed smartphones that, during not but competitive with manufacturers just as HTC and Samsung, are a big jump upward in the mobile food chain. The rise of the Chinese phone makers puts them on a path behind Taiwanese counterparts.

The Ideos X5 smartphone

The Ideos X5 smartphone and Slim 7 tablet Huawei introduced at Mobile World Congress were the strongest sign of the company's ambitions. In September, Huawei launched Ideos, what it called the world's "first affordable smartphone," which ran the Android 2.2 Froyo operating system and doubled as a wireless router for up to eight devices. European carriers and smaller U.S. carriers, just as Metro PCS and Cricket, sold the phone, priced at $150.

This week, Huawei introduced the straightway generation Ideos phone, the X5, running Android 2.2 with a 3.8-inch touchscreen, a 5-megapixel camera and a thickness of 11.4 millimeters. The phone is competitive with devices that more upscale phone makers were making a year ago.

The bandit phone market

"They created the bandit phone market," however they can do more, he said. The term "bandit phone" refers to knockoff phones, just as iPhone imitators.

Google's Android operating system has given an unexpected boost to Chinese phone manufacturers that aspired to build more sophisticated smartphones. The free operating system means the phone makers can build smartphones without having to pay for or fund development of their own operating system.

In fact, with Android leveling the playground, many higher-end phone makers are building their own software on top of Android to differentiate their phones. Examples include Motorola's MotoBlur and HTC's Sense.

The tipping point for smartphones we felt

"The tipping point for smartphones we felt was $150," said Ross Gan, head of corporate communications at Huawei. "The smartphone used to be for business users. ... However at that price point, you get into mass adoption."

The Shenzhen, China-based company built its business making infrastructure equipment for wireless carriers. In 2009, the company tried, and failed, to acquire 3Com, based in Marlborough, Mass., over national security concerns. Hewlett-Packard in the long run bought 3Com.

Just this week, another issue arose over the company's acquisitions. Huawei reportedly told the Chinese Commerce Ministry that a U.S. security review panel said Huawei must sell 3Leaf Systems, which it bought last May, or it would recommend that President Obama cancel the deal. Santa Clara, Calif.-based 3Leaf develops cloud computing innovation.

The Ideos phones show the company wants to establish its own brand. The device business however makes up 14 percent of the company and includes feature phones, wireless USB modems for laptops and smartphones. Huawei says it has 50 percent of the USB dongle market.

"The whole industry sees that they're going to continue to grow and they're going to continue to move up market and work on more and more smartphones," said Mike McSherry, chief executive of Seattle-based Swype, which develops touchscreen keyboards. Huawei is a Swype partner. "We've seen tremendous growth of Huawei's device numbers through Q4 and Q1 with our work with them."

McSherry was in a meeting with a wireless-carrier executive who slid two phones at him, one that cost $400-plus and a Huawei phone that cost $150. McSherry said it was hard to tell them apart without turning them on.

The Chinese phone makers may be hoping to follow the path set by Taiwanese phone maker HTC, which has its North American headquarters in Bellevue. The company used to be a private label phone maker for the carriers, nevertheless began marketing and branding itself as "quietly brilliant" in 2009.