Brief:

• ByteDance, the Chinese parent company of the TikTok social video app, on Monday said it will make a smartphone after a deal with device maker Smartisan Technology, Reuters reported. The plans are another sign of ByteDance's ambition to expand beyond video and news apps, and to rival Chinese tech giants such as Baidu and Tencent.
• ByteDance struck a deal with Smartisan earlier this year that included the acquisition of technology patents and the transfer of employees. Wu Dezhou, a former Smartisan executive, is leading ByteDance's mobile phone efforts, per a report by financial news outlet Caijing.​
• Smartisan is not widely known outside China, having a 0.6% share of the country's smartphone market as of 2017, Week in China reported. The company is mostly known for founder Luo Yonghao, an internet celebrity who aspired to be the "Steve Jobs of China," according to Engadget.

Insight:

It's too early to tell whether ByteDance's deal with Smartisan to make a smartphone will ultimately be successful as competition grows within a maturing market. Smartphone shipments in China slumped 9.7% in Q4 2018 as the country's economic growth slowed and the market reached saturation, per International Data Corp. research. ByteDance and Smartisan face daunting competition from China's market leaders Huawei, Oppo, Vivo and Xiaomi.

Chinese smartphone makers haven't yet cracked the U.S. market, where smartphone shipments slumped 15% in Q1 2019 from a year earlier, making it unlikely that American consumers will see a ByteDance phone anytime soon. Chinese upstart LeEco lost money on its ambitious U.S. expansion, while Xiaomi hasn't followed through on plans to enter the U.S. market amid trade tensions between China and the U.S. Huawei is mostly closed out of the U.S. market following a Trump administration ban of its products due to security concerns.

ByteDance has ambitious plans for expansion, leveraging the strength of its apps. The company this month acquired technology from Jukedeck, a London-based startup working on artificial intelligence to generate music, per a separate Reuters report. ByteDance's key strength is the popularity of apps like TikTok and Douyin, the Chinese version of TikTok that has more than 300 million monthly users in China, per Reuters. TikTok has been the most downloaded app in Apple's App Store for five straight quarters, analytics firm Sensor Tower found, pointing to the continued strength of ByteDance's mobile ambitions.

However, whether the popularity of ByteDance's apps will translate into smartphones sales remains to be seen. ByteDance will have to demonstrate a long-term commitment to supporting a phone to assure consumers that their devices won't be rendered obsolete. Google has faced similar concerns in the marketing of its hardware products, including Pixel smartphones and Google Home smart speakers.