Alibaba’s long-term goal was to get YunOS on tens of millions of device

Alibaba announced Monday that it has agreed to invest $590 million to acquire a minority stake in Chinese smartphone maker Meizu Technology. However, e-commerce giant declined to disclose the size of its stake. The deal will help Alibaba expand its Yun mobile operating system in a fiercely competitive smartphone market. Meizu has less than 2% stake in the Chinese smartphone market, which is dominated by Xiaomi, Apple, Samsung, Huawei and Lenovo.

Alibaba Group Holding Ltd Acquires Minority Stake In Meizu For $590M

Meizu aims to sell 20 million units this year

Alibaba is testing ways to get its YunOS on millions of handsets in China. The OS has gained little traction so far. Last year, Alibaba partnered with Meizu to make Yun-based smartphones that would help drive users to its e-commerce apps and other services. Zhuhai, Guangdong-based Meizu will now gain access to Alibaba’s online sales channels and other resources.

Meizu said earlier this month that it aimed to sell 20 million smartphone units in 2015. By comparison, Xiaomi, Huawei and Lenovo have all announced targets of selling over 100 million units this year. In November, Alibaba’s vice chairman Joseph Tsai said that the company’s long-term goal was to get YunOS on tens of millions of devices.

Alibaba’s expensive experiment

However, analysts believe that Alibaba is paying too much for what is little more than an experiment. Meizu doesn’t even rank among China’s top five smartphone makers. Michael Clendenin of RedTech Advisors told Paul Carsten and John Ruwitch of Reuters that this investment is “an expensive experiment” for the Chinese e-commerce giant. Meizu’s limited reach could blunt Alibaba’s mobile OS ambitions.

Another big concern is that the smartphone market in China has become increasingly saturated. Shipments in China fell from 423 million in 2013 to 389 million units in 2014, according to government data. Android-based devices account for about 85% of sales in China. The government is keen to lower China’s reliance on the U.S.-based companies like Google and Apple.

Alibaba shares rose 0.97% to $86.51 in per-market trading Monday.