Alibaba share price up, acquires part of Chinese smartphone maker Meizu

Alibaba Group Holding Ltd agreed to acquire a minority stake in Chinese smartphone maker Meizu Technology Corp for $590 million, marking another push from the e-commerce behemoth into the mobile industry.

Although this is the first time Alibaba has directly purchased a stake in a smartphone manufacturer, the deal falls under the companys plan to compete with rivals Tencent and Baidu in the mobile segment, while also providing better positioning against larger Xiaomi and Lenovo.

Alibaba said in a statement Monday that the agreement is an important step for the its overall mobile strategy and it will help the company to provide wider array of mobile offerings.

Based in the southern Chinese city of Zhuhai, Meizu started out as a maker of MP3 players and later established itself as manufacturer of high-profile, low-cost smartphones.

However, the company is not very popular and is one of the few in China which pre-installs YunOS, Alibabas own operating system, on its devices.

The two companies have been working together since last year, when Meizu started implementing the YunOS on its smartphones. Alibaba launched its operating system back in 2011, but has failed to convince most manufacturers to switch from Google dominant Android operating system to YunOS.

In 2012 Google accused YunOS of being just a version of its Android and claimed the operating system is not compatible with the wider array of devices, but Alibaba rejected those accusations. However, the dispute encouraged many manufacturers to play it safe and continue working with Android.

According to industry researcher IDC, Googles operating system powered more than 84% of all smartphones sold in the third quarter of 2014, followed by Apples iOS with 11.7% and Microsofts Windows Phone with 2.9%, leaving other operating systems with less than 1%.

The deal also add up to the $8 billion Alibaba has already spent on boosting its mobile business. During the past year, the company bought digital map and navigator Autonavi software, for $1.5 billion, and UCWeb, the most popular mobile browser in China, for an undisclosed amount above $1.9 billion.

“This strategic collaboration with Alibaba Group will enable Meizu to further develop our smartphone business and our smart devices ecosystem,” said Meizus Chief Executive Officer Yongxiang BAI.

Alibaba lost 1.52% on Friday and closed at $85.68 in New York, marking a 8.75% decrease since its record IPO in September. The company is valued at $213.11 billion. Alibaba edge up 0.56% to $86.16 on Monday during after-hours trading.

According to the Financial Times, the 34 analysts offering 12-month price targets for Alibaba have a median target of $112.50, with a high estimate of $136.00 and a low estimate of $72.00. The median estimate represents a 31.30% increase from the last closing price.