BEIJING -(Dow Jones)- Baidu Inc. (BIDU) is poised to launch the first low-cost smartphone running its newest mobile operating platform, in a move that could shake up China's burgeoning mobile phone market. The phone, which will run the Chinese search giant's Baidu Cloud, will allow users to access a variety of Baidu applications, like its maps and licensed music services, while also providing them with 100 gigabytes of storage on its cloud system, according a person close to the company. The handset is being made in cooperation with Foxconn International Holdings Ltd. (2038.HK) and China Unicom Ltd. (0762.HK), but will be launched under a separate brand. It will be priced under CNY1,000, the person said. Baidu has dominated online search in China since Google Inc. (GOOG) moved its offices to Hong Kong in 2010 amid concerns about censorship and hacking. But the rapid expansion of China's smartphone market has posed new challenges for the company, as users have more often turned to other search services when using their mobile devices. Though Baidu holds 78.3% of China's online search market by revenue, its mobile search gets 35% of total unique web site requests, according to Analysys. Though there are competing metrics by which to judge mobile search, that reading makes Baidu the mobile search market leader in China, but also shows rivals like Tencent lag not far behind with 23.0% of traffic. Often known as China's Google, Baidu hasn't taken the challenge lying down and has already hired more than 1,000 engineers to help it build its mobile offerings. The person said the company is already in negotiations with a "large number of brands to put out other handsets powered by Baidu Cloud." The operating system is an expansion of Baidu Yi, the operating platform Baidu released last year. Since its launch, Baidu Yi has featured on a smartphone made by Dell, but due to its high price and more dominant brands like Apple Inc. and Samsung Electronics Co., the phone failed to catch on. The new phone's low price, which the person said Baidu hoped would help it become popular in China's smaller cities, could be a big advantage as prices have continued to drop in the Chinese smartphone market. Taiwanese smartphone maker HTC Corp., which has fiercely resisted releasing cheaper smartphones, recently announced it would sell a phone for CNY1,999 in China. Baidu Cloud is based on Google's Android operating system, but the company has said before that it intends to build its operating system so that it is consistent with other operating systems like Microsoft's Windows. Though Google remains a competitor of Baidu, phones that run Android in China do not include many of its native applications like Google maps or its application store, leaving an opening for software companies like Baidu to enter the market. -By Paul Mozur, Dow Jones Newswires; 86 10 8400 7702; paul.mozur@dowjones.com
