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From: MorganBucks8/10/2017 10:17:03 AM
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Amazon and Tencent Back Smartphone Maker Essential -- Update
By Rolfe Winkler Published August 09, 2017 Features Dow Jones Newswires






Essential Products Inc., the smartphone maker founded by the creator of Google's Android mobile software, confirmed it has a new $300 million war chest as it prepares for the seemingly insurmountable task of taking on Apple Inc. and Samsung Electronics Inc.







The startup on Wednesday unveiled the large roster of investors taking a chance on it, including Chinese internet company Tencent Holdings Ltd. and Amazon Inc.'s Alexa Fund. Essential also disclosed that Best Buy Co. stores and Amazon.com Inc. will be its retail launch partners in the U.S.

But the company stopped short of the big reveal: When exactly its $699 titanium-encased smartphone will be available.

"We're a few weeks away," said Niccolo De Masi, Essential's president, repeating what company founder Andy Rubin said a few weeks ago. "I will give you an exact date in a week."

Mr. Rubin's company is attempting to challenge Apple and Samsung with a new phone at roughly the same time as the smartphone behemoths unroll major releases. Apple in September is expected to unveil three new phones, instead of the usual two, including a special 10th-anniversary iPhone with a different display and new features like wireless charging and facial-recognition technology. Samsung next month is expected to launch its premium Galaxy Note 8 phone.

Essential has gained attention largely because of the pedigree of Mr. Rubin, who sold his previous startup, Android, to Google -- now a unit of Alphabet Inc. -- in 2005, and then helped turn its software into the world's most-used smartphone operating system, rivaling Apple's iPhone.

Ultimately, Essential is trying to create the same brand affinity that Apple has created by building a complete hardware-software ecosystem. The Essential smartphone itself comes with a special port that the company hopes will attract the development of a wide range of accessories, to go with its own 360-degree camera. It also plans a device called Home that will control household smart devices. Mr. De Masi also declined to provide release-date details for that device.

"In the Western world there is a need for there to be a new lovemark," Mr. De Masi said, "a brand where there is an emotive connection for consumers."

Essential isn't targeting mass-market popularity out of the gate. The initial strategy is to take advantage of the company's small scale to innovate faster than larger rivals, said Mr. De Masi, pointing to his phone's titanium-ceramic shell, which he said wouldn't be possible to manufacture in iPhone-size quantities.

"If we are able to sell low single digit millions [in the first year] that's very successful for a startup," Mr. De Masi said.

Distribution will be limited at the start. Sprint Corp., the fourth-largest carrier in the U.S., is the only wireless company that will stock it in the U.S. Telus Corp. will carry it in Canada. The phone will also be available unlocked, for use on any carrier network, at Amazon.com, Best Buy and Essential.com.

Mr. De Masi declined to provide details for those carriers' offers. He said international carrier relationships would be announced later this year.

Analysts are skeptical of Essential's chances.

"Having a good product isn't enough in a crowded market" said analyst Neil Mawston of research firm Strategy Analytics, emphasizing the importance in the U.S. of distribution via top carriers AT&T Inc., Verizon Communications Inc. and T-Mobile US. Inc. "If you don't get buy in from the big three, you're stopped before you've even started."

Essential was set earlier this year to raise $100 million from SoftBank Group Corp., which owns Sprint, but the Japanese investor scrapped the deal partly because of its close relationship with Apple, The Wall Street Journal previously reported. Apple committed $1 billion to SoftBank's Vision Fund.

Instead, Essential turned to a number of new investors for the latest round, including Access Technology Ventures, which led the investment, Vy Capital and Australia's sovereign-wealth fund.

Mr. De Masi declined to disclose Essential's valuation. Equidate, a marketplace for private-company shares, estimated Essential's valuation at $1 billion based on its shares outstanding and share price. Essential has raised a total of $330 million.

Write to Rolfe Winkler at rolfe.winkler@wsj.com

(END) Dow Jones Newswires

August 09, 2017 14:17 ET (18:17 GMT)
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