Freedom 251 – Alarm bells.

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Someone is losing a lot of money on this device.

• The latest sensation to hit the mobile device industry is the launch of the Freedom 251 smartphone that is retailing online for INR251 or ($3.70).
• The device is “made” by an Indian handset maker called Ringing Bells which is part of the Make in India initiative launched by Prime Minister Modi in September 2014.
• The Freedom 251 runs Android Lollipop and sports a 4inch 540×960 display, a MediaTek 1.3Ghz processor, 1GB RAM, 8GB of internal storage and a dual-SIM 3G baseband.
• The problem with this device is that the economics make no sense.
• The device is being sold at INR251 with no strings attached meaning that any entrepreneur could buy up as many of the devices as he can get his hands on, break them up and sell the components at a profit.
• On my calculations this device is being sold at gross margins of at least minus 650% with $26 of losses with every device sold.
• This is before expenses for sales and marketing and warranty costs.
• I do not think that there have been any development costs because in reality this device appears to have been sourced from Indian electronics importer Adcom. (see here).
• The closest matching product is the Adcom Ikon 4 which currently sells for INR3,599 ($53).
• Adcom is not a manufacturer and therefore it is extremely likely that this device was actually manufactured in China.
• The big question remains who is underwriting this product? There are a few possibilities.
  • First. The Indian government. Although the company strongly denies that this device is state subsidised, there are many ways that this could still happen.
  • For example, the government could be a shareholder of Ringing Bells and thereby contributing cash to support the company without officially subsidising it.
  • Second. The Chinese company that actually made the phone.
  • Chinese companies are very keen to break into the Indian market as their home market is brutally competitive and showing every sign of maturing.
  • Consequently, it may have been willing to virtually give the phone away in order to get a toehold in the Indian market.
  • Third. The Freedom 251 could be sourced from old inventory that has already been written down to a very low level or even zero.
  • This is possible as the device has not been certified as safe by the Bureau of Indian Standards (BIS).
  • Consequently if the device batch failed the BIS safety tests it would become unsellable in the Indian market providing the manufacturer with little choice other than to write it down.
  • This could have enabled Ringing Bells to buy the device for almost nothing and thereby not lose money in selling it at such a low price.
• The company’s line is that by making the phone in India it can reduce costs by INR400 per device with scale providing another INR500 of savings.
• The long term hope is that the company will obtain enough scale with its devices to be able to make money by selling services to millions of users in a similar manner to Cyanogen.
• Unfortunately with the likelihood that the device was actually made in China and with only 30,000 devices sold before the website crashed, these aspirations look highly questionable.
• This launch has generated a lot of waves and I suspect that either after the first batch has been sold, the price goes up to $53 per device or that the company quietly disappears.
• There is no way that these economics add up in the long term meaning that the alarm bells must already be ringing at the company.
• I doubt that other handset makers will lose much sleep over this device or its pricing as it is clearly unsustainable.

• RFM would like to acknowledge Aamir Siddiqui from xdadevelopers which was the source for many of the facts in this post. (see here).