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Luxury phones try to get smart

Matthew Lloyd | Bloomberg | Getty Images

There is a story sometimes told about a rich businessman playing with his Vertu smartphone when suddenly a ringtone sounds. Reaching into his jacket pocket, the man takes out his battered old iPhone to answer the call.

While probably apocryphal – the details often change in the telling – the tale goes to the heart of both the appealing and the appalling of Vertu's luxury brand of expensive phones.

Vertu has created a niche for high-priced handsets that are desired for the name and the quality of the manufacturing. Some models sell for tens of thousands of pounds. But the technology has been poor in the past compared with rivals in a market where innovation is normally the key differentiator.

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An expensive mistake for some; for others a piece of upmarket luxury technology to enjoy, akin to a sports car that may not be the fastest but will get you there in style.

For Massimiliano Pogliani, chief executive of Vertu, it is certainly the latter. He does not even regard Vertu as a phone company, but rather an upmarket brand that happens to provide a "mobile luxury communication experience".

"It's important to understand this is a luxury phone," he says. "Any luxury item is something that you don't really need so you always have a choice to spend your money on this or something else.

"We don't want to compete with mass-produced smartphones; that is not our arena. My competitors are a night at the Four Seasons, a bottle of Bordeaux wine. It's an experiential luxury for people who don't want the same smartphone as everyone else like they don't have the same watch or same vacation."

Having taken over as chief executive less than a year ago, Mr Pogliani now wants to bring Vertu into the modern smartphone market with its new range of handsets that use the latest Android software at a comparatively modest starting price of £4,000.

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Of course, the new phones are not finished with crocodile skin, and lack the access to the personal concierge service of the more expensive devices it still sells. Even so, the new devices are not exactly cheap. "It is still five times more than the nearest phone on the market," he acknowledges.

All Vertu's handsets come with a sapphire screen, with an inlaid ruby button that taps into services such as offers to restaurants. The phones offer some of the best encryption protection that money can buy to guard against hacking – as well as a distress signal that can be transmitted if users are in trouble.

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However, luxury brand experts question how useful some of these services are to the very rich, who would typically not be short of staff to find tickets to a ballet or provide security. "Those people have an entourage; they can already get into restaurants," says Mimma Viglezio, a luxury brand consultant. "Does it really work? Not sure, it's a phone, a very expensive phone. The brand is beautiful, and the phones are beautiful, but in my mind it's still a phone."

But, she says, the brand is strong. "It's the name, the brand, and that everyone knows it's an outrageously expensive phone. I can see it compete with a car as a status symbol."

Craftsmanship is also key, she says. Each phone is handmade by a single worker in a process that can take several hours in a slick Hampshire factory – a process that is far removed from the Chinese production lines of lower-cost rivals. The phones are each signed by a worker using a laser.

Mr Pogliani wants to make its British manufacturing a greater part of the branding in the future. "It's a big value of the brand to be handmade in Britain. You need a craftsman to put it together and expertise to choose the right materials. You can't do this on a product line. For a lot of people this has a value, for others they have no interest and won't pay the price."

It is perhaps no surprise that the main market for Vertu phones remains Asia, where the British heritage carries weight, followed by the Middle East and then Europe. The US, Mr Pogliani says, has been resistant to the virtues of Vertu in the past, but he says that the new range of lower-priced phones could open a larger market among wealthy Americans.

Vertu last month opened a store on New York's Madison Avenue – although the company has no plans for wider retail expansion, with a maximum of 15 new stores planned in the next year or so. Instead, he says, growth will come from revamped products.

There are scant financial details for the private company, which was founded and owned by Nokia until the sale to EQT, the private equity group, last year. The group is profitable, according to Mr Pogliani, although it does not disclose figures other than annual revenues last year of close to €300m.

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Ben Wood, an analyst at CCS Insight, says that Vertu has managed to "weather the economic cycle much like other luxury brands". The only time that he estimates sales dipped was about 18 months ago when the devices were having to use outdated software that was being phased out by Nokia.

Nokia still owns 10 percent of the group, which it designates as a financial investment that will not be sold with the disposal of its handset business to Microsoft next year – a move that will leave Vertu as one of the few handset makers left operating in Europe.

"Now with attractive products and a viable operating system without the shackles of Nokia, it has a good chance to grow again," Mr Wood says. "This is the ultimate gadget bling. Vertu offers a very exclusive version of the most pervasive piece of personal technology on the planet."

Mr Pogliani says the company that created the luxury phone segment now needs to maintain its leadership in a market that has become more competitive (see box). Vertu has sold about 370,000 handsets in the past 10 years, about as many phones as Apple sells every day, but he adds that the group had never sought mass sales volumes.

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"[It is] a niche number compared to another producer but we are not running after those quantities. We have had profitable growth from the beginning, we have a leading position in a market we created. Now the challenge is to keep the leadership for the next 10 years. [The new phones] will be enough sources of growth for us in future."

Vertu has a counter next to the luxury watches in Selfridges, the UK department store, where it attracted a surprising amount of passing interest on a recent wet Monday afternoon. Whether the brand will thrive is open to question, however, given the fickle world of technology, and the even more fickle world of fashion.