For a while, Lei Jun was believed to have the Midas touch. Before he founded Xiaomi, the entrepreneur spent 16 years building up Kingsoft, a leading internet security software maker. He also helped found UCWeb, China’s top mobile browser, before selling it to Alibaba at a hefty valuation of $3.8 billion. He also found time to invest in promising start-ups like the now-Nasdaq-listed YY and Vancl, the online clothing retailer.
And then there’s Xiaomi. The smartphone maker was a mere five years old when a fundraising round last year valued the Chinese tech sensation at $45 billion.
But Lei may want to give the air purifying sector a miss. The company was in the headlines this month when one of its air purifiers reportedly failed quality tests conducted by the Shanghai local government.
Wait, air purifiers? Even though it is most famous for smartphones and tablets, Xiaomi also dabbles in an array of other products, including TVs, set-top boxes, fitness bands (think Fitbit) and now air purifiers. It’s all part of a broader vision of building an ecosystem of smart devices that “talk to each other”.
However, the Shanghai Quality Bureau’s recently published report claims that Xiaomi’s air purifier – which sells for Rmb899 ($138) – has “serious quality problems”. It failed to meet the government body’s standard in terms of the volume of pollution it removed from the air, and also in regard to noise levels.
Xiaomi quickly disputed the test result: “We figured out the cause of the discrepancy: during the sampling testing session, the machine wasn’t continually turned on in high-speed mode. We contest the way the test was administered.”
Nevertheless, Xiaomi’s air purifier has been plagued with negative publicity since it was first released in 2014. When it was launched, Balmuda, a Japanese company, accused the Chinese firm of ripping off its designs. And just last month, a weibo post that went viral complained that the brand’s purifier was claiming to be cleaning the air even when the HEPA filter hadn’t been removed from its packaging.
“It’s still running at full speed without removing the filter cover and its app display level shows significantly decreased [pollution],” the post said, referring to the smartphone app that pairs with the filter to show real time changes in air quality. “Therefore, there’s a suspicion of fraudulent data.”
Even though the air purifier isn’t a core business of the tech firm, industry observers reckon that the controversy could damage consumer perceptions. “Failing the quality test will have a negative impact on the image of the Xiaomi brand and its other products,” analyst Hong Shibin told Legal Weekly.
The debacle comes at an awkward time for Xiaomi, which found life much tougher in 2015. Last year, it shipped 70 million smartphones, 12% less than its annual goal of 80 million (in fact, that figure was already reduced from an original target of 100 million). More symbolically, it was the first time the company had missed its forecast.
One reason for the slowdown is that China’s smartphone industry has become increasingly saturated. Worse, Xiaomi has found it has a very serious local rival: Huawei.
The Shenzhen-based giant actually displaced Xiaomi as China’s top seller of smartphones in the third quarter of 2015. Huawei also reached its target of selling 100 million smartphones in 2015, unlike Xiaomi. Worryingly for Lei it is outselling Xiaomi thanks to its cool handset designs – eroding a competitive advantage his firm had enjoyed.
In order to boost sales, Xiaomi will not only rely on selling online. It plans to sell 58 million smartphones this year via traditional retailers like Suning and Gome. It also wants to increase its own retail stores from 20 to 50 outlets.
Lei, meanwhile, admits that the slowdown in sales has dampened the company’s spirit: “Everyday we think about how to meet the goals. Under such intense pressure, we become a little bit distorted. One by one, the smiles have disappeared from our faces.”
He’s also staying uncharacteristically mum about Xiaomi’s sales goal for 2016, saying, “as long as we are happy”.
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