The X factor

Ranked second in second quarter

Lei Jun bought his first pair of ripped jeans in 2018. He did so not as a fashion statement but to symbolise instead his regret at the poor stock market debut of his smartphone firm Xiaomi in Hong Kong that year (see WiC415). After pricing at the bottom of the marketed range, Xiaomi’s shares opened 3% below their offer price.

Lei says that the tattered trousers were a way of acknowledging how he had failed his investors. “I felt really sad,” he further recalled in a recent speech. “After the listing ceremony ended, I hid in the storage room at the Hong Kong Stock Exchange, not wanting to do any media interviews.”

Three years on, Xiaomi’s shares have recovered their lost ground. At the beginning of the year, they had doubled on the IPO price, giving the Beijing-based company a market capitalisation of HK$853 billion ($110 billion). A driving force is Xiaomi’s progress in major markets around the world. According to Canalys, a market research firm, Xiaomi was the world’s second largest smartphone vendor in the three months to June, surpassing Apple for the first time by shipping 52.8 million units. The sales push delivered 83% growth on the year for Xiaomi, for a 17% share of the global market.

The achievement came on the back of being the number one seller of smartphones in at least 20 countries outside of China. Based on a separate piece of research by Strategy Analytics, Xiaomi was a major presence in Europe in the same period with a 25% market share, overtaking Samsung in that key market.

“Xiaomi has seen great success in Russia, Ukraine, Spain and Italy and found customers eager for its Mi and Redmi series of feature-rich, value smartphones,” noted Boris Metodiev in the Strategy Analytics study.

In emerging markets, Xiaomi has been stellar too, holding onto pole position in India, where it shipped 77% more phones in the second quarter, reaching 9.5 million units, or 29% of the market, according to Canalys. It also emerged as the largest player in Indonesia, grabbing 27% of that market at the expense of Chinese rivals Vivo and OPPO (both are owned by BBK Electronics; see WiC494). Its shipments also surged by 300% in Latin America and by 150% in Africa in the same period. This week Xiaomi reported a 87% year-on-year growth in net profit for the second quarter to Rmb87.8 billion.

Much of Xiaomi’s success can be attributed to its long-term localisation strategy and aggressive sales campaigns. But it has also been a chief beneficiary of the collapse in Huawei’s overseas handset sales, which have been crippled by US sanctions (see WiC453). Washington’s export blacklist has denied Huawei access to American technology, barring it from the most advanced semiconductor chips from the likes of TSMC as well the use of Google’s key apps. As a result Huawei has been forced to rely on dwindling inventories of advanced chips or even use older generation semiconductors. Its latest flagship smartphone, the P50, uses Qualcomm’s Snapdragon 888 4G processor, meaning that it cannot run on 5G wireless connections like most of the premium smartphones from major brands selling today.

Huawei’s difficulties have helped Xiaomi, which now derives three-quarters of its sales from overseas. It now has plans to permanently become the top smartphone brand by sales globally within three years (it held the title very briefly in June when Samsung suffered a production disruption in Vietnam). One area that the 10 year-old Xiaomi (which got its first English language media mention in our pages in WiC119) is targeting is the high-end segment, where the hole left by Huawei has yet to be filled. Hence Xiaomi’s flagship Mix 4, which sells for as much as $1,300, featuring an in-display fingerprint scanner, as well as a 20-megapixel selfie camera,tucked under the phone’s screen.

Xiaomi’s recent rise won’t go unchallenged. Honor, a smartphone brand divested by Huawei in November (see WiC519) as a way of evading American sanctions, unveiled its newest smartphone two weeks ago. Its Magic3 series, marketed at a starting price of Rmb4,599 will be the first handset to support payments with China’s digital yuan (see WiC502) using Qualcomm’s latest Snapdragon chipset.

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