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Apple and Samsung in Xiaomi Crosshairs, but is the bubble about to burst?

Jan 02, 2015 | Consumer Product | Future Market Insights

Chinese smartphone startup Xiaomi recently made headlines thanks to the tremendous success of their Redmi Note 4G model. Put up on a flash sale on Indian ecommerce website Flipkart, all 40,000 handsets sold out in six seconds! The Chinese tech company then followed up this barely believable accomplishment by becoming the most valuable startup in the world. Raising over US $ 1 billion in venture capital funding, Xiaomi ended up with a valuation of US $ 45 billion, ahead of global enterprises such as Uber.

Such accomplishments are becoming a regular feature with regard to Xiaomi’s seemingly unstoppable ascension. Earlier this year, Xiaomi became the third-largest mobile phone maker in the world, overtaking established giants such as Lenovo and LG. It seems incredible since the Chinese giant made its first sale in 2011, which is barely three years ago.

According to an FMI analyst, Samsung, LG, Lenovo and Apple particularly, rely on the sales of their high-end handsets. In fact, it was the unprecedented sales of LG’s low-end mobiles this year that helped them to achieve high sales. 2014 was the first time LG’s annual sales exceeded 15 million handsets.

In direct contrast to the two companies above it, Xiaomi is exerting an increasingly strong grip on the burgeoning budget smartphone market in Southeast Asia. Xiaomi’s sales rely largely on the developing economies of China and India, the two most populous countries in the world. While other handset makers concentrate on maximizing the profit per model sold, Xiaomi’s focus lies on the profit from larger volume and sales of add-ons to existing customers.

“However easy Xiaomi may have found it to get into the top three among handset manufacturers, the more difficult proposition is to overtake Apple and Samsung,” an FMI lead analyst said. Though Samsung’s sales dropped slightly in the past year, it comfortably remains the global leader. The Korean giant recently revealed plans to redesign its sales strategy, while Xiaomi’s impending showdown with Apple is an even more intriguing affair.

Xiaomi has attracted criticism and controversy right since inception due to its stylistic similarities to Apple’s popular products. Apple has even reportedly accused Xiaomi of being lazy and unscrupulous in matters of stylistic cues. It is probably only the lack of a direct threat from Xiaomi in any of its major markets that has kept Apple from seeking legal recourse. Xiaomi seem to be well aware of this risk, as their expansion plans exclusively cover developing economies such as the BRIC countries, where Apple is not a direct rival.

Even in India, one of Xiaomi’s prime markets, the Chinese giant was taken to court by Ericsson over copyright infringement. Despite the resultant ban on sales of the suspect models, Xiaomi’s Qualcomm-based handsets have been cleared for sale; the aforementioned Redmi Note 4G is one of the models cleared for sale. Going by the rapturous response, the legal wrangles do not seem to have slowed Xiaomi down in any way.

What remains to be seen is how the development of Xiaomi’s two main markets will affect the company. An FMI analyst summed up Xiaomi’s dilemma, “In a nutshell, as their target segment becomes more affluent, Xiaomi will either have to concede ground to more popular makers of high-end models or venture into the territory themselves and risk legal backlash from the likes of Apple.” Following the recent release of Xiaomi’s new flagship model, the high-spec Mi4, the stage is set for an intriguing and possibly paradigm-shifting battle in 2015.