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Xiaomi Powers Through a Slowdown in China

The Xiaomi mascot

Photograph by Brent Lewin/Bloomberg

The Xiaomi mascot

In just four years, Xiaomi has built a reputation as one of the hottest tech companies around. The Beijing-based smartphone specialist yesterday cemented that status, with a spokesman telling Bloomberg News that Xiaomi’s business soared in the first six months of the year. Shipments totaled 26 million through the end of June, said Tony Wei, compared with 7 million in the same period last year. Sales hit 33 billion yuan ($5.3 billion), up from 13.3 billion yuan.

Even more impressive, Xiaomi’s stellar performance came at a time when the Chinese market for phones was in a bit of a slump. In the first three months of this year, demand declined nearly 25 percent, to 101 million handsets, according to the Ministry of Industrial and Information Technology. Part of that drop is because fewer Chinese want to buy old-fashioned feature phones anymore, but even demand for smartphones fell 9.8 percent. The decline “triggered worries that the boom in China’s smartphone industry was coming to an end,” wrote Forrest Chan, an analyst with Standard Chartered Bank (STAN:LN), in a report published May 22 that warns of “an impending price war among domestic brands.”

The slowdown in China is just temporary, according to Chan. As the country’s cellular operators make the switch to speedier 4G networks, demand will pick up. “China’s smartphone industry remains a growth sector and is entering a new expansion phase supported by the onset of 4G development,” Chan wrote.

So far, Xiaomi hasn’t focused on 4G. “Xiaomi does not yet produce a 4G device,” Bloomberg Industries analysts John Butler and Matthew Kanterman wrote in a June 19 report, “yet [it] may as it expands internationally.” Xiaomi’s absence has created an opening for a local competitor. The company selling the most LTE-capable smartphones to Chinese consumers in May was a far less-celebrated rival, Coolpad. Shenzhen-based Coolpad said on June 18 that it had 23 percent of the market for 4G phones using the TD-LTE standard. Citing data from a research report by Sino, Coolpad said it was well ahead of Samsung Electronics’ (005930:KS) 18.8 percent and Apple’s (AAPL) 15.7 percent. The closest Chinese rival was Lenovo (992:HK).

Even without Xiaomi competing in 4G, though, mighty Samsung is already feeling the pressure from its rise. With cheap phones from Chinese companies putting pressure on the sales of its Galaxy line, the Korean company’s chief financial officer, Lee Sang Hoon, said on June 25 that Samsung expects second-quarter earnings to be “not that good.”

Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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