IPhone’s Chinese Competitor Focuses on Software for Half-Price Handset

Xiaomi Technology Co. aims to attract users to its first smartphone by pricing the handset at less than half that for Apple Inc. (AAPL)’s iPhone 4 and plans to make money through software for the device.

Xiaomi’s Android smartphone, introduced in China last month, is priced near cost at 1,999 yuan ($315), company founder Lei Jun said at the TechCrunch conference in Beijing today. This revenue-generation model is similar to that for Amazon.com Inc.’s Kindle e-reader, said the executive, who previously founded online retailer Joyo.com, which Amazon acquired in 2004.

Lei said he’s aiming for Xiaomi to become “world class” and gain a place on the Fortune 500 list. The Beijing-based company was set up in April 2010 to develop a high-end smartphone and received $41 million in funding from employees and external investors including Morningside and IDG, according to its website.

“Apple’s iPhone redefined the smartphone and in the past five years, the rest of the mobile-phone industry can’t keep up with the pace,” Lei said. “I started Xiaomi for the same reason.”

A 16-gigabyte iPhone 4 costs 4,548 yuan at Apple’s online store in China. The iPhone’s success hinges on the integration of the Internet, hardware and software, something Xiaomi is able to do at a cheaper price, said Lei, who is also chairman of Kingsoft Corp., a software developer based in Beijing.

Photographer: Keith Bedford/Bloomberg

Lei Jun, co-founder of Xiaomi Technology Co. Close

Lei Jun, co-founder of Xiaomi Technology Co.

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Photographer: Keith Bedford/Bloomberg

Lei Jun, co-founder of Xiaomi Technology Co.

The iPhone 4 has a single-core, 1-gigahertz processor, while Xiaomi’s handset is powered by a dual-core, 1.5-gigahertz processor, making it a superior hardware at lower cost, he said.

Carolyn Wu, an Apple spokeswoman in Beijing, didn’t immediately respond to a call and e-mailed request for comments.

China is the largest mobile-phone market in the world, said Lei. “If you win in China, you have a greater chance to win in the world.”

To contact the reporter on this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Lena Lee at llee42@bloomberg.net

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