Xiaomi to Double Sales as Low-Cost Phones Chase Apple

Photographer: Nelson Ching/Bloomberg

Xiaomi Corp. M1 smart phones running the MIUI operating system are displayed at the company's headquarters. Close

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Photographer: Nelson Ching/Bloomberg

Xiaomi Corp. M1 smart phones running the MIUI operating system are displayed at the company's headquarters.

Xiaomi Corp., the three-year-old Chinese smartphone vendor, will double handset sales this year as it tries to gain ground on Apple Inc. (AAPL) and Samsung Electronics Co. (005930) in the world’s biggest market.

The Beijing-based company will sell 15 million handsets this year, Chief Executive Officer Lei Jun told reporters yesterday in Chengdu, where he’s attending the Fortune Global Forum. Lei is a co-founder of Xiaomi and also chairman of software developer Kingsoft Corp. (3888)

Xiaomi sold 7.2 million handsets last year, making it one of the fastest-growing makers in China, with smartphones selling for half the price of models from Apple and Samsung, the world’s largest vendors. Xiaomi’s smartphone share in China was 2.6 percent in the first quarter, compared with Samsung’s 17.7 percent and iPhone’s 9.7 percent, according to Gartner Inc.

“Although I won’t say it’s impossible for them to pass Apple in China, it’s unlikely to be this year,” said Sandy Shen, a Shanghai-based analyst with Gartner. “To keep up the growth, they need to reach out to other segments above and below, where there is strong competition from local and international vendors.”

Huawei, Lenovo

Xiaomi doesn’t have to be big, Lei said, adding that he’d be happy with “a small and beautiful company.”

“I don’t care to surpass Apple, I never thought about surpassing anyone,” Lei said. “I care more about quality of the product and user experience. We rarely look at competitors and what they do.”

To achieve greater market share, Xiaomi needs to decide whether it will raise more money to cater to the mass market or develop higher quality technology to become a premium brand, said Duncan Clark, the Beijing-based chairman of BDA China Ltd., which advises technology companies.

“They have some kind of guerrilla marketing appeal, I just don’t think it’s enough to get them where they want to be,” Clark said.

Huawei Technologies Co. and Lenovo Group Ltd. (992) also have products targeting medium-price range customers in China, and the companies have a better advantage in terms of procurement and keeping costs low, Clark said. China is Apple’s second-largest market after the U.S.

China last year had more than 800 new types of mobile phones, and handset shipments reached 362 million units, according to researcher International Data Corp. Global handset sales grew 11 percent last year to $358 billion, according to data compiled by Bloomberg.

Temasek Investment

Xiaomi completed a third round of fundraising of $216 million in June 2012, giving it a valuation at that time of $4 billion. It previously raised $131 million in two rounds from investors including Singapore’s Temasek Holdings Pte and Qiming Venture Partners.

Xiaomi sells phones through its online platform at xiaomi.com and through contracts with carriers China Unicom Hong Kong Ltd. (762) and China Telecom Corp. (728) About 70 percent of its sales are made online.

Lei declined to comment on whether the phones would be offered through China Mobile Ltd. (941), the world’s largest carrier.

“Xiaomi’s greatest concern isn’t revenue and profit,” Lei said. “Our most important concern is whether consumers will rave about it, and whether existing customers will recommend the products to friends.”

To contact Bloomberg News staff for this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net; Alexandra Ho in Shanghai at aho113@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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