Xiaomi Turns Profit on Sales of IPhone-Beating Handset

Xiaomi Corp., the smartphone maker that outsells Apple Inc. (AAPL) in China, has turned profitable for the first time as market-share gains put the company on pace to almost triple handset sales this year.

Sales in the first half more than doubled to 13.2 billion yuan ($2.16 billion), and may rise to 28 billion yuan for the full year, from 12.6 billion yuan for all of last year, President Bin Lin said in an interview at the company’s headquarters in Beijing yesterday. Handset sales may jump to 20 million units, from 7.19 million last year, he said. He didn’t supply a figure for profit.

The three-year-old company, which was valued at $10 billion in its latest round of funding, is expanding product offerings after selling handsets priced at about a third of the cost of Apple’s iPhone 5 in China. Xiaomi, which on Sept. 5 said it will sell Internet-ready televisions, will focus on developing new devices and has no plans to sell shares to the public in the next five years, founder and Chief Executive Officer Lei Jun said.

“I’ve been an entrepreneur for over 20 years, I’m not interested in big companies,” Lei said in yesterday’s interview. “I prefer to be in a company where I’m on the front line of our products.”

The TVs announced on Sept. 5, which connect to the Web and run the Android operating system, go on sale in October.

International Expansion

Last month, Lei hired Hugo Barra, who helped oversee Android product management at Google Inc., to lead the company’s international business development as it prepares to take on Apple and Samsung Electronics Co. overseas.

Lei and Lin both declined to disclose plans for the international expansion ahead of Barra joining the company next month.

“That’s what Hugo needs to figure out,” Lin replied in response to questions about which new markets the company plans to enter.

Lei on Sept. 5 unveiled the company’s newest handset, Xiaomi Phone 3, which runs on the networks of all three major carriers in China. The device, using both Qualcomm Inc. (QCOM)’s Snapdragon and Nvidia Corp. (NVDA)’s Tegra 4 processors, will be the world’s fastest smartphone, Lei said.

Xiaomi boosted sales with inexpensive handsets running Android. While Apple sells the iPhone 5 on its China website from 5,288 yuan, Xiaomi’s new handset costs 1,999 yuan.

“Xiaomi wants to spread very fast and become a dominant player,” said Jeongwen Chiang, chairman of the marketing department at the Shanghai campus of the China Europe International Business School. “The China market is very price-sensitive. Xiaomi can sell millions of handsets because they offer real value for the money.”

Chinese Smartphones

In the China smartphone market, Xiaomi rose to sixth place in the quarter ending June 30 from eighth a year earlier, researcher Canalys said Aug. 9. Apple was seventh.

The company currently sells its devices in Hong Kong and Taiwan, in addition to the Chinese mainland.

“Xiaomi definitely has ambition to expand overseas,” said Nicole Peng, the China research director for Canalys.

Xiaomi’s initial investors included Singapore’s Temasek Holdings Pte, Qiming Venture Partners and Qualcomm Ventures, the company said last year.

The vendor, which has no manufacturing capability of its own, contracts for production of the devices with FIH Mobile Ltd. (2038) and Inventec Corp. (2356), Lin said.

Having sold 15 million handsets in total, Xiaomi’s profit is getting a lift from rising sales of software and services for the devices, Lin said. The company had 20 million yuan of software sales in July, double the monthly revenue four months earlier, he said. By the end of next year, software sales are projected to hit $20 million annually, Lin said.

“I feel that we’re a very different company from Apple,” Lei said. “We’re probably more like Amazon’s Kindle -- to sell hardware at cost and then to stack services and content on top of the hardware.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net

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

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