Xiaomi Slows Its Pursuit of Samsung, Apple in Smartphone Race

Photographer: Brent Lewin/Bloomberg

Xiaomi Corp. products at the company's showroom in Beijing, on Sept. 12, 2014. Xiaomi Chief Executive Officer Lei Jun plans to boost global smartphone sales fivefold to 100 million units next year. Close

Xiaomi Corp. products at the company's showroom in Beijing, on Sept. 12, 2014. Xiaomi... Read More

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Photographer: Brent Lewin/Bloomberg

Xiaomi Corp. products at the company's showroom in Beijing, on Sept. 12, 2014. Xiaomi Chief Executive Officer Lei Jun plans to boost global smartphone sales fivefold to 100 million units next year.

(This blog has been updated to reflect additional comments by Xiaomi's vice president Hugo Barra)

In Xiaomi's march to the top of the smartphone world, the Chinese company has found it can't keep pace with its own bold plans.

Instead of expanding into 10 new markets this year, Xiaomi will enter just five. That means consumers in Brazil, Russia, Thailand, Mexico and Turkey will have to wait a bit longer. The company has decided to focus on existing markets such as India and Indonesia, which will slow the no. 3 smartphone maker's pursuit of Samsung Electronics and Apple.

In the past two months, Beijing-based Xiaomi has had to charter special flights four times to make scheduled deliveries into India. While Xiaomi usually relies on commercial cargo flights for deliveries, the company can't always get the space it needs to meet demand, Manu Jain, head of operations in India, told reporters in the New Delhi suburb of Gurgaon yesterday. Hence the charters.

The strategy for Xiaomi is to produce its smartphones in some of the bigger countries where it wants to grow. The company is already in talks with electronics manufacturer Foxconn Technology Group, said Hugo Barra, vice president in charge of global operations, in an interview. Production in India will likely begin in one to two years, and Brazil may start sooner, he said.

"We're shipping absurd quantities into India," Barra said in a later interview. "We went from shipping 50,000 a week into India to 200,000".

News of the expansion delays comes less than a week after Chief Executive Officer Lei Jun told the World Internet Conference in Wuzhen, China, that the four-year-old company could become the world's top smartphone company in five to 10 years. Clearly, that's not going to be easy.

"Xiaomi is facing a ten-year slog to internationalize," says Neil Mawston, executive director of researcher Strategy Analytics. "Strong global growth outside the home base of China will not happen overnight."

Taking the time to put the needed production in place will allow Xiaomi to serve customers better over the longer term, said Barra.

"We have to build better and better products making sure they're catered to each market and sold at the best possible price," he said. "You cannot sell a product in Brazil that is not manufactured locally because it would cost you extraordinarily" due to import tariffs.

Xiaomi doesn't own any manufacturing plants and relies on companies including Foxconn’s FIH Mobile and Inventec to build its phones.

While Xiaomi has pushed back the expansion plans for some markets, India will be a "focus" for years to come, said Barra. The company has sold more than half a million of its low-cost phones in the country since expanding there in July.

Xiaomi announced plans yesterday to release the 5.5-inch, 4G Redmi Note in India through Bharti Airtel stores. The large-screen device was Xiaomi’s best-selling model in the third quarter globally and should remain popular as the company expands into Asian markets where consumers want phones with bigger displays, said Neil Shah, Mumbai-based research director for devices at Counterpoint Research.

Xiaomi is on track to cross one million smartphone shipments in India this quarter and could break into the nation's top-five smartphone vendor rankings, he said.

"Like Chinese consumers, Indian consumers are quickly warming up to bigger screens on their devices," Shah said. "Redmi Note will provide that power boost for Xiaomi to quickly move up the rankings capturing market share away from the incumbents."

That is, if Xiaomi can produce and ship them fast enough.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net and Bianca Vazquez Toness in New Delhi at btoness@bloomberg.net

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