What Exactly Is Wrong With Xiaomi?

By Indo-Asian News Service | Updated: 18 February 2017 16:25 IST

Although it crossed $1 billion in revenue in 2016 within the first two years of its operations in India, Xiaomi - once touted as the "Apple" of China - has slipped to fourth spot back home as the demand for its smartphones declined 22 per cent annually - eventually taking it to seventh spot in the global smartphone ranking with a 16 per cent drop in sales.

The decline came even as Hugo Barra, Xiaomi's high-profile head of international operations, left the company in January and joined Facebook to lead its virtual reality (VR) project.

According to the experts, the key reason for this decline is Xiaomi's rivals racing ahead with key features, better innovations, bigger marketing budgets and wider online and offline distribution channels.

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"Until 2016, Xiaomi relied only on online channels for smartphone sales which contributes approximately 30 percent of the total smartphones sales in China, leaving a huge chunk of the market untapped. Its competitors invested heavily in building strong offline channels, expanding their reach to tier-2 and tier-3 cities and moving ahead of Xiaomi," Shobhit Srivastava, Research Analyst, Mobile Devices and Ecosystems at market research firm Counterpoint Research, told IANS.

Another reason for Xiaomi's slipping growth is the rising average selling price (ASP) of the maturing China smartphone market, experts noted.

"Bulk of the sales in China is coming from upgrades where Huawei, Oppo and Vivo are gaining market share while Xiaomi remains in the below-$150 (roughly Rs. 10,000) category. Xiaomi also lacks in research and development unlike its Chinese counterparts which are vertically integrated," Srivastava added.

An email sent to the company for its reaction to the decline in global smartphone sales didn't elicit any response.

Xiaomi's main markets have been China and India which combined get more than 95 percent shipment share. While performance in India improved in 2016, the company lost market share in China resulting in the decline of overall global smartphone ranking.

Huawei, Oppo and Vivo have emerged as clear winners with Oppo and Vivo registering significant growth in China.

Shipping 44.9 million iPhones to China, even Apple has beaten Xiaomi that shipped 41.5 million smartphones in 2016, market research firm International Data Corporation (IDC) revealed earlier this month.

According to IDC's "Quarterly Mobile Phone Tracker" report, Apple dropped from 58.4 million iPhones in 2015 and Xiaomi from 64 million Mi phones - drops of 23 percent and 36 percent, respectively.

Amid the global gloom, it is the Indian smartphone market that has helped Xiaomi gain profits.

"They (Xiaomi) have already established their presence in India with a revenue of more than $1 billion in 2016 in the country. They will keep going as they have a strong management team," Jaideep Mehta, Managing Director, IDC South Asia, told IANS.

"On Barra, I would say that a senior executive has just moved on. Of Course, he will be missed, but the company is bigger than one individual," he added.

Coincidently, Xiaomi is not going to showcase any product at the upcoming Mobile World Congress (MWC), the telecom industry's largest event, in Barcelona, Spain, later this month. There are reports that Xiaomi doesn't have new devices to showcase during the MWC show.

This indicates there is something wrong somewhere and the company needs to plug the problem fast before its global presence plunges further.

"To recover and sustain growth, Xiaomi will have to focus on building strong offline channels as it will open up a significant market for the company. It needs to concentrate more on its R&D and come up with a device in the higher-mid end segment for the increasing Chinese middle-class population with higher disposable incomes," Srivastava emphasised.

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