Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on July 6, 2020 - July 12, 2020

OVER the years, top three brands Samsung, Huawei and Apple have collectively cornered half of the global smartphone market, leaving hundreds of other brands to compete fiercely in the rest of the space.

Even so, this dominance is not stopping fourth-placed China-based Xiaomi Corp from eyeing a coveted spot among the top three.

Xiaomi, a relatively young global technology company, is flexing its muscles in an effort to grab market share from the Big Three.

According to Chew Shou Zi, president of international for Xiaomi, the Chinese electronics firm does not mean to stay No 4 for long.

“We intend to break the dominance of the brands mentioned with our strong commitment to innovation by reinvesting in R&D, as well as [growing] our foothold in overseas markets and their long-term potential,” Chew tells The Edge in an email interview.

He points out that, earlier this year, Xiaomi managed to briefly overtake Huawei to take third place on the leaderboard of the world’s top smartphone makers.

“In February, Xiaomi delivered six million smartphones, whereas Huawei shipped 5.5 million, based on Strategy Analytics’ research,” he says.

While these figures are just for February, 1Q2020 data shows that Xiaomi is at fourth position, with an 11.1% market share — slightly below the 13.6% enjoyed by Apple, which is at third spot.

Founded in April 2010 in Beijing, Xiaomi is also a global leading consumer Internet of Things platform, with more than 200 million connected IoT devices.

Chew highlights that Xiaomi’s R&D investment reached RMB7.5 billion (RM4.6 billion) last year. And for 1Q2020, its R&D expenditure was RMB1.9 billion, up 13.4% year-on-year.

“In the future, we will constantly innovate and increase our investment in R&D, which is expected to surpass RMB10 billion in 2020,” he says.

The 37-year-old Chew, who joined Xiaomi in September 2015 as the group’s chief financial officer, was instrumental in taking the company public on the Main Board of the Hong Kong Stock Exchange in July 2018.

He says Xiaomi is the first smart-TV brand in China to ship more than 10 million units annually. Notably, the group was listed as the youngest company on 2019’s Global Fortune 500 list.

So, how did Xiaomi achieve all these major corporate milestones within a decade?

“It has been a spectacular rise. Xiaomi is built on innovation and efficiency. We are more than a hardware company; we are also an innovation-driven internet company. We have our unique ‘triathlon’ business model, which encompasses hardware, new retail and internet services,” says Chew.

Xiaomi’s business philosophy is mission-driven: It aims to provide “amazing products at honest prices” via its innovative technologies.

“To achieve the mission, Xiaomi has pledged to our users that, starting from 2018, our hardware business will have an overall net profit margin that will not exceed 5% a year,” Chew elaborates.

 

Fastest-growing smartphone brand

According to the latest report by research entity Canalys on May 1, Xiaomi’s worldwide smartphone shipments rose 9% y-o-y to 30.2 million units in 1Q2020, enabling it to maintain its No 4 ranking (see table).

Xiaomi’s y-o-y increase is the fastest among major smartphone manufacturers worldwide. In the same period, global shipments dropped 13% y-o-y to 272.5 million units, owing to the ongoing Covid-19 pandemic.

Last year, Xiaomi’s revenue surpassed the RMB200 billion mark for the first time, growing 17.7% y-o-y to reach RMB205.8 billion. The group’s adjusted net profit rose 34.8% to RMB11.5 billion.

Chew says a main growth factor is its dual-brand strategy for the smartphone business.

To recap, Xiaomi and Redmi were separated into two standalone brands in January last year.

The Xiaomi brand focuses on the mid-range to high-end segment and advancement in mobile technology, whereas the Redmi brand focuses on the best price-performance ratio across different price points and bringing innovative technologies to the mass market.

“Against the backdrop of uncertainties in the global economy, Xiaomi’s commendable results stood out in strong contrast and we hope this will send a positive message to current and future investors,” says Chew.

In 2018, Xiaomi’s listing was one of the world’s largest IPOs since Alibaba Group Holding Ltd went public in New York in 2014.

Xiaomi’s IPO was priced at HK$17 a share, which was at the bottom of the expected price range of $17 to HK$22, raising HK$37 billion.

Although the stock price rose briefly to HK$21 after the listing, it went downhill from there.

So far this year, shares in Xiaomi have gained 19.1% to close at HK$12.84 last Wednesday, giving it a market capitalisation of HK$309.12 billion (RM171 billion).

Chew says Xiaomi’s IPO price was “within the proper range”, adding that share price performance is dictated by market conditions.

“What’s important is that Xiaomi shareholders now have an opportunity to be part of our future growth. We will continue to invest in R&D and prudently manage our high-quality human capital to maintain our leadership position in innovation, quality, design and user experience,” he stresses.

 

Malaysia an important market

It is worth noting that at the end of last year, close to half of Xiaomi’s revenue was derived from overseas markets.

Chew says Xiaomi’s efforts to grow in the global market will be increased as it becomes a more recognisable brand. For that, Malaysia has been and always will be a very important market for the company.

“Malaysia has promising growth potential and strong smartphone penetration, as consumers in the country are increasingly using smartphones as part of their lifestyle. Malaysia is one of Xiaomi’s key markets in Southeast Asia and has been playing an even more significant role in the company’s global business in recent years,” he adds.

Since Xiaomi entered the Malaysian market in 2014, it has opened a total of 39 authorised Mi Stores and 58 Mi Zones nationwide. In addition, the group has 160 preferred partner programmes.

“Malaysian consumers are largely motivated by price. We believe the mid-range category of smartphones will continue to dominate the market this year. Malaysians, especially the youths, are also digitally savvy, and they know value when they see one,” says Chew.

Among its smartphone series, the Redmi Note is the most popular among Malaysian Mi fans and users, he notes.

“Our Redmi Note series has been offering some of the most incredible mid-range smartphones on the market, with over 110 million units sold across the globe. In March, we launched the Redmi Note 9S in Malaysia,” says Chew.

Many of Xiaomi’s IoT-connected smart hardware, including Mi Smart Band 4 and Mi Home Security Camera 360°1080P, are also favoured by Malaysians.

“There is a lot of demand for IoT-connected products in Malaysia and we want to encourage more Malaysians to embrace the smart home lifestyle through the seamless integration with Xiaomi smartphones,” Chew says.

To increase its market penetration, Xiaomi plans to bring in more IoT-connected products such as Mi TV, Mi Air Purifier Pro and Mi Watch this year.

 

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