In the highly competitive smartphone industry, recovering from mistakes in the past is not easy. Blackberry and Nokia are just two mobile phone giants that have been forgotten, but China Xiaomi recently made a big comeback behind after suffering brutal losses in the competition - and smartphone manufacturers have even weighed the public IPO of the biggest this year.
Founded in 2010 by Lei Jun series entrepreneurs, the company is renowned for selling sleekly designed phones for a fee, but also offering online services and smart hardware such as connected home equipment. After a decline in sales in 2016, the company became the world's fourth largest smartphone maker in the fourth quarter of 2017, delivering 28.1 million units according to IDC. Now, Xiaomi has requested an initial public offering in Hong Kong, based on recent changes in the stock market that allows companies with different stock classes to publish their stock lists. Although it does not say how much it tries to improve, the company is widely expected to seek a rating of between 80 billion and 100 billion dollars, possibly making Lei one of the richest billionaires in China because 31.41% of companies control their prospectus. Analysts say Xiaomi will have a chance, but the company has a lot of things to do to justify this high price.
\Internet flash campaign
The resurgence came when Lei Xiaomi's business model was rewritten. Thanks to the Flash Internet campaign that launched it, the startup was launched quickly, because loyal customers called Mi fans have flocked to buy their products, often in terms of specifications, but for half the price, on limited iPhones amounts. A round of 2014 funding estimated the company at $ 46 billion, the highest value for a private company at the time. But things went crazy quickly. Local competitors copied the Xiaomi online model and started releasing better devices as the company faced delivery issues. Xiaomi's phone sales once fell 30 percent year-over-year, while rivals Huawei and OPPO posted strong gains.
Now, to expand its appeal beyond Internet-facing customers, startup opens up physical deals to attract consumers from all walks of life. By 2019, 2,000 stores will be opened worldwide, about half of them in China. Many of them resemble Apple's typical retail stores - large spaces, in prime locations and with products made by Xiaomi or by partner companies such as New York-listed Huami. The idea is that even if people do not go in to buy cell phones, they may be tempted to experiment with other products, such as the $ 23 portable fitness track or a $ 300 scanning robot.
Supply chain management was also strengthened, with the company having a strong partnership with chip maker Qualcomm, Canaly's research director Nicole Peng said. Xiaomi uses the company's latest chips - such as the Snapdragon 845 - in iconic products such as the Mi Mix series of 522 million blades. Xiaomi also develops its own chipsets - with the self-designed Surge S1 chip, which is installed on its mid-range Mi 5C smartphones - making it the fourth smartphone manufacturer, after Apple, Samsung and Huawei capable.
The immediate future looks promising. In the first quarter of this year, shipments in China rose 37% to 12 million units - a small achievement considering that the market as a whole fell 21%, as consumers spend more time on their phones before switching models, according to Canalys.
"Xiaomi repaired its smartphone business," said Gartner research director CK Lu. "Momentum is very good now."
Global Spread
Its international growth is even more encouraging. For example, Xiaomi overtook Samsung to become the largest smartphone company selling in the fast-growing Indian market over the same period, according to Canalys. The company is also one of the best-selling in Russia and Indonesia and has recently launched in Spain while watching more European markets.
Read more: Xiaomi partners with Google for the Mi A1 Smartphone, targeting developing markets
In view of this rapid expansion, the experience gained in China was of crucial importance. Xiaomi now sells online and offline in many countries. E-commerce is less developed in emerging markets because it lacks the payment and logistics infrastructure to support large Internet sales. In addition, some consumers try firsthand devices before making purchases. In Russia, for example, online channels accounted for only 15% of total smartphone shipments, according to Counterpoint Research.
IPO Uncertainties
All of this leads to Xiaomi's highly anticipated IPO. But becoming a $ 100 billion company with only smartphone sales is not enough, said Li Wei, an economics professor at the Cheung Kong School of Business in Beijing.
This is because margins are still scarce in the face of fierce competition, reinforcing investors' concerns about long-term sustainability. According to Counterpoint Research, Xiaomi earned an average of $ 2 per mobile phone sold in the third quarter of 2017. By comparison, the price was $ 151 for Apple, $ 31 for Samsung and $ 15 to Huawei. Last year, the company was in the red zone - it posted a net loss of 43.9 billion yuan ($ 6.9 billion) on revenue of $ 114.5 billion ($ 18 billion), as the cost of manufacturing and marketing costs are increasing. However, the losses include extraordinary items such as share-based payments and changes in the value of preferred shares. Operating income would be 12.2 billion yuan ($ 1.9 billion), if it is assumed, it says in its prospectus.
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