When we think of smartphones in China, we wouldn’t first think of Apple or Samsung but perhaps one of the local Chinese brands.
That’s because many Chinese brands have built up such a dominant position in their own massive consumer market.
One such smartphone pioneer in China is Xiaomi Corp (HKEX: 1810). The Beijing-headquartered firm has carved out a niche for itself as a very visible smartphone brand – not just in China but globally too. In addition, Xiaomi is also involved in creating a wide variety of consumer-facing “smart hardware” products that are part of its aspirational Internet of Things (IoT) ecosystem.
(Trying To Be) The Apple Of China
Founded in 2010 by entrepreneur Lei Jun, Xiaomi had released its first smartphone by August 2011.
Its phenomenal success was down to the fact that it rode the wave of e-commerce by selling its cheap (but very functional) smartphones exclusively online. This helped Xiaomi becomes one of the best-selling smartphone brands in China by 2014. Indeed, founder Lei Jun was inspired by Apple founder Steve Jobs (and even dressed like him – with the black turtleneck) at Xiaomi’s launch events.
He was often dubbed “China’s Steve Jobs” but by the mid-2010s, Lei Jun’s Midas touch seemed to be losing its effect.
Turning Around Xiaomi
That’s because there was a steep drop-off in Xiaomi’s smartphone sales in 2016. That year, it could only sell around 41 million smartphones – a massive decline from the 70 million it managed in 2015.
One reason it had stumbled was the fact that the company was missing out on selling to less tech-savvy Chinese people in the country’s smaller cities and rural areas. That was down to the fact that it did not have a physical presence.
To change this, Xiaomi then moved its hardware into offline retail stores and created a new business model in the process. By partnering with startups and providing them with help with design, manufacturing, and supply chain logistics knowledge, Xiaomi started to produce well-designed but reasonable electronic products that could be synced with your smartphone.
Its first hit was the MI Air Purifier which fast became the best-selling air purifier in China in 2017. Today, Xiaomi has global retail stores and sells everything from connected air purifiers and Bluetooth speakers to power banks and rice cookers.
Perhaps more ambitiously, founder and CEO Lei Jun expects Xiaomi to be able to mass produce its own smart electric vehicles (EVs) by the first half of 2024. Currently, Xiaomi is in talks with local auto giant Beijing Automotive to collaborate on EV production. Lei Jun has committed billions of dollars in investment to making this 2024 goal a reality
Hong Kong Listing & Current Business
Following its radical reinvention, Xiaomi listed its shares via an initial public offering (IPO) in Hong Kong in the middle of 2018. The company priced its shares at HK$17 apiece and raised US$4.7 billion in the process. Today, it’s sitting about 30% below its IPO price with shares trading at around HK$11.75 in August 2023.
Meanwhile, Xiaomi’s business continues to grow and its smartphone business remained third globally in 2022 (in terms of shipments made). With a 2022 global market share in smartphones of 12.8%, Xiaomi sits behind only Apple and Samsung in terms of shipments made.
However, Xiaomi, along with competitors OPPO and vivo, saw double-digit declines in shipment growth during 2022. On its IOT ecosystem, MIUI (its mobile UI that is used for its smartphones and connected devices) was being used by 600 million global devices as of May 2023.
Finding Xiaomi’s Growth Driver This Decade
Xiaomi’s business has been through many ups and downs but management has shown the ability to lead the company to reinvent itself and has been able to continue the dominance of its smartphone business worldwide. However, the next leg of growth will be an interesting story to watch as it delves into the crowded EV space in China.
With its own experience in building out an ecosystem based around electronics, the hope for investors is that the firm can take meaningful market share with the launch of an EV.
Besides that, Xiaomi actually turned profitable in the final quarter of 2022 – posting a profit of RMB 1.5 billion (US$205 million) versus a loss of RMB 800 million in the year-ago quarter.
For investors looking at the growth potential of the technology sector in China, Xiaomi is certainly one stock to have on their radar.
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