China's iPhone-clone Xiaomi defending its valuation after missing sales targets

Posted:
in iPhone edited January 2016
Xiaomi--a Chinese startup that aimed to push out high volumes of low cost smartphones and then make money on ecosystem-related services--has missed its volume goal for 2015 while substantial revenues from services remain a "figment," casting doubts upon its $46 billion valuation.


Xiaomi iOS clone


In a report for the Wall Street Journal, Eva Dou stated that having "raised vast sums on China's mobile-Internet boom," Xiaomi is now "facing growing pressure to live up to expectations."

The smartphone maker, famous for making Android-based devices that look nearly indistinguishable from iPhones, has a $46 billion valuation based on "yet unrealized plans to generate substantial revenue from Internet services" the paper stated.

It added that Xiaomi also failed to reach its target of selling 80 to 100 million smartphones in 2015. The previous year it had sold 61 million units, representing 300 percent growth over 2013. However, improving sales volumes by another 30 percent proved to be impossible.

No room for hardware profits



While Apple has also come under scrutiny over the "difficult compare" of improving upon its massive sales volumes (in fiscal 2015 it sold 231 million iPhones), Apple sells its phones at a profit. iPhones have comfortable room for hardware margins, thanks to an Average Selling Price that increased over the past year by $67 to reach $670.

Over that same period of time, Xiaomi's smartphone ASP fell from $160 to $122, the Journal reported, based on figures from IDC. Huawei's ASP sits at $209 (up $8 over the last year). However, China's overall smartphone average price rose from $202 to $240 over the past year, suggesting that most of that price appreciation came from Apple's sales.

Similarly, while IDC depicted Xiaomi and Apple being virtually tied in global wearables unit sales and market share in August, it was comparing the roughly $450 Apple Watch to Xiaomi Mi Bands, which cost at most $25.


Xiaomi iPhone 6 clone


Services remain an illusory "figment"



Despite slowing sales growth and plummeting ASPs, Xiaomi has centered its business strategy around services-based ecosystem and branded products, including a series of acquisitions related to smart-home products.

However, according to Steven Hu, a former partner in Xiaomi investor Qiming Venture Partners cited by the Journal, while "Xiaomi's promise lies in its ecosystem," he noted that "mobile services, e-commerce, branded consumer products--these still are largely just a figment rather than a huge and growing source of profits that could validate last year's sky-high valuation."

Failing to reach its forecast of 80-100 million units--a growth goal given by chairman Lei Jun last March, then dialed back in December as "not the number one priority for us" indicates a crisis of confidence.

"For Xiaomi, we currently need to return to our original aspiration, to be like a startup," Lei said last month. "We need to be more persistent in building a good user experience and product."


Xiaomi iCloud Library clone


Apple's 64 Beats



One of the problems Xiaomi ran into in 2015 was the problematic Snapdragon 810 chip rushed to market by Qualcomm in order to have something to position against the 64-bit A7 Apple had introduced in 2013.

While Apple sailed into the lead with iPhone 5s' A7, and then enhanced its design with the 2014 A8 used in iPhone 6 models, Qualcomm struggled to achieve even a generic 64-bit processor by early 2015. That left Xiaomi's most expensive phone, the $350 Mi Note, plagued with overheating issues that tarnished its image.

Further, when it attempted to expand its sales into India, that country's Delhi High Court issued an injunction blocking sales of Xiaomi's phones not using Qualcomm chips, due to an ongoing patent infringement lawsuit filed by Ericsson affecting alternative MediaTek processors.

Other handset makers were able to work around Qualcomm's flawed chip by rolling out their own processor, as Huawei and Samsung did. Samsung's use of its own Exynos processor also made it a major customer of Cirrus Logic, one of the "iPhone suppliers" now suffering an earnings shortfall that coincidentally occured as Samsung's premium flagships failed to sell in competition with iPhone 6, but which is being widely interpreted as a harbinger of doom for Apple because, it too, is a Cirrus customer.

In addition to lacking vertical integration in chips and the ability to defend against patent infringement suits, Xiaomi is also "locked in a Chinese demographic ghetto of mainly males 18 to 30" according to Peter Fuhrman, the chairman of investment bank China First Capital.

Rather than increasing its appeal, Xiaomi's focus on low prices has further tarnished the company's brand he added.


Xiaomi iPhone 5s clone


Media darling gets Journal jilting



Just over a year ago, the Wall Street Journal reported that, based on a "a confidential document" that it had "viewed," Xiaomi had earned 3.46 billion yuan ($566 million) on revenues of 27 billion yuan.

Journal reporters said this "shows that Xiaomi's net profit nearly doubled last year, making it a lucrative business in an industry where most players selling cheap handsets struggle to break even."

While noting that "a Xiaomi spokeswoman declined to comment" on the reported earnings, the paper marveled at how Xiaomi could be making so much money on smartphones that start around $114, with the company's Mi4 flagship priced at just $327.

"A possible explanation for Xiaomi's ability to squeeze out so much profit while selling affordable phones is its inexpensive but efficient marketing tactics," the Wall Street Journal reporters Prudence Ho, Lorraine Luk and Juro Osawa collectively speculated.

Based on that report, clickblog Business Insider published "Xiaomi Is Creating An Uncertain New World That Apple Must Learn To Live In," which gravely warned that "the news that Chinese smartphone manufacturer Xiaomi makes a healthy profit could horrify executives at both Samsung and Apple."

It mused that the report "suggests that new phone makers can use Android to arise from nowhere and steal vast chunks of market share, profitably."

It was later reported by Reuters that Xiaomi had actually only earned $56 million, one tenth as much as had been previously reported. While the privately-held Xiaomi does not have to publicly report its earnings, it had included them in a securities filing related to an investment in another company.

AppleInsider reported that the Wall Street Journal had been wrong, although the paper didn't correct its report and Business Insider didn't address its alarmist sensationalism based on the incorrect report either.

in 2015, Apple's iPhone 6 grew so popular in China that it displaced Xiaomi for first place in unit volumes, despite iPhones selling for an ASP 5.5 times higher than Xiaomi.

Six months later, the Wall Street Journal has shifted its glowing adoration of Xiaomi to a much more critical tone.

That calls to mind the doe-eyed, enthusiastic coverage of Samsung by Wall Street Journal reporters including Daisuke Wakabayashi, Ian Sherr and Evan Ramstad who spent 2013 promoting the idea that Apple had "lost its cool" to Samsung, that its "formidable growth had petered out," that Samsung "was eating its lunch" and that developers were shifting their efforts to Android, all before later acknowledging that "the story line" the paper had authored was not really true, that most of Samsung's huge unit shipments were actually not very profitable and that Android was not really stealing away any significant developer interest from iOS.
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Comments

  • Reply 1 of 28
    lwiolwio Posts: 88member
    Yep another 'stalking horse' ends up in the knackers yard. 
    cornchip
  • Reply 2 of 28
    I never understood the bullishness around Xiaomi becoming a services company. How many companies are profitable selling cheap hardware? And what we're all these services Xiaomi was going to make money off of to cover the cheap hardware?
    cornchip
  • Reply 3 of 28
    sog35 said:
    Xiaomi is just another bullshit pos ponzi scheme company. 

    At the end of 2014 the goal set by Xiaomi was to sell 100,000,000 phones.
    Halfway through the year the goal was lowered to 80,000,000.
    Now the CEO is saying unit sales don't matter.

    I would not be shocked if they sold less phones this year than last. Pathetic. Extra pathetic because Xiaomi is basically giving these phones away for free. They lose money on every single phone they sell. I love that this ripoff copycat company is getting their ass kicked in by Apple and cheap China brands. The CEO even tries to dress like Steve Jobs. I'm shocked the XIaomi CEO didn't do plastic surgery and shave his head to look more like Jobs.

    An absolute joke of a company and last year Wall Street Journal was touting them as the Apple Killer. GTFO.
    Bar yourself from Appleinsider as you said if the Apple share didn't reach $150 at the end of 2015. Be a man to keep your promise.
    nolamacguyRayz2016SpamSandwichpropodanton zuykovsingularity
  • Reply 4 of 28
    There is shame in China apparently. Besides that I prefer their squared off edge vs the round 6s I have. 
  • Reply 5 of 28
    sflocalsflocal Posts: 4,701member
    sog35 said:
    whine...whine...whine...
    Typical Sog.  Breaks promises, and just a complainer. 
    nolamacguyRayz2016SpamSandwichsingularity
  • Reply 6 of 28
    nolamacguynolamacguy Posts: 4,758member
    aircm1982 said:
    sog35 said:
    Xiaomi is just another bullshit pos ponzi scheme company. 

    At the end of 2014 the goal set by Xiaomi was to sell 100,000,000 phones.
    Halfway through the year the goal was lowered to 80,000,000.
    Now the CEO is saying unit sales don't matter.

    I would not be shocked if they sold less phones this year than last. Pathetic. Extra pathetic because Xiaomi is basically giving these phones away for free. They lose money on every single phone they sell. I love that this ripoff copycat company is getting their ass kicked in by Apple and cheap China brands. The CEO even tries to dress like Steve Jobs. I'm shocked the XIaomi CEO didn't do plastic surgery and shave his head to look more like Jobs.

    An absolute joke of a company and last year Wall Street Journal was touting them as the Apple Killer. GTFO.
    Bar yourself from Appleinsider as you said if the Apple share didn't reach $150 at the end of 2015. Be a man to keep your promise.
    i finally blocked this character when he turned troll. is he still bagging on Tim Cook about fighting for equal civil rights for all its workers, the stock price, his personal loses, etc? yawn.
    edited January 2016
  • Reply 7 of 28
    Rayz2016Rayz2016 Posts: 4,765member
    sog35 said:
    Xiaomi is just another bullshit pos ponzi scheme company. 

    At the end of 2014 the goal set by Xiaomi was to sell 100,000,000 phones.
    Halfway through the year the goal was lowered to 80,000,000.
    Now the CEO is saying unit sales don't matter.

    I would not be shocked if they sold less phones this year than last. Pathetic. Extra pathetic because Xiaomi is basically giving these phones away for free. They lose money on every single phone they sell. I love that this ripoff copycat company is getting their ass kicked in by Apple and cheap China brands. The CEO even tries to dress like Steve Jobs. I'm shocked the XIaomi CEO didn't do plastic surgery and shave his head to look more like Jobs.

    An absolute joke of a company and last year Wall Street Journal was touting them as the Apple Killer. GTFO.
    And yet they're still worth twice as much as your opinion. 
    singularity
  • Reply 8 of 28
    Rayz2016Rayz2016 Posts: 4,765member
    I never understood the bullishness around Xiaomi becoming a services company. How many companies are profitable selling cheap hardware? And what we're all these services Xiaomi was going to make money off of to cover the cheap hardware?
    Sort of what I was thinking. Internet services is more of a value-add. Do they really expect to make billions from it?
    nolamacguyjbdragoncornchip
  • Reply 9 of 28
    Finally, a company with even less business and design ethics than Samsung!
    jbdragoncornchip
  • Reply 10 of 28
    flaneurflaneur Posts: 4,518member
    aircm1982 said:
    Bar yourself from Appleinsider as you said if the Apple share didn't reach $150 at the end of 2015. Be a man to keep your promise.
    i finally blocked this character when he turned troll. is he still bagging on Tim Cook about fighting for equal civil rights for all its workers, the stock price, his personal loses, etc? yawn.
    Actually, Sog seems to be coming out of his brain inflammation (self-induced because of that wager), and he's coming back to his old role as Apple defender-bulldog. RadartheKat also said similar in an earlier thread today. But other people are still ragging on Sog as if he were still on rabies watch.
    radarthekatcornchip
  • Reply 11 of 28
    Unbelievable that any consumer tech company chairman would think customers unwilling to spend money on hardware would be willing to pay recurring fees on services-especially in a market notorious for piracy IP infringement. Just how many billions can a cell phone maker generate pushing stickers?
    rogifan_oldcornchip
  • Reply 12 of 28
    The Wall St. Journal and BI love their unicorns. Reporting how they were wrong about Xiaomi is not a click-generating priority for either news organization.
    cornchip
  • Reply 13 of 28
    jbdragonjbdragon Posts: 2,172member
    I never understood the bullishness around Xiaomi becoming a services company. How many companies are profitable selling cheap hardware? And what we're all these services Xiaomi was going to make money off of to cover the cheap hardware?
    Outside of China, No one wants to use any other services other then Google's. Samesung keeps trying, their MILK service is yet another failure. There's very little money to be made selling Android hardware. Xiaomi is no threat. They sell Millions of these cheap phones and make very little money in profits. What does that get you? So you try to create your own services to make money after the sale and that doesn't work. You throw on Adware and other 3rd party crap to make money after the sale and that pisses your users off, especially those that want pure Android. Google won't let you sell FORKED versions of Android while at the same time selling phones with Google's services. So while selling only inside China, that's not a issue. Google has almost zero presence in China anyway, trying to sell outside if China also is another issue. It's one of the reasons Amazon's phones failed. It's forked Android. No access to Google's services that people want. Besides being over priced. I like to say, Android (Everyone) sells a ZILLION phones and break even. Apple sells 1 iphone and makes a $50 profit. Who won? Well fandroids will say Android did, they sold 1 zillion phones. The people got cheap phones. Everyone else would say Apple WON, they actually made a $50 profit and only had to sell 1 phone to do it!!!! You can scale this up and say Android sold 10 zillion phones to Apples 10 phones. Who Won? Android still broke even and Apple made $500. This is pretty much what's going on with Apple making around 94% of the Smartphone profits. Samesung making around 13%, which is more then 100%, which means others are losing money!!! Xiaomi is no threat to Apple. They're not a big threat to Android outside of China. For some strange reason when they announce their profits and it's way below what people think, they're all surprised for some reason. Surprise, you sell your phones making razer thin profits and in the end didn't make much money. That's how real math works.
    Deeedsradarthekatcornchip
  • Reply 14 of 28
    fallenjtfallenjt Posts: 3,980member
    You ain't seen nothing yet, HTC One A9:


    Oh yeah:

    edited January 2016 cornchip
  • Reply 15 of 28
    From time to time on AppleInsider, I read an article like this with the common theme: righting anti-Apple misinformation (or misperception), and I just shake my head in disbelief because it's just a 180 from what we're being told elsewhere. If it's same author (Daniel Eran Dilger?) writing these articles, I think he should win the Pulitzer Prize.
    Deeedsradarthekatcornchip
  • Reply 16 of 28
    aaarrrggghaaarrrgggh Posts: 1,583member
    So how many units did they actually sell in 2015?!  Useless article without showing their actual growth rate!
  • Reply 17 of 28
    levilevi Posts: 344member
    Just marveling at how little they make. Apple makes more on a slow weekend, than Xiaomi in 2014. 
    cornchip
  • Reply 18 of 28
    Junk company, with a junk product, parlaying junk data to achieve a junk valuation in non-public Chinese markets. 

    About time that their thieving nonsense is finally catching up to reality...
  • Reply 19 of 28
    radarthekatradarthekat Posts: 3,133moderator
    sog35 said:
    carthusia said:
    Unbelievable that any consumer tech company chairman would think customers unwilling to spend money on hardware would be willing to pay recurring fees on services-especially in a market notorious for piracy IP infringement. Just how many billions can a cell phone maker generate pushing stickers?
    The CEO was pushing a Ponzi scheme. He fooled investors into thinking Xiaomi could keep growing unit sales 100%+ a year and eventually sell 300,000,000 phones a year.
    Undoubtedly to attract capital, and also in an attempt to attract customers through the hype of presenting the company as the next big thing. Sort of a fake-it-til-you-make-it approach to business development. Pretty common, though this company took it to the extreme.
    lwio
  • Reply 20 of 28
    radarthekatradarthekat Posts: 3,133moderator
    flaneur said:
    aircm1982 said:
    Bar yourself from Appleinsider as you said if the Apple share didn't reach $150 at the end of 2015. Be a man to keep your promise.
    i finally blocked this character when he turned troll. is he still bagging on Tim Cook about fighting for equal civil rights for all its workers, the stock price, his personal loses, etc? yawn.
    Actually, Sog seems to be coming out of his brain inflammation (self-induced because of that wager), and he's coming back to his old role as Apple defender-bulldog. RadartheKat also said similar in an earlier thread today. But other people are still ragging on Sog as if he were still on rabies watch.
    It's a new year. Let's start fresh, welcome all voices with something meaningful to add. Goodness knows there's enough detractors to fend off without us turning on one another.
    cornchipflaneur
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