Nov 26, 2016 07:00 AM EST
Smartphone Giant 'Xiaomi' Admits It's Not Making Big Money On Hardware Sales
Chinese tech manufacturing giant 'Xiaomi' has recently admitted that it's not making enough cash selling smartphone hardware.
According to a TechCrunch report, Xiaomi's business model is not about selling smartphones, but rather focuses its business strategy and efforts in the hardware business. In a recent Reuters interview, however, Xiaomi global VP, and former Android VP, Hugo Barra, admits that his company doesn't really make big revenue on smartphone hardware sales. Barra stated that the company really care about the recurring revenue streams rather than the immediate margin on hardware sales.
Barra added that the company sees hardware as a platform for delivering software and services in the long term, just like what Google really do with its Chrome web browser, where it used as a platform for delivering cloud-based applications and web services.
However, the company has missed its global smartphone targets by 12 percent last year. Its smartphone line took the hardest hits with sales dropping 12 percent globally. The latest IDC research suggests that its third-quarter sales in China will be down 45 percent. This has raised some alarm and doubts on the valuation side of the company.
The performance of the company is not reflective of its value two years ago when Xiaomi managed to reach a valie of $46 billion in its last fund raising in 2014. The funds it had raised that year made it the world's most valuable startup at the time.
But Barra remains unfazed about the negative report and dons a positive outlook for Xiaomi's long-term performance. In the said interview, the Chinese executive said the sudden drop in sales in China wouldn't impact Xiaomi's long-term profit growth.
Xiaomi is still considered as a major player in the consumer electronics categories. The Chinese manufacturing giant is currently holding the title as the fourth largest handset maker in the world.
Since the release of its first handset in 2011, Xiaomi has quickly gained significant market share in mainland China. Later, It later expanded into developing a wider range of consumer categories, which include developing smart home devices or the so-called IoT devices.
Xiaomi is one great example of startup companies that doesn't need an IPO (initial public offerings) or a startup funding round. The Chinese company is said to have more in common with Amazon's hardware strategy than with Apple.
Xiaomi employs a strategy very unlike other smartphone makers such as Samsung and Lenovo. Here, it priced the handset almost at bill-of-material prices, without compromising the quality compared to other smartphones.
The company gets its profits by selling phone-related peripheral devices and services, which include online videos, smart home products, apps, and much more.
To further reduce production and marketing cost, Xiaomi does not really own any physical stores. It sells its products exclusively from its online store. It also relies on social networking services when it comes to advertising and marketing campaigns.
Currently, the Chinese giant is investing heavily in India and another part of South East Asia and more recently, the US market.
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