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Xiaomi denies its star is fading as new Chinese vendors rise

Last year’s shining performer stumbles in Q216, but has its eyes on USA, as smartphone market shows signs of revival

Xiaomi, the Chinese vendor which, last year, was widely tipped to turn the handset market upside-down, has hotly denied reports that it suffered a crash in shipments in the second quarter.

Financial reports and analyst estimates for Q216 have highlighted a revival in Samsung’s fortunes, on the back of the latest Galaxy models, and a reshuffle of the Chinese vendors which increasingly dominate their home market. But while Xiaomi looked like the likely leader in that country last year, IDC researchers say that it has slipped badly in 2016, losing out to Huawei, Oppo and Vivo (the top three in China in Q2), while also facing challenges in its Indian expansion, including legal challenges from Ericsson.

According to IDC, Xiaomi shipped 10.5m smartphones in China in Q2, a year-on-year drop from its heyday a year earlier. But the firm’s smartphone international VP Hugo Barra told Bloomberg that the figure was inaccurate. Xiaomi shipped just under 7m units in June alone, he insisted, adding that Indian sales were growing “very very well”, especially online.

Barra also said Xiaomi’s long-awaited entry into the US smartphone market would come “in the near future”, and it will spearhead its move into a notoriously difficult territory with the same online-centric and social media methods which propelled it into the Chinese and Indian markets.

Barra said in the interview: “The US is a market that we definitely have in our sights. We will lead with social media, with the channels that allow us to get in touch with the young generation that are enthusiastic about new technology.” However, he would not give a firm timescale for the move into the US, where compatriots Huawei, Lenovo and ZTE are also heavily focused. All three are increasingly majoring on premium models to attract the high-spending US consumers away from Apple and Samsung, to improve margins and differentiate themselves, and to justify the heavy marketing spend required in the country.

The US may remain a tough prospect, but emerging economies are driving a revival in the sluggish smartphone market, though one with limited profitability. Analysts at GfK recently revised their forecasts for global 2016 smartphone revenues from $400.7bn to $426bn, which would be a 5% improvement on 2015. Other research firms are looking for increases of about 3%. Germany-based GfK also sees average sales prices stabilizing, with unit sales rising by about the same amount as revenues between 2015 and 2016. It said that, in China and some other markets in Asia, eastern Europe and Africa, there were stronger sales of higher end models during Q2, reversing the previous trend of market share gains mainly going to vendors of sub-$100 smartphones.

GfK calculates that, in Q2, smartphone sales in China increased 24% year-on-year to 109.7m, the highest for over two years, suggesting that the recent slowdown in this huge country has ended, though operator subsidies are a big part of the picture. Homegrown brands now account for 81% of sales in China.

Kevin Walsh, director of trends and forecasting at GfK, said that consumers in rural areas are increasingly driving demand. “With China being a key part of the trend, it is not surprising that it is local vendors who are benefitting the most,” he added.

IDC says that the top three Chinese vendors in their domestic market are Huawei, Oppo and Vivo, which accounted for 47% of Q2 sales between them, while Xiaomi came in fourth with 9.5% share, down from a leadership 16.1% a year earlier. Oppo and Vivo are both brands controlled by BBK Electronics.

Internationally, Xiaomi is more robust. Despite its decline in China (the scale of which it disputes), it saw Q2 growth on a global basis, according to yet another report, from Gartner. This research firm said that, within the global top 10 in Q216, five vendors saw sales growth, and four of them were Chinese (Huawei, Oppo, Xiaomi and BBK/Vivo), with the fifth being Samsung. Apple suffered its third quarter in a row of falling sales with a 7.7% year-on-year drop in Q2.

“The success of Huawei, Oppo and Vivo in the market can be attributed to their concerted effort to build their brand and aggressive marketing to attract the consumers, along with the focus on product differentiation,” said Xiaohan Tay, a senior analysts at IDC Asia-Pacific. “In the past, Xiaomi started the trend of selling its phones online and other vendors soon followed suit and created their own online brand.” Strong advertising with celebrity endorsements, and reliance on web sales and social media, were all pioneered by Xiaomi and have now been copied by its challengers, pushing to move quickly into new countries.

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