Billion Dollar Unicorns: Xiaomi Overtakes Samsung in China

According to an IDC report, the global smartphone shipments were expected to reach 1.3 billion in 2014. In Q3 2014, Samsung was the leader in the global market with 23.7% market share. Apple came in a distant second with 11.7% share followed by Chinese smartphone maker and Billion Dollar Unicorn club member Xiaomi with 5.2% share.

Xiaomi’s Offerings

Privately owned, Beijing-based Xiaomi was founded in 2010 by a group of eight partners who were led by serial entrepreneur Lei Jun. Lei Jun believed that high-quality technology need not cost a fortune and thus wanted to set up an organization that could provide superior products at affordable prices. They began operations by launching MIUI, their first Android firmware. They released their first smartphone Xiaomi Mi1 in August 2011 and have never looked back since.

Today, they manufacture and sell much more than smartphones. They offer a wide range of mobile phones and consumer electronics such as tablets, TVs, set-top boxes, air purifiers, and other mobile device-related accessories with a focus on the lower-middle market. They have managed a loyal customer base by incorporating user feedback into their latest designs.

Xiaomi is often refered to as the “Apple of China”. But while their products may look similar to Apple’s, they are priced much lower, thus helping them achieve an enviable market share. Xiaomi’s efforts have helped them become the leading smartphone player in China. According to the latest IDC report on the China smartphone market, Xiaomi accounted for 12.5% of the market in 2014, compared with 5.3% a year ago. The company managed to surpass Samsung whose share during the same period fell from 18.7% to 12.1%.

Analysts believe that Xiaomi has been able to capture the market by offering lower priced products and through regular flash sales of their phones. They have also moved beyond China and are now present in various emerging markets including Taiwan, Hong Kong, Singapore, Malaysia, Philippines, India, and Indonesia.

Xiaomi’s Financials

Xiaomi operated at a very different model compared with the other leading phone manufacturers. They do not have high margins on their phones and price them almost at bill-of-material prices. But that has not compromised on quality. Unlike other companies, Xiaomi sells a model of their phone for up to 18 months compared with Samsung’s sale window of 6 months. The longer duration helps them benefit from the continuously falling component pricing. Xiaomi also benefits from sales of other related services and devices such as phone accessories, phone themes, and software.

Xiaomi also maintains a tight control over their inventory and costs by eliminating middle-men and physical store fronts. All devices are sold directly through their website and most advertising is done through social networking and word-of-mouth.

They do not disclose detailed financials, but recently the company revealed that revenues for the previous year doubled to $11.97 billion. Back in 2012, they had recorded revenue of $2 billion. During the year, Xiaomi sold 61 million phones and is targeting sales of 100 million smartphones in 2015.

Xiaomi has been venture and debt funded so far. They have raised $1.4 billion from investors including Digital Sky Technologies, HOPU Investment Management Company, GIC, DST Global, QiMing Venture Partners, and Morningside Group. Their last round of funding was held in December 2014 when they raised $1 billion at a valuation of $45 billion. Prior to the venture funding, they had also raised a loan of $1 billion from a syndicate of 29 global banks.

Analysts believe that Xiaomi may be looking to go public soon. Xiaomi does not plan to sell their products in the US soon, but listing on the US stock exchange is still a possibility.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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Photo: Adrian Clark/Flickr.com.