By email@example.com (InfoseekChina)
(WSJ) A growing number of companies big and small believe they can beat China’s Xiaomi Corp. at its own budget-phone game, revving up competition and threatening profits in the world’s largest smartphone market.
Established computer maker Lenovo Group Ltd. in recent weeks began selling its first smartphone from its new Xiaomi-like spinoff called ZUK. Like Xiaomi, it will sell the high-end smartphone at a budget price of about $280 through online sales, thereby cutting marketing costs. ZUK’s chief executive, Chang Cheng, said he saw an opportunity to out-Xiaomi Xiaomi.
“You can use someone else’s model to defeat them,” Mr. Chang said in an interview. In a hint of how quickly Lenovo has worked to develop a Xiaomi rival, Mr. Chang said his team was still figuring out what the name ZUK stands for.
Five-year-old Xiaomi upended the world’s largest smartphone market by selling high-end phones at rock-bottom prices, in hopes that sales of services and merchandise, such as mobile games and headphones, would make up the difference. In return, it won a $46 billion valuation from private investors and a place among the world’s largest startups.
Now others are trying the same thing. China’s largest, deepest-pocketed gadget companies—Lenovo, Huawei Technologies Ltd. and ZTE Corp.—have launched Xiaomi rivals. Among smaller companies, antivirus software maker Qihoo 360 Technology Co. plans to sell phones under its new Qiku brand this month. Chinese YouTube-like video streaming website LeTV, which launched its new LeMax smartphone earlier this year, plans to lose money on its hardware indefinitely, according to smartphone chief Feng Xin.
IHS iSuppli China Research head Kevin Wang said Chinese smartphone makers were adapting a business model usually used by Internet startups such as Uber Technologies Co. “Burn cash to get users,” he said. “A lot of these smartphone players are probably going to die.”
The new rivals threaten a vast new industry in China where homegrown mobile-phone makers already compete fiercely to make bigger, faster handsets. If the China smartphone market ends up heavily divided, none of the competitors might end up with the market share to turn the business into a highly profitable one, some analysts warn.
“It’s hard to say if Xiaomi can stay at the top given challenges from local vendors like Huawei,” said Jingwen Wang, an analyst with market-research firm Canalys.
Xiaomi declined to comment for this article. In July, Xiaomi Global Vice President Hugo Barra said in a Wall Street Journal interview that its rivals were chasing an old business model. “I think what they’re doing is looking at the business model that we had maybe a year ago,” he said. “We continue to move forward. We continue to innovate.”
China sold 209 million smartphones in the first half of this year, compared with 75 million in the U.S., according to Canalys. Apple sold 26 million iPhones in the country during the period, while Xiaomi sold 31 million, by the research firm’s estimates. Xiaomi aims to sell 80 million this year after selling 61.1 million last year.
Xiaomi says it is profitable, but doesn’t disclose financial results as a private company. In recent years it has expanded into new markets, such as India and Singapore, and invested in areas including headphone makers and the Chinese company that now owns Segway scooters.
The battle comes as China’s smartphone market has stopped growing. China’s smartphone shipments shrank 4.3% in the first quarter from a year earlier, the first decline in six years, according to market-research firm IDC.
Xiaomi, whose name means “little rice,” has ridden the wave of China’s smartphone boom, with its smartphone sales more than doubling each year since it launched its first device in 2011. The company rose to prominence in China with its showy launches, in which it would compare its phones component-by-component to the latest iPhone, then unveil a price less than half that of Apple Inc. ‘s device. Xiaomi initially faced criticism that its product designs resembled iPhones, but it has since moved to more differentiated designs.
Xiaomi’s valuation is $46 billion, higher than any other startup in the world except for Uber, because of investor hopes that the company will be able to develop lucrative Internet services after building a large user base through its bargain phones. Still, Xiaomi said in April that it wants to make $1 billion in mobile-services revenue this year, which would be just 6% of its projected revenue for the year.
Xiaomi was China’s top smartphone maker with 15.9% of shipments in the second quarter, but fast-growing Huawei was just behind with 15.7%, according to Canalys. Apple dropped to third place in China, after holding the top spot for two quarters following the launch of its popular iPhone 6 and iPhone 6 Plus.
Huawei has so far launched the most successful counterattack with its Honor line of smartphones, which are sold online similarly to Xiaomi. The Honor phones helped boost Huawei’s smartphone shipments by 48% in the second quarter from the first quarter, making it the fastest-growing competitor in China, according to Canalys. Huawei spokesman Roland Sladek said in July that Huawei’s smartphone profitability has been growing as the company expanded its product lines upmarket.
A factor behind China’s smartphone boom and intensifying competition is a cluster of Chinese smartphone contract manufacturers that have broken down barriers to entry.
One is Shanghai-based Wingtech Communications, which designs and produces some of the more popular smartphone models for Xiaomi, Huawei and Lenovo. The company also provides app stores, big-data management and other services crucial to the Xiaomi model. “We’ve already helped a number of new online model smartphone brands become market leaders,” said Wingtech’s strategic chief, Deng Anming.
One morning this summer, hundreds of young engineers at Wingtech in blue cubicles and humming research stations were busy designing and testing smartphones for clients. Large clients such as Xiaomi and Huawei were cloistered into private rooms, to avoid secrets leaking to rivals. But testing equipment was shared, cutting costs for all the brands.
An area where established competitors such as Huawei, ZTE and Lenovo have an advantage over Xiaomi is overseas, where their strong patent portfolios can help better protect them. “Xiaomi can only sell accessories in the U.S. right now, not phones, and the most important reason is because of the patent issue,” said Ms. Wang of Canalys.
Source: Wall Street Journal
Source:: Rivals Try to Reinvent Xiaomi Business Model