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Exclusive: Xiaomi Unboxed

Less-told tale is Xiaomiís technology prowess
3/18/2014 05:00 AM EDT
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jreuter809
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say what?
jreuter809   3/18/2014 11:54:51 AM
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I'm confused.  If they're pricing their high performance phones for less than the BOM cost, then how are they making money?  If this is a loss leader, what is it leading?  Low end phones?  Some kind of service?  Inquiring minds want to know how this business model makes sense.

 

Scudrunner
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Success?
Scudrunner   3/18/2014 11:56:07 AM
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Is selling $5 billion of product for less than the bill of materials a success story? Sounds more like a war of attrition to me?

junko.yoshida
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Re: say what?
junko.yoshida   3/18/2014 12:15:53 PM
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Think Google. 

It is the service play Xiaomi is after. It's still the early days for Xiaomi. But by establishing enough "Xiaomi fans," they see themselves in the Mobile Internet ervice business.

More on this topic in my second installment of this Xioami series.

junko.yoshida
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Re: Success?
junko.yoshida   3/18/2014 12:22:27 PM
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As they continue to grow the number of sales (in units), they are reaching the point of "break even," I hear.

But as I wrote, they are NOT following conventionsl wisdom of hardware business you and I share.

They think every hardware box should be sold at cost. Hardware is just a pawn. 

elctrnx_lyf
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Re: Success?
elctrnx_lyf   3/18/2014 12:23:12 PM
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Are they really selling lesser than the actual BOM or the BOM that is published outside? You at least need some profit to run the things. Or are they making money through content? Or they are using mobiles as means of creating brand and selling other products for profit?

Scudrunner
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Re: Success?
Scudrunner   3/18/2014 12:42:40 PM
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Hmm, selling at lower than Bill of Materials suggests negative gross margin, subtract operating expenses and you have a deeply negative operating margin. With that strategy you need very deep pockets or a parent with very deep pockets.

I'm sure that profit through services can work (Amazon/Kindle?), but they better roll them out and get to scale quickly!

junko.yoshida
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Re: Success?
junko.yoshida   3/18/2014 12:57:25 PM
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Xiaomi is getting to that scale -- faster than anyone had imagined -- at least in China.

Three years ago, Xiaomi was hardly a known brand. Now, it has grown to become the brand everyone wants to associate with in China. Thus far, they are succeeding in laying the ground work.

junko.yoshida
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Re: Success?
junko.yoshida   3/18/2014 1:02:31 PM
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Yes to your last question: Or they are using mobiles as means of creating brand and selling other products for profit?

Xiaomi only sells their products on the Internet. No stores, no distribution channels. Savings on their overhead right there.

But their "fan" base is unbelievably big in China. It is a cult, and it is playing very well against the local culture.

Measurement.Blues
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CE?
Measurement.Blues   3/18/2014 6:48:49 PM
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What does CE stand for?
  • Windows CE?
  • Consumer Electronics?
  • Compliance Engineering?
  • CE Marking?

Could mean lots of things.

kimnhbu
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Re: say what?
kimnhbu   3/18/2014 7:09:30 PM
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They are seriously betting that the prices of the components they use will go down. Losing that much money just will never be sustainable. And combined with the furiously fast progression of smartphone tech, it makes it even less so. But who knows, I'm not running a phone company so what do I know...

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