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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.

 

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.

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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johnnybharris
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I quite like it, i have to say..
johnnybharris   8/13/2014 9:00:59 AM
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It's still a bit hard to digest the fact that all this hardware is contained within a phone that costs just Rs. 14,000. The Moto G, which has been the most obvious phone to recommend at this price ever since its launch is based on a Snapdragon 400 SoC and has a 720p screen - and that was what we considered a breakthrough in value devices just six short months ago.

Johny

 

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: 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. 

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.

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?

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.

junko.yoshida
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Re: CE?
junko.yoshida   3/18/2014 8:05:56 PM
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sorry if i caused confusion. CE, in the CE industry's lingo, means Consumer Electronics.

And "consumer electronics" includes everything from TVs to mobile handsets.

Measurement.Blues
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Re: CE?
Measurement.Blues   3/18/2014 8:49:22 PM
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@Junko,

Thanks for clarifying CE. In my world, I think CE marking, which anything electronic needs to be sold in the EU. To get a CE Marking, the product must pass tests for things such as EMC, safety, and other directives. There's also a toy directive.

I once editoed a handbook on the CE marking. 1997 or so.

sprite0022
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Re: CE?
sprite0022   3/18/2014 9:58:17 PM
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they make money with hardware.

their software etc is junk.

they did saved marketing/sales channel/advertisement cost.

the only difference is apples gross margin is 50%, they are 5%? but since they have a tiny engineering team only so they don't need to worry about payback.

sprite0022
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Re: CE?
sprite0022   3/19/2014 4:15:30 AM
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it's a hoax or pure propaganda trick for them to tell people their price is below BOM. those shanzhai product are even cheaper.

junko.yoshida
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Out of box thinking
junko.yoshida   3/18/2014 9:24:38 PM
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Xiaomi does have this out-of-box thinking that inevitably makes you say, "Say what?"

And some of the things their co-founders say is controvertial and provocative.

But it's an interesting company to watch and we will be certainly following them. I would like to determine if it is just the company of "the moment," or it is indeed creating a blueprint for others (interested in Mobile Internet) to follow their footsteps.

tomeq
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Re: Out of box thinking
tomeq   3/19/2014 4:41:41 AM
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Junko thanks for following this company. I was really surprised when I first heard about Xiaomi company ca 2 years ago. Their phones had excellent electronics inside and more than interesting box. But my first question was, how long will it work, what's the mtf? and now it seems that Xiaomi is doing pretty good. I just regret that I cannot test their phones here in Poland. So far only A-brands and OEMs from China are the only onle available. But surprisingly, last month other Chinese manufacturer named ZOPO launched their online shop in Poland, so hopefully Xiaomi will go the same road to Europe.

junko.yoshida
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Re: Out of box thinking
junko.yoshida   3/25/2014 12:18:30 AM
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@tomeq, the beauty of the online-only sales strategy is that yes, indeed, Poland could be well within Xiaomi's next targets for its overseas expansion.

DCH0
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think Xbox
DCH0   3/19/2014 12:13:38 PM
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The video game manufacturers all lose money on their product and hope to get it back on selling additional games.

Another very well written article.  Thanks, Junko.  It is great to have EE Times reporting on Asia from someone who can get interviews with the insiders.

junko.yoshida
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Re: think Xbox
junko.yoshida   3/25/2014 12:19:33 AM
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Thanks, DCH0. "Thing Xbox" -- that's very well put. ( I should have thought of that!)

 

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