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.
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...
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.
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!
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?
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.
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.
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.