Two phones were launched recently: Amazon's Fire phone and Chinese manufacturer Xiaomi's Mi3 (in India). While I learned about Amazon's Fire phone from the article "Teardown.com: Amazon Brings Fire to Phone Market" by Joel Martin published on this site, I came know about Xiaomi's Mi3 phone from a news. The news was about the online shopping portal Flipkart.com through which Xiaomi was selling Mi3 had crashed a couple of days back due to a rush in order booking for Mi3. When I heard about the features and the price, I became tempted too. The Mi3 phone was priced at Rs 14999/- (~USD 249) in India!
When I learned that Amazon had priced its Fire at USD 649, I was curious about making a comparison of features of Xiaomi's Mi3 vs Amazon's Fire phone. When the specs were kept side by side, I was convinced that there are no major differences except that the Fire phone offers double the FLASH size as compared to Mi3, where as Mi3 has some other advantages over Fire:
From the Amazon Fire teardown article I learned that the Bill of Material (BoM) cost of Amazon's Fire phone is ~USD 209. From the specification comparison, it could be inferred that Xiaomi's Mi3 would also have similar BoM cost. If this assumption were valid, I was wondering how Xiaomi could manage to sell Mi3 at USD 249 with such as small margin. Any idea?
In an comment from Josh Ong on thenextweb in 2012 you can read the answer (see chapter "Xiaomi Overseas"):
"Growing beyond China will be an important move for the company, though, since it has billed itself as a low-margin phone maker. Lei revealed at the Mi-Two event that the new phone is being sold at a loss, based on calculations of 3 million devices sold.
"We are not looking to make any money, or to make Xiaomi profitable, for the next two or three years," Lin said earlier this year.
The company should be set up for the long haul, as it just raised $216 million in a Series D funding round that valued it at $4 billion.
Xiaomi might not be making money yet, but it's building a loyal fan base that should help the company succeed. And, judging by the photo below of the bathroom sign at the event last week, it's at least having some fun with it along the way."
@Matthil: ..."We are not looking to make any money, or to make Xiaomi profitable, for the next two or three years," Lin said earlier this year...
Thank you for your comment and the information. This helps me to understand why Xiaomi has strategized to sacrifice the margin now. So, is it safe to make an assumption that they would hike the price up after three years? Would they have the same popularity then as today?...I know it is too early to guess that, but I think they will have to work on creating differentiators other than the price in this 2-3 years so that they could retain their customers. What that differentiator would be...it might not be features and other also would provide the same...what else?
May be, the prices will later on increase a little bit, may be not, but probably not until xiaomi will enter the european market. But i gues, even than, prices will still be much more reasonable than competitors.
Apart from reasonable prices, Xiaomi together with MIUI, has allready now a very big "Fan-Community", not only in countrys they already "explored", but also already in europe, whereas Xiaomi is actually only available by Import.
Reason for that is (imho) of course the quality of the products together wih reasonable prices, but much more the fact, that Xiaomi provides, also for theyr older models, other than many other suplyers, weekly updates, turning the ideas and requests from the community come true, an this ongoing, which is a great upvalue that should not be underrated. Xiaomi has a big eye on the community, where each member feels as a part of something to start out.
And with each new Release, actually mi3 and mi4, it shows, that this seems to be a very appropriate strategy.
I recently purchased the MI3 just to see if it lived up to the hype! And boy does it(atleast according to my sister, still need to get some hands-on on it).
It's not just the specs on paper, the build quality is very decent, along the lines of Moto G/X and the camera is simply superb. Blows my Nokia 820 camera out of the water. Pretty amazing value for money, considering the outrageous costs some of the competetors(I'm looking at you Samsung) are charging for similar phones. Though they aren't making profit yet, this phone is still worth a buy if they hike the price by 20% now I've seen the build quality. Probably exactly what they're aiming for!
On another note, I just can't believe there are 2.2GHz processors on phones. I wonder where all these phones will be 3~4 years from now, if someone just took them out of the dumpster and found a way to interface them together they could probably have a supercomputer on their hands. Probably not feasible to take the PCB's out, but hey I can dream...
Taking a quick look at the specs for the Xiaomi Mi3 released for India what struck me was this was only a UMTS phone (GSM + W-CDMA) and not the same Xiaomi Mi3 released for China which was a GSM and TD-SCDMA smartphone. Having privy to our full Deep Dive report I can see the total manufacturing cost of the Chinese version of the Mi3 is less than our estimated cost for the Fire Phone.
Doing a quick comparison then of the Chinese version of the Xiomi Mi3 and the Indian version of the Mi3 the most notable difference is the fact the Mi3 released for India has a Qualcomm MSM8974AB processor while the Chinese version does not.
Of course, we have seen phones with the MSM8974AB - all with LTE enabled which the Indian Xiaomi Mi3 does not, according to their specs listed here: http://www.mi.com/in/mi3/#fullspecs
What this says is there may be missing RF components for the Indian Xiaomi Mi3 - namely it could possibly have a different RF Antenna switch, fewer RF Power Amplifiers since LTE is not supported; as well as possibly not having Qualcomm's Power Envelope Tracking (primarily used for devices with LTE, LTE-A).
If this is all true - that is, fewer components because of the 2G/3G specs, then the BoM for the Xiaomi Mi3 for the Indian market will also be less, and increasing Xiaomi's margin.