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Xiaomi's Successful but Does Not Make Much Money

News by Luke Jones on Monday December 15, 2014.

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Xiaomi's rise in the market has been nothing short of extraordinary and unprecedented. The Chinese brand entered a mature market and gained massive success within it in just four years, but there are some compromises to that success as it turns out Xiaomi did not make as much money in 2013 as was originally reported.

The company has a very distinct model in the industry, one that favors the customer (or at least getting customers) at the expense of high margins. The company builds decent smartphones and sells them for affordable prices, the kinds of prices more established industry names are struggling to compete with. The result has pushed Xiaomi to third in the global smartphone market in terms of sales, but the company also makes very little money from its devices.

The Wall Street Journal reported last month that Xiaomi made $556 million in 2013, which left us with raised eyebrows because the company's business model should not be yielding those kinds of bumper figures. It turns out the Journal was wrong as regulatory documents revealed by Reuters say that Xiaomi actually made a lot less money (a tenth as much in fact) as the Journal?s claim. The agency found that the company made a profit of $56.15 million in 2013 on the back of $4.30 billion in revenue.

Xiaomi's business model is certainly working, but it seems that money is not flowing in like at other companies. For example, Apple (the standard bearers for profit) pulled in 28.7% operating margins, while Xiaomi's biggest rival Samsung managed 18.7%. The Chinese company could only manage 2%, an almost insignificant number in comparison. Indeed, the company made less money than HTC and Sony last year (mobile divisions) two companies said to be struggling in the smartphone world.

Several analysts are predicting Xiaomi's model will squeeze the industry and make it impossible for other companies to make money:

Every company is trying to match the Xiaomi price. The current market is so competitive that I don't think it's sustainable without consolidation."-Brian Wang, analyst, Forrester Research

I presume that also means Xiaomi itself will not be making money, and with Samsung?s profits tumbling too, is it only Apple's business model that seems to be bringing in consistent high yield profit?

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About the author

Luke Jones
Luke Jones is the Managing Editor at MobileBurn.com and is the person you need to speak to about the content on the site. Luke studied creative writing at degree level before carving out a reputation as a freelance tech writer. He settled here at MobileBurn, where he reviews devices and contributes to the news, as well as overseeing the site's content and direction.

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