Why Xiaomi is successful and its present valuation is $50-60 bn?

Founded in April 2010, Xiaomi is an innovation driven Internet company with smartphones and smart hardware connected by an IoT platform. The company is looking to raise $10 billion in the initial public offering and its valuation could be in the range of $50-60 billion. The company’s success globally can be attributed to innovation and design, broad portfolio of products, internet services offerings, abundance of IoT platform and strong online and offline presence and this strategy is paying off for the company.

1. Continuous Innovation and Design 

The company believes in innovation and it is seen in their DNA as out of eight co-founders, six were engineers and two were designers. On the innovation front, the company believes in building an open global eco-system for products and has invested in more than 90 IoT (Internet of Things) and lifestyle companies. The company focuses on smart TV, AI speaker, router, scooter, wearable, air purifier, induction heating, rice cooker, robot vacuum cleaner and water purifier. And the market for all these consumer products are going to increase with the advent of new technologies plus there would be new IoT products in future.

As of March 31, 2018, the company had 14,513 employees of which 5,515 employees are R&D staff which is around 38 per cent and this is more than the average of similar companies who are 8 years old. The R&D staff is a mix of industrial design engineers, electrical engineers, mechanical engineers, computer scientists, software engineers and mobile developers. The R&D staff mix gives them an edge and helps them to come out with innovative high quality and well designed products focused on exceptional use experience.

The company has been increasing its R&D spend considerably. In 2017, the company has invested RMB 3.2 billion in 2017 which is around 52.4 per cent higher than 2016.

R&D Investment by Xiaomi

Year – R&D Investment (in RMB Bn) 

2015 – 1.5

2016 – 2.1

2017 – 3.2

Source: Xiaomi  

As of March 31, 2018, Xiaomi had over 3,600 patents with the State Intellectual Property office of Mainland China. The company is expected to continue its investment in cloud, Big Data and AI capabilities to improve on its innovation quotient and integrate smartphone and IoT products with cutting edge technologies.

2. Broad Portfolio of Products

The company offers a broad range of hardware products developed in-house or in collaboration with ecosystem partners which includes smartphones, laptops, smart TVs, AI speakers and smart routers. Apart from this, Xiaomi curates a wide range of additional products by investing in and managing an eco-system of over 210 companies.

Xiaomi’s smartphone is innovative, high quality and has a well designed hardware focused on exceptional user experience. The company is the fourth largest smartphone company globally and is the Top 5 smartphone company in around 15 countries. In Mainland China, the company has a market share of 13.9% and is ranked four, in India, the company has a market share of 26.8% and is ranked No. 1 and in emerging markets it has a market share of 7.3% and is ranked at No. 3.

In terms of 2017 revenue, smartphone contributes 70.3%, followed by IoT and lifestyle products 20.5% and internet services 8.6%.

Smartphone Vendor Q4 2017 Market Share Ranking (by unit shipments) 

Rank – Brand – Market Share

1. Apple – 19.7
2. Samsung – 18.9
3. Huawei – 10.7
4. Xiaomi – 7.2
5. Oppo – 6.9
6. Vivo – 6.0
7. Lenovo – 3.1

Source: IDC  

3. Bouquet of Internet Services Offerings 

The widespread availability of both mobile and high speed Internet connections has allowed Internet to penetrate across a wide category of services spanning across e-commerce, communications, healthcare, media & entertainment, information services, finance and other local services. According to iResearch, the global services market grew from $1,010.6 billion to $1,540.9 billion between 2015 and 2017 representing a CAGR of 23.5%. The global services market is expected to reach $2,600.9 billion by 2022 representing a CAGR of 11%.

Xiaomi has around 190 million MIUI monthly active users who regularly use innovative internet services and this number is going to increase with the number of mobile and high speed internet connections user base, internet service offerings and level of user engagement and spending. Not only this, as of March 31, 2018, Xiaomi data storage system store and processes multi-dimensional user data and has accumulated more than 20 PB of data since its inception.

4. Abundance of IoT Platform 

Xiaomi has over 100 million connected devices excluding smartphones and laptops as of March 31, 2018 and the company focuses on smart TV, AI speaker, router, scooter, wearable, air purifier, induction heating, rice cooker, robot vacuum cleaner and water purifier. One needs to see how big is the market for IoT products globally and what is the market share Xiaomi has in all these products.

2017 Consumer IoT Market Share by Number of Connected Devices   

Company – Market Share (in%)

Xiaomi – 1.7

Apple – 0.9

Amazon – 0.9

Samsung – 0.7

Google – 0.6

Source: iResearch

5. Strong Online and Offline Presence 

Xiaomi has an excellent online sales to maximise efficiency and build a direct relationship with consumers. Not only this, the company has also significantly expanded its own direct offline retail network through self operated Mi Home stores. Having done well in 15 countries where the company is Top 5 smartphone companies, Xiaomi is focusing on expanding its operations in additional markets such as South East Asia, Europe, Russia and other regions. One needs to see how Xiaomi is performing in IoT products using its strong online and offline presence.

Xiaomi is doing well but here are some concern areas – Increase its global and IoT revenue and profitability part which the top management needs to work in future.

International operations contribute only 28 per cent which is a matter of concern for the company and the company needs to increase its revenue thereby not depending mainly on Mainland China market. Even its dependency on smartphone with respect to revenue is to the tune of 70% which is on higher side so it needs to develop IoT products ecosystem and increase its share upwards. The company has to also make its operations profitable as loss figures for 2017 was RMB 44 million whereas the company was profitable in 2016 to the tune of RMB 492,000.