Some Smartphone Sanity Please! Xiaomi is nice for China but its not the New Apple and it will not take over the world. There are at least 4 stronger Chinese phone manufacturers

I hate the sloppy analysis and writing we get, particularly from the USA about mobile. Once again they chase the latest 'shiny object' mesmerized by some nonsense numbers totally ignorant of how the mobile industry works. Yes, Xiaomi has had a wonderful year in China. Yes it was momentarily the largest smartphone maker in China and yes it was even very briefly the third largest smartphone maker in the world (for literally only two weeks, not more). It is utterly silly to call them the third largest smartphone maker today - check the numbers, it is a fact that Xiaomi for full year 2014 cannot finish higher than 5th ranking. We have already seen enough numbers from Samsung, Apple, Lenovo+Motorola and Huawei, to know the official 61.1 million smartphones that Xiaomi sold in 2014 cannot give them a rank of more than 5th largest smartphone manufacturer for the year. Cannot be higher. Anyone calling them third biggest only illustrates that the writer failed math in high school.

XIAOMI IS NO APPLE

Lets talk about Chinese handset vendors. About 70% of all phones sold on the planet were manufactured in China, most of them in the metropolitan sprawl of Shenzhen just across the border from Hong Kong where about 25 million people live (Hong Kong's population is a mere 7 million). China has not one or two or five phone brands, it has... over 2,000 phone brands. Yes. Two THOUSAND domestic phone brands. So you like Xiaomi the Little Rice company? Good for you. Now lets look at the global market just for a moment.

Success in the global phone market depends on 'carrier relationships' with the mobile operator telecoms companies who have to approve handsets into their markets. In addition to that, you have to have local distribution, in some countries that goes mostly through the operators/carriers, in other markets the handsets are sold independent of the carriers/operators. But in any case, you as the newcomer mobile phone manufacturer have to establish the carrier relationships to get your cool new phones approved for a given country, per carrier, and you then have to also find distributors willing to buy your devices and try to sell them. In smartphones the 10 biggest global brands control nearly 80% of the global market. If you are Xiaomi, a brand no consumer customer has ever heard of in Kenya or Argentina or Belgium or Thailand, you have to market and push that brand to achieve some interest so that the retailers are even willing to carry your product.

Take Apple. They are one of the most recognized tech brands on the planet. They were alrady selling Macintosh PCs and iPod music players in all countries when they launched the iPhone in 2007. It took them literally six years to reach most carriers/operator in most countries to approve and start to sell the iPhone. And Xiaomi has never sold any other tech before phones, in any countries. It is not in any way comparable to as good the position Apple had for expanding iPhone sales beyond America from 2007. Xiaomi has to start from scratch in every single country. It is an absolute definite concrete fact, that if Apple achieved global footprint in about 7 years, Xiaomi brand alone cannot do it as fast. It can, at best, acchieve that in maybe 10 years. This, with the assumption Xiaomi does not buy some other brand like Chinese Lenovo which bought Motorola last year or Chinese TCL which bought the Palm brand just now.

WHO ARE THE BIG THREATS?

Xiaomi sold 61.1 million smartphones in 2014. That gives them about 4.9% market share of the global smartphone market. They had a peak Quarterly market share of 5.6% in Q3 of 2014 but that has already come down to 4.4% for the Christmas Quarter, Q4 of 2014. Yes, Xiaomi quarterly market share had peaked. It is in decline. Huawei has definitely passed Xiaomi to be (temporarily at least) larger as a Chinese smartphone manufacturer in Q4 and we haven't even gotten the Lenovo numbers yet. The handset industry is extremely volatile, one hit phone can temporarily push you to a Top 3 ranking for one quarter and then drop you down into the pack the very next quarter. Just ask LG and Sony and Huawei about it in the past two years, or HTC, Blackberry and Nokia over the previous two years.

Xiaomi sells significantly only in China. Its next biggest market is India where it has sold an unimpressive 1 million phones. Yes. Its second best market is India, where Xiaomi sells 1 million phones per year. And other than India, Xiaomi does not even register in any other markets yet. So its journey is at literally the starting point. But the hot phones it had in 2014 are going to be utterly obsolete by 2015, so its now dependent on luck, will Xiaomi achieve some kind of 'Razr Moment' with its next phone or was the year 2014 only an 'Xperia Moment' for Xiaomi, like Sony briefly surged to a Top 3 ranking and made big profits with the Xperia until the rivals killed it and Sony was plunged into loss-making.

In the global market you need carrier-relations. That is the lesson that Apple learned, that Microsoft learned with its Kin, what Nokia's new CEO Stephen Elop learned when his darling, the Lumia series failed globally, and what Google learned with the Nexus. It is what all insiders in mobile know. The handset market is not like the PC market or the gaming console market or the TV market. The handset market is dependent on the good will of the carrier community. And to achieve that, you have to get your phones approved by over 600 moblie operators in over 200 countries globally. Each operator/carrier individually and each country by country. There is no shortcut. If you are an Apple, then maybe you can do this in 7 years. If you are a normal tech company it takes more like 10-15 years. So all that utterly silly reporting by American 'experts and pundtis' about Xiaomi, lets now forget that. Xiaomi will not have 10% to 15% market share at the end of this year. Utterly silly. Xiaomi may have 4%-6% market share at the end of this year 2015. Who are the real global Chinese makers?

LENOVO AND MOTOROLA

The strongest Chinese brand is Lenovo with its Motorola acquisition. Lenovo alone in 2015 sold more smartphones than Xiaomi. Lenovo was selling millions in Russia and India and several other markets already last year, before they bought the Motorola business from Google. Now Lenovo adds the Motorola brand to its Chinese market - putting pressure to Xiaomi, as Motorola is a well trusted US brand of high price points in China. But far more importantly, Motorola brings to Lenovo a Top 3 brand position in handsets in the USA, Latin America and at least a Top 5 phone brand position in many parts of Africa Asia and Europe. Lenovo and Motorola combined sold something close to 100 million smartphones in 2014, far more than Xiaom but much more importantly. they weren't dependent on one hit phone in one country. Lenovo was already buildling a signifciant footprint before the Motorola deal and now has a big global footprint to sell smartphones, and differing from all other Chinese rivals I will mention here who also have an international sales presence, only Lenovo with Motorola is 100% smartphones. The other Chinese brands have to migrate some proportion of their customer base from dumbphones to smartphones (Google completed the Motorola migration from dumbpones to all-smartphones already two years ago)

HUAWEI

The second strongest Chinese smartphone brand is not Xiaomi either, it is Huawei. Huawei is one of the world's largesty telecoms equipment vendors. They sell networking equiipment like Ericsson, Alcatel-Lucent and Nokia (Networks, the part that is left of Nokia after they sold their handset business to Microsoft last year). Huawei is also a major handset vendor, ranked 4th largest handset vendor in the world when both dumbphones and smartphones are included. Huawei sells about twice as many handsets as Xiaomi but far more importantly, Huawei has a global distribution network already selling very successfully for example in Africa. Huawei's smartphone business alone is larger than Xiaomi's total business, selling 75 million smartphones. But understand, as the prices of smartphones keep falling, there is the remaining dumbphone business .Huawei has which is about 60 million units per year, which it can stil migrate to Huawei branded smartphone customers. Maybe they won't achieve 1-on-1 transition, as few brands were ever able to do that but even if they convert half of that into smartphone customers Huawei would be easily 50% bigger than Xiaomi just in the smartphone business, ignoring Huawei's other businesses like its telecoms networking business.

TCL - ALCATEL - RCA - PALM

Then there is TCL. Chinese TCL went into partnership with French telecoms vendor in 2004 to build a Chinese factory to build low-cost handsets for the world. Alcatel sold its share of the business to TCL later and today this Chinese manufacturer is a Top 10 handset maker who have passed the half-point of migrating their customers from dumbphones to smartphones. The TCL-Alcatel brand in phones is a major player in Mexico, Venezuela, Russia etc. This company believes in using various brands to expand its presence so it sells smartphones for example in the USA under the RCA brand. And just a few weeks ago it bought rights to sell smartphones using the Palm brand, from Hewlett-Packard. TCL total handset volume is on par with Xiaomi but only about two thirds of TCL sales is smartphones. But it has a global footprint and several strong brands. TCL smatphone volume is currently about 40 million so its smaller than Xiaomi but TCL can sell in most countries. Which do you think has a better chance of growing in 2015? Xiaomi which saw its market share FALL in the fourth quarter, or TCL which has been building a global business for ten years now and has about 3% of the global handset market. TCL is definitely the stronger player than Xiaomi, for a global industry.

ZTE

Then we have Huawei's cross-town rival, ZTE. Like Huawei ZTE also provides telecoms networking equipment, and like Huawei, ZTE sells dumbphones and smartphones. In size, ZTE is a bit smaller than Xiaomi when counting just smartphones, and a bit larger if we count all phones. But ZTE has been selling to telecoms operators/carriers worldwide for 15 years and has a worldwide footprint. ZTE doesn't own any premium brands like slightly-smaller TCL does but ZTE has a good networking business to help it open doors to carriers/operators. ZTE is at least as strong a bet as Xiaomi is for growth in smartphones.

COOLPAD/YULONG

And lastly there is Coolpad ie Yulong. This is a pure domestic smartphone brand like Xiaomi and 2,000 other domestic Chinese phone brands. But Coolpad entered the global Top 10 before Xiaomi did and started its global expansion some months before Xiaomi did. Yes, Coolpad is currently a bit smaller than Xiaomi but sells similar products in similar price points and has just about as much share in China currently. Rivals like Coolpad - there are dozens in the immediate next tier - will pressure Xiaomi in its domestic market and rush with Xiaomi to capture the nearby international markets like India, Pakistan, Russia, Vietnam, etc.

Xiaomi will not take over the world and 'be anotehr Apple'. If any Chinese brand will have a breakout year in 2015 that is going to be Lenovo, the only brand that has the chances to leapfrog the normal growth rate. Xiaomi will barely grow in 2015 because its domestic rivals hamper its chances at home and its international expansion has barely begun. Huawei and TCL wil grow much more in 2015 because of their international footprints and ZTE and Coolpad are just as likely to grow at Xiaomi-rates in 2015 as Xiaomi. I would not be surprised if Xiaomi's roughly 5% market share will shrink in the next year. It will definitely be nothing near 8%, if they get 6% it would be a banner year for Xiaomi.

Lets be real about the smartphone market and lets not push these nonsense fairy tales. American pundits and analysts are pretty clueless when it comes to the international phone market. Xiaomi the littel rice company will not take over the world of smartphones in the coming few years. Mark my words. I am the most accurate forecaster of the handset indsutry haha.

PS if you want to know the numbers of the handset industry read the brand new TomiAhonen Phone Book 2014.

Comments

[AndThisWillBeToo]

@Tomi
"In smartphones the 10 biggest global brands control nearly 80% of the global market"

Sorry? Your own Q3 numbers say that those outside top ten sold 27.4% of phones sold. Is this going to change to ~20%?

[Tomi T Ahonen]

AndThis

Haha good catch but Q3 was not very indicative of the full year. Apple had its lowest point of the year and Lenovo and Motorola were still reported separately while they'll be reported as one brand in December 31. So it'll be about 78% maybe for the Top 10 brands and 22% for the rest. Closer to 80% than 75% or 70% as my math currently shows. Depends mostly on how good/bad is Samsung's last quarter and how great is iQuarter 2014.

Tomi Ahonen :-)

[AndThisWillBeToo]

@Tomi
OK, thanks.
To the actual topic (Xiaomi): Who are you talking to? I haven't seen a single seriously taken analyst say that Xiaomi is new Apple, will take over the world or be the next Apple.

I've multiple times heard that Xiaomi is "the Apple of China". That has some sarcasm in it because:
Xiaomi sells cheap phones (Apple sells expensive).
Xiaomi copies Apple blatantly.
Yes, Xiaomi has grown at insane rate _in_China_. That is rather unexpected but is happening as it is extremely unlikely that Apple will sue Xiaomi in China. The moment Xiaomi entered India they faces their first lawsuit. Blatant copycat that sells in millions inside China, insane growth rate in China...
...hence "the Apple of China".

Who's saying the rest?

[AndThisWillBeToo]

And now that I'm on a commenting spree:
I threw you this link (Talouselämä news article, mentions you) and ask what were your thoughts about it. You never answered. So what do you think about it? One extra whiskey tonight to celebrate? ;)
http://summa.talentum.fi/article/te/uutiset/102969

[AndThoseWhereRightleySo]

What a concentration of BS and MS propaganda. Ex-Nokian stopped blogging because MS is no longer paying. Amen.

[khim]

@Baron95: Lets say that Xiomi did 3 simple deals - a deal to have their phones distributed (SIM unlocked) globally by Walmart, Amazon and Carrefour?

Well, it'll be big. Amazon Firefone Phone size "big". In other words: not bit at all.

Carriers DO matter. They may not be as important as Tomi wants to portray them, but they DO matter.

[John F.]

Guys,

It would be very useful and educational to read this phenomenal pice from stratechery, published a few days ago

http://stratechery.com/2015/xiaomis-ambition/

Tomi is way, way wrong about Xiaomi, he just sees a smartphone maker, it seems there is a lot more to consider, none written here and a lot found in stratechery, or at least an angle to consider.

[AndThisWillBeToo]

"The author declares that Xiaomi is known as the “Apple of China”"
Rest my case.

[KPOM]

Tomi is right, but for the wrong reasons. Xiaomi isn't the "next Apple" because they sell a product that can't be sold outside in lucrative North American and European markets because they blatantly rip off other companies' IP (particularly Apple). And they are barely breaking even doing it, which indicates that if they had to pay proper licensing fees that they would not be profitable outside China.

As for carriers, Apple has had to acquiesce to some carrier demands, but they have done so far less than anyone else out there. It's mostly been a matter of carriers caving to Apple. Sure, Apple does let carriers limit tethering, etc. through carrier settings, but they haven't allowed any carrier branding, links to carrier app stores, or anything else of that sort. They have also extracted fairly significant sales commitments from many of the larger carriers.

[abdul muis]

I think XiaoMi intentionally cut the carrier and sell directly to customer.

As a "apple from china", I guess that because the company try to mimic apple a lot from their skin for android & the CEO clothing choice... and also... maybe from the amount of exposure & love from China (compare to Apple in USA) & the rabid way of both company fans.

[Lullz]

Since Tomi will probably miss this from any other place, I'll put this here.

http://en.wikipedia.org/wiki/Books_published_per_country_per_year

About 2 200 000 books are published every year. Tomi, could you point out about the source for 220 000 hit books each year? It looks very unlikely that there could be that many hit books every year.

Here are some stats for you:

You're assuming that your book will get published at all. Most first novels don't. You need to write, on average, a million words of fiction for practice before you're capable of writing something publishable.

Here’s the reality of the book industry: in 2004, 950,000 titles out of the 1.2 million tracked by Nielsen Bookscan sold fewer than 99 copies. Another 200,000 sold fewer than 1,000 copies. Only 25,000 sold more than 5,000 copies.

The average book in America sells about 500 copies” (Publishers Weekly, July 17, 2006). And average sales have since fallen much more. According to BookScan, which tracks most bookstore, online, and other retail sales of books, only 299 million books were sold in 2008 in the U.S. in all adult nonfiction categories combined. The average U.S. book is now selling less than 250 copies per year and less than 3,000 copies over its lifetime.

But I agree with others, don't let this stop you. There are always those who sell beyond their expectations. Stephanie Meyer's Twilight series, case in point.

Of the tiny fraction of novelists who make any money at all from their writing, most don't make enough for it to be their sole source of income. There was a survey done in the UK about five years ago, which found that the average income from writing fiction was about a quarter of the national average income. This is less than minimum wage, meaning that those writers who were making the average amount could have earned more by flipping burgers or stacking shelves.

Writing a book looks like one of the worst ways to make any money. Unless of course you are very lucky.

[Paul Ionescu]

Oh no, not again!

Samsung to make play for Windows Phone in bid to end Android reliance

http://www.theinquirer.net/inquirer/news/2389720/samsung-to-make-play-for-windows-phone-in-bid-to-end-android-reliance

[chithanh]

The most important part is actually in the end:
"the firm would have to resolve its legal differences with Microsoft first, which might not happen until the third quarter."

So Samsung will only sell Windows Phones again if Microsoft drops the patent litigation. Given the recent string of bad news about WP (showing further erosion of its market share in Europe, China and the US), Microsoft will be quite amenable to that.

[chithanh]

The most important part is actually in the end:
"the firm would have to resolve its legal differences with Microsoft first, which might not happen until the third quarter."

So Samsung will only sell Windows Phones again if Microsoft drops the patent litigation. Given the recent string of bad news about WP (showing further erosion of its market share in Europe, China and the US), Microsoft will be quite amenable to that.

[Angkasa Pura]

@Tomi

There is a good article at seeking alpha about BB.
http://seekingalpha.com/article/2813415-blackberry-in-terminal-decline

[Winter]

@Lullz
"It looks very unlikely that there could be that many hit books every year. "

I looked up the numbers for the Netherlands (in Dutch, sadly, and with price controls) for 2008.

Titles published ~20,000 a year. Around 20% make a profit.

Things seem to become more lopsided over the years with some publishers depending on a single mega bestseller, e.g., Harry Potter or 50 shades.

[RottenApple]

The Microsoft/Samsung thing reeks of desperation on Microsoft's part.
Samsung can only gain from it, if they manage to get the patent litigation dropped.

After that, let the market decide, and a year later declare the entire undertaking a failure.
In the end nothing has changed: Microsoft's only option is to waste more money to keep WP alive.

[Lullz]

@Winter

"Titles published ~20,000 a year. Around 20% make a profit."

Profit for who?

Maybe the publisher will make profit on 20% of the books they sell. It would be equal to Apple making profit with some % of the apps they sell.

It's highly unlikely that 20% of authors with published books would live on that. Also lots of books are never published.

[Tomi T Ahonen]

Hi all

Good discussion. Two quick comments

On the Samsung WP announcement. One, Samsung is ALREADY the other 'preferred' partner in Windows Phone ahem 'ecosystem' aside of Nokia that Microsoft now owns. So this is celebrating your most important provider might launch another phone on your platform. Two, Samsung is squeezing Microsoft with the lawsuits. Three, there will be negligable sales on Samsung brand on Windows Phone for the same reason that one third of shipped Lumia phones were never activated, there is no demand. Period. The developers are abandoning this dead platform. But 4, look at Vaio unit of Sony that I wrote about in the Grand Convergence article today on the blog. If ever there was the best case for Windows partner, Vaio proves that WP is dead. Read it and weep. Nadella will shut down the Lumia unit within 2 or max 3 years.

Lullz the stat is frequently sited for all hits businesses, music, books, movies and videogaming. Its not by actor or writer or programmer, its by publisher. Because roughly 1 in 10 products is a hit and 2 out of 10 break even, the profits of the hit product have to sustain the loss-making 7. That is why there is the publisher middle-man, to take those risks, bring their 'competence' to evaluate the viability of products. As to books specifically, the numbers of books were recently vastly expanded through self-publishing, so you should remove those titles. But yeah, the publishers of games, producers of books, music, publishers of books, they are commonly called the 'hits industries' and I am not an expert on them but just last autumn again I was at a conference in South Africa where a speaker quoted explicit numbers on the books industry as an example (I recall he said 10% profitable 20% break-even, 70% make a loss. I don't remember exactly which market was it US market or global or perhaps UK market, but I posted those on Twitter at the time and nobody argued thats nonsense. The speaker was from one of the big analyst houses).

Many of those who drank the Apple cool-aid when the App Store first launched were excited that this was the newest hits business. They felt when we got Angry Birds style success that it was the proof. It wasn't until the economics were studied more deeply that it emerged that its not anywhere as successful as the gamble that is hits business. Apps are a lottery where only 1 in 100 (I think my math said 1 in 85, go read the blog) is a hit. Thats not sustainable. Its pure luck and chance now. It will not continue, obviously, as now today in 2014 and 2015 the 'experts' are slowly coming to the view I have expressed on this blog for 5 years, there is no economy here, unless you are making games - apps as games are almost exactly 1 in 10 successes - except for games, apps are a disaster with no economy. So now most developers will quit and the apps ecosystem will adjust and shrink to the gaming industry engine it was always geared up to be. That is what the numbers say. That was my point and I have been publishing the numbers here as I found them. I am a 'mobile' industry expert not a 'hits businesses' expert haha

Tomi Ahonen :-)

[Lullz]

Because roughly 1 in 10 products is a hit and 2 out of 10 break even, the profits of the hit product have to sustain the loss-making 7."

I have never seen a source explaining how it's world wide and not just for some specific established publishers.

"As to books specifically, the numbers of books were recently vastly expanded through self-publishing, so you should remove those titles."

Isn't this the same for apps? There are lots of self-published apps and even those who have been launched by a company are quite often something similar to the people self publishing books. I wasn't quite able to follow you when you excluded those from the app business who were not serious about it. With books it's easier.

10-20-70 is obviously a number for some publisher but it's not telling the whole story. How many established publishers do we have and how many authors are actually making a living out of this business? The number of successful authors is usually quite limited and you really need to be successful in order to live with this industry.

Today it's easy to write a book and maybe even get it published if the print is reasonably small. However this is also true to the apps industry where it's even easier to create a generic game compared to writing a book. Even a crappy book.

"(I think my math said 1 in 85, go read the blog) "

I have read it. Now what I don't get is the number of the amateurs. It's incredibly hard to exclude those.

"I am a 'mobile' industry expert not a 'hits businesses' expert haha"

It looks like we still need to evaluate the books industry and try to compare that to the apps. Both industries have tons of amateurs and counting them out is not an easy task.

From my point of view writing a book is also complete lottery. If I don't find a publisher it's incredibly hard to self publish and become profitable. Even with a publisher the print may be so small that it won't provide a living. The average U.S. book today is selling less than 250 copies year and less than 3,000 copies over its lifetime.

Can you say books are any more profitable with that number?