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

[Tomi T Ahonen]

Ok Lullz stop it.

I am not an expert in the hits businesses. I have FREQUENTLY heard that statistic from actual experts inside EACH of those industries. I hear the statistic many times each year and NOBODY has argued it there and then. I didn't write about apps business in this blog, this is about Xiaomi. Stop this. If you have an argument about how the books industry works, go write at an books industry blog, don't complain at this blog, and don't write these comments where they don't belong disturbing readers who want to read comments about Xiaomi. Do you understand? I will delete all your subsequent comments here if you continue with this. I told you where I got the numbers and where they were recently repeated and there was even some other of my readers who provided you national numbers from his or her country. Stop this. If you have some beef about your book project not making you rich, don't bitch about it here. Nowhere here was I teaching people how to become successful authors. I was always talking of the 'hits businesses' together as a group and showed that apps are WORSE. Stop this

Tomi Ahonen :-)

[abdul muis]

@Tomi

Could your prediction on XiaoMi off by huge margin?
http://www.phonearena.com/news/Xiaomi-Mi-Note-and-Mi-Note-Pro---all-the-new-features_id64831

It seems that XiaoMi surprised us that they were entering the premium market now.

[Tomi T Ahonen]

Hi abdul

of course any prediction can be off and might be off by huge margin. But I don't see anything in that link to change the point at all. Xiaomi is at best number 5 ranked smartphone maker (could be as low as 7th) and nothing near the 3rd rank that most press stories about how they're the new iPhone have been raving. These are nice premium specs most definitely. That doesn't mean Xiaomi pics up any market share over the lower-cost phones they've offered before. Yes, it makes life more difficult for Apple right now in China for the gift-giving Chinese New Year period but not enough to move the needle for Xiaomi - whose market share FELL from Q3 to Q4 haha...

Happy they are pushing up into premium market but remember they have no international retail footprint beyond China and a few Asian markets (yet). So this phone will be forgotten before Xiaomi is in Europe or America to any meaningful degree.

Tomi Ahonen :-)