Smartphones: Xiaomi Sales, ZTE Tie-Up 小米迅速成长 中兴另辟蹊径
A couple of news bits from the smartphone space are shining a spotlight on 2 very different stories in the sector, with up-and-comer Xiaomi’s young but rapid growth moving ahead, while a struggling much larger ZTE (HKEx: 763) is trying a new approach to win more overseas business. The only common theme to these 2 different stories is the lightning pace of change that has developed in the dynamic smartphone space, where a manufacturer can now go from startup to superstar to laggard status in very short time.
Xiaomi is still in the startup-to-superstar phase of that cycle, following the roll-out of its first model in summer 2011, a high performance model with a relatively affordable price tag. A company executive has revealed that Xiaomi sold about 7.2 million smartphones last year, mostly comprised of its original MI-One and a later updated version of the model. (English article)
Xiaomi raked in 12.6 billion yuan from the sales, or about $2 billion, earning about 1,750 yuan per handset. The company’s second-generation model, the MI2, has just come out and has already passed the 1 million unit sales mark, thanks in large part to the marketing savvy of Xiaomi co-founder Lei Jun. These numbers do indeed look impressive, though we could still put them into perspective by noting that Apple’s (Nasdaq: AAPL) iPhone 5 sold more than 2 million units in just the first week after its debut in China last month.
Xiaomi has done a relatively good job so far in terms of product development and marketing, and realizes it needs to look beyond its original Internet-savvy young fan base if it wants to continue its rapid growth. In acknowledgement of that fact, it plans to start offering its phones in more traditional retail outlets this year, diversifying beyond an early sales model that saw it sell a big majority of its products over the Internet. It has also indicated that it might start exploring other markets similar to China, such as Hong Kong and Taiwan.
I would expect the company’s revenue to at least double again this year to more than $4 billion, and perhaps even reach the $5-$6 billion range. If it does anything less, many investors could quickly lose interest in Xiaomi before it ever achieves true superstar status.
Meantime, our second bit of news has ZTE partnering with Australia’s Telstra (Sydney: TLS) to develop a friendly smartphone model that looks specifically aimed older users who might otherwise be too timid to try such complex phones. (company announcement) There’s nothing really new about mobile phone makers working closely with service providers, though ZTE is stressing the high degree of collaboration in this instance that does seem a bit unusual.
According to the announcement, Telstra worked closely with ZTE on the phone’s actual design, rather than the more common approach that usually sees carriers take existing models from manufacturers and make small changes to suit their networks and services. This approach looks interesting and will undoubtedly appeal to carriers who want to sell phones that meet their specific customer needs.
The only problem is that this kind of approach could quickly become very labor intensive if each carrier decides it wants its own customized models, and therefore isn’t really very scalable. Still, I have to commend ZTE for trying this kind of different approach, as it definitely needs to find ways to differentiate itself from its rivals if it ever hopes to become a major global player and reverse the company’s broader downward decline.
Bottom line: Xiaomi needs to at least double its revenue this year or risk disappointing investors, while ZTE’s new Telstra tie-up is innovative but has limited potential.
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