Xiaomi In Rumored Ultra-Cheap Smartphone Plan
Anyone who thinks the trendy Xiaomi is just trying to copy the playbook of global tech giant Apple (Nasdaq: AAPL) may have to reassess that comparison, following the latest reports that the fast-rising Chinese smartphone maker is preparing to enter the ultra low-end segment of the market. Word that Xiaomi will launch a smartphone costing just 300 yuan, or $50, looks a bit suspicious to me, as I don’t think I’ve ever seen a smartphone costing so little. Such a move would also contrast sharply with Apple, which has made a very conscious decision to stay in the premium end of the market.
Before we go any further with my assessment of this latest report on Xiaomi, let’s take a look at the actual news on the rumored $50 model. The reports say the ultra-cheap phone is part of Xiaomi’s planned global expansion set for this year, and is specifically aimed at the Japanese market. (Chinese article) Xiaomi is reportedly launching the model as part of its aggressive target to sell 40 million smartphones this year, or more than double the 19 million it sold in 2013.
Such a super low-cost phone would follow Xiaomi’s launch last year of its 799 yuan Hongmi, a lower-cost version of its flagship models that have carved out a niche as trendy high-performance phones priced at less than half the levels of premium names like Apple and Samsung (Seoul: 005930). (previous post) Many thought that Apple might follow a similar down-market route last year with its introduction of a lower cost model, the 5c. But fans who were hoping to get big discounts on a 5c iPhone were disappointed to learn that the lower cost model wasn’t that much cheaper than Apple’s latest flagship iPhone 5s.
Xiaomi is one of China’s fastest-rising tech stars, thanks largely to its quality products and savvy marketing aimed at positioning the company as a trendy brand. Co-founder Lei Jun has acknowledged he will need to expand outside China to achieve his aggressive growth targets, and last year hired away former top Google (Nasdaq: GOOG) executive Hugo Barra as part of that plan. Barra hinted on his microblog last month that Xiaomi might be close to signing a deal with one of the world’s top mobile phone distributors. (previous post)
If this plan for $50 model plan is really happening, it would indicate that Xiaomi intends to take a slightly different path in its global expansion from its development so far at home. Put simply, this latest report seems to indicate that Xiaomi is aiming to become the king of “cheap chic,” similar to what US retailer Target (NYSE: TGT) has done in North America.
Such a strategy would certainly be possible, though it could also be quite difficult in western markets where brand building can be quite expensive. Most of the low-cost phones now in the market come from other Chinese names like Huawei, ZTE (HKEx: 763; Shenzhen: 000063) and Lenovo (HKEx: 992), all of which are known as cheap and relatively reliable but most definitely aren’t perceived as cool and chic.
Realistically speaking, I seriously doubt that Xiaomi could manufacture and earn a profit from a phone costing so little, since the components alone are likely to cost more than $50. But if the rumors are true, perhaps profits aren’t really Xiaomi’s near-term goal, since the company is relatively cash-rich after raising $2 billion in new funding last summer. (previous post) If the “cheap chic” image is really the aim, I would say the plan looks interesting but would only have a 50-50 chance of success due to stiff competition at the low-end and high marketing costs.
Bottom line: Xiaomi’s plan for a $50 smartphone, if true, could represent its aim to develop a reputation for “cheap chic” as part of its global expansion.
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