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Hugo Baara : Xiaomi facing raw material shortage ! now expects sales between 80 million and 100 million units.

Xiaomi Inc.'s blazing growth is coming under increasing pressure. The Chinese smartphone company, which has developed a cult following in Asia and is now eyeing expansion abroad, is combating supply bottlenecks, competitors who are wise to its strategy and new rivals with plans to launch their own phones in China this year -- all raising the issue of whether Xiaomi has staying power or if it's just a flavor of the month in Asia's increasingly crowded Android market.
Hugo Baara
CEO Lei Jun recently hinted that selling 100 million smartphones this year might be not a realistic target. He now expects sales in 2015 to be on the low end of that, between 80 million and 100 million units.
Company officials conceded that among the challenges that Xiaomi currently faces are supply constraints. “We still aren’t making as many as we could sell of any given product, particularly the high-end products Mi Note [and] Mi 4, for example,” Hugo Barra, Xiaomi’s vice president for overseas operations, told International Business Times on Friday. Barra spoke at an event in Bangalore, India, where he was promoting the Redmi 2 smartphone.
Barra said Xiaomi, which saw pretax sales grow 135 percent in 2014, is dealing with a number of supply chain constraints. “With the Mi 4, it was the display that turned out to be the bottleneck. With Mi Note it’s glass. With something else, it’s another component or multiple components, multiple different things,” Barra said.
Tougher Competition
Even as it deals with supply constraints, Xiaomi is facing stiffer competition. As a result, some analysts said the company will have a tough time hitting the high end of Lei’s target. “One hundred million is very difficult,” said Chris DeAngelis, a general manager at Alliance Development Group, a cross-border business consultancy that focuses on helping technology companies establish themselves in China.
“It seems every major OEM in China has now created a new brand to compete directly with Xiaomi,” he said. This includes Lenovo Group Limited’s Shenqi or ‘Magical’ brand, Huawei Technology Co. Ltd.’s Honor, Coolpad Group Ltd.’s Dazen and ZTE Corporation’s Nubia.
“Xiaomi is now competing head-to-head with these new brands in every market they enter -- especially in Southeast Asia and India,” DeAngelis said. Further, strong local companies such as Micromax Informatics Ltd. in India or Himax in Indonesia, are also fierce competitors. Micromax even has plans to expand into some of the markets Xiaomi is targeting for its next growth phase, including Malaysia, where the Redmi 2 was launched a day ahead of its India debut.
Competition in China is even fiercer from rivals such as Meizu Technology Co. Ltd., a company that is older than Xiaomi and that recently received a fund infusion from Alibaba Group Holding Ltd., and Smartisan. New, well-funded competitors continue to enter the market such as LeTV, which will launch a series of phones this year, DeAngelis said in an email interview with IBTimes.
Saturation In China
The competition is playing out in an increasingly saturated market, according to Daniel Gleeson, an analyst who tracks mobile devices and networks at London-based consultancy IHS Global Ltd. Nearly 95 percent of the handsets shipped into China in 2014 were smartphones, and shipments will grow just 8 percent in 2015, according to IHS.
“While Xiaomi can still grow domestically by stealing market share from its competitors, its meteoric growth will inevitably slow,” Gleeson said in an email.
Xiaomi will also lose some home-field advantages as it moves beyond China. In India, for instance, Google Inc.’s mobile app store is available to anyone, as are most of its services. A ban in China to no small extent has helped Xiaomi build its own app store and establish a very close rapport with its domestic consumers. That Xiaomi gets a cut from the app sales on its store also helps it maintain its razor-thin margin, Gleeson said.
To be sure, Xiaomi isn’t standing still. In India, it actively engages people on its Facebook page, invites people to its events and encourages suggestions for apps, features and even bug fixes. But outside the limited world of geeks, a large section of Indian buyers would be just as happy with an equally good phone from Motorola Mobility at the same price, and Motorola is a brand that many an urban Indian remembers fondly all the way back to the Razr.
Branding is also another long-term challenge Xiaomi will have to contend with, especially if it eventually wants to enter the U.S. market, where it is largely perceived as “China’s Apple.” Xiaomi’s Mi Note is a technological marvel. It is thinner and lighter than the iPhone 6 Plus and has a slightly larger screen as well. And the Pro version doesn’t scrimp on hardware. What the Chinese company will face is the perception among Western consumers that “Chinese” is synonymous with “cheap.”
“The fact that Xiaomi is undercutting its competitors by a great deal could actually be a hindrance in this regard,” Gleeson at IHS said. “It is already distancing itself a little from its Chinese heritage by adopting the Mi brand as its main brand rather than Xiaomi, which can be tricky to pronounce for Westerners.”
Xiaomi reportedly plans to build a production plant in India to support its growth on the subcontinent.

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