Will Xiaomi Get Eaten by Huawei?
As Huawei gains global traction, how will Xiaomi fare? While Huawei leads in R&D research, Xiaomi has a strong country advantage.
Xiaomi (小米) and Huawei (华为) are two notable Chinese telecommunications companies whose products are often pitted against each other. As Huawei gains global traction, it raises the question of what will happen to other Chinese telecommunications companies.
Recently, LEI Jun (雷军), Xiaomi’s Chairman and CEO, announced via Weibo (新浪微博) that Xiaomi 9 shipments exceeded 1 million units, according to 36Kr. Combined with Xiaomi 9SE, total shipments exceeded 1.5 million units.
While Xiaomi 9 achieved a great milestone, Huawei’s Mate 10’s global shipment exceeded 10 million units in the first half of 2018, according to 199it.
While shipments do not equate to the number of sales, Xiaomi’s smartphones have sold relatively well in the past as it comprises the bulk of the company’s revenue. In 2017, it made up 61% of the company’s total revenue and increased 41.3% over the previous year, according to Xiaomi’s financial report.
“In the fourth quarter of 2018, the revenue generated by smartphones sold for [CNY] 2000 or more accounted for 31.8% of the total revenue of the smartphone segment,” Xiaomi reported.
In fact, both smartphone companies are doing relatively well compared to the global market. Xiaomi saw incredible success in 2018. According to IDC in Xiaomi’s financial presentation report, the company “achieved 32.2% YOY growth in smartphone shipments while the global market declined by 4.1% in 2018.” Huawei led in the YOY growth in smartphone shipments, slightly above Xiaomi at 33.6%.
Huawei is certainly winning in smartphone shipments. As such, some may deduce that Huawei is doing better than Xiaomi According to Counterpoint Research, it’s on par with Apple’s global smartphone shipments market share at 14%.
Xiaomi and Oppo, another Chinese telecommunications company, are tied for fourth place. Therefore, what does Huawei have that Xiaomi does not? And is Xiaomi really getting the short end of the stick when it comes to Huawei?
R&D (Research & Development)
R&D has never been so important. According to CB Insights, China is quickly catching up to the United States in R&D spending (20.2% and 26.4% respectively).
One reason for Huawei’s success and increasing competitiveness in the global market is its large investment in R&D. It’s the only company from China to be listed on EU’s Top Ten Global R&D Investors, according to Caixin Global.
In addition, according to CNBC’s interview with Neil Shah, research director of devices and ecosystems at Counterpoint Research, he mentioned “the risk from investors is Xiaomi’s gross margins” and weak operating margins. “The business model they are adopting is not based on intellectual property or significant R&D investment like Google, Apple, Huawei, so it's easily replicable.”
According to ScienceBusiness, 45% of Huawei’s employees are engaged in R&D. The telecommunications company also “set up 16 R&D centers in countries that include Germany, Sweden, the US, France, Italy, Russia, and China.” Over the last decade, Huawei’s R&D expenditure exceeded CNY 480 million, according to the company’s 2018 press event.
On the other hand, Xiaomi’s R&D team accounts for approximately 38% of its full-time employees, according to ITHOME. As such, Xiaomi isn’t trailing too far behind in R&D. However, it’s still lagging in comparison to other global leaders.
Additionally, OPPO, Xiaomi’s other large rival is expected to double “R&D investment to keep up with rivals ahead of 5G deployment.” In 2018, OPPO exceeded Xiaomi in Asia in smartphone market share, trailing just behind Huawei at 16% and 15% respectively. Xiaomi and Vivo are tied at 13%.
Despite 5G still in its early stages of development, there is already news about Shanghai to be the first city to completely adopt the 5G network. As Xiaomi isn’t even in the top 5 of China’s model share, it may be valuable to begin scaling more efforts into 5G as countries begin to adapt. According to Reuters, Huawei reports that 5G “is expected to come into large-scale use in 2020.”
Xiaomi’s Country Advantage
While Xiaomi may have to allocate resource and talent to R&D research to compete globally and grow its competitive edge domestically, the company is achieving great success in other markets, specifically India.
While Xiaomi has yet to reveal the proportion of countries their phones are sent to, it’s likely that India takes a huge chunk. In 2017, Xiaomi’s sales in India increased by an overwhelming 696%, according to 199it. Furthermore, Xiaomi’s products occupy most of India’s model share.
According to the company’s 2018 financial results, its shipment to India had an overwhelming 59.6% YOY growth from 2017 to 2018. It beat VIVO and OPPO in 2017 and 2018’s market share and surpassed Samsung in 2018. Xiaomi is also making progress in Indonesia, placing second after Samsung in the country’s smartphone market share in 2018.
Xiaomi’s success in India can be attributed to its efforts in a localization strategy. On Apr 9, 2018, the company announced “the opening of three new smartphone plants in India” and is investing in educating its “component suppliers” about the Indian manufacturing ecosystem.
“We believe that this will help our suppliers effectively assess and expand their manufacturing capabilities in the country,” Manu Jain, Xiaomi’s vice president and global managing director in India said. According to Telecom, Xiaomi “is in active discussions with two more component partners to set up factories to support its growing operations.”
In addition, Xiaomi’s offline MI stores partners with local retail chains such as Croma, Univercell, Poorvika, and Sangeetha. This allows Xiaomi to get more coverage in terms of area and word-of-mouth marketing.
Will Xiaomi Get Eaten by Huawei?
Not likely. Xiaomi has already begun its 5G support with the MI Mix 3, and it’s not loosening its grip on one of its largest market. However, as more and more telecom companies invest in R&D, Xiaomi should be cautious to not fall behind.
Rather than Huawei, perhaps Xiaomi’s biggest fears will be OPPO and Samsung as the former is quickly gaining traction in China and the latter planning to win back its India market advantage.
Briefly comparing a Xiaomi and Samsung model mentioned above, Xiaomi's Redmi 6A is approximately 5,999 Indian rupee (87.7 USD) while the Samsung J4 Plus is approximately 8450 Indian rupee (123.35 USD) doing a search online. Therefore, Xiaomi still has competitive pricing. It'll be interesting to see how Xiaomi and Samsung proceed in the future for dominance in the Indian market.