Chinese smartphone manufacturer Xiaomi has posted a €45m profit despite revenues of €3.45bn, representing less than 2pc operating margins.
Part of the chasing pack (along with LG and Lenovo) behind market leaders Samsung and Apple, Xiaomi’s tight margins portray just how difficult it is for manufacturers to compete at the top.
Although smartphones are just one part of Xiaomi’s business model – it also provides internet and software services – the low cost hardware the company sells has created a sort of race to the bottom among the non-leading companies.
Indeed Xiaomi, just a few years old, has risen to third in the smartphone sellers worldwide, helped by the low cost devices it specialises in.
“They’re growing so fast and so lean, I wouldn’t be surprised even if they were losing money,” said Bryan Wang, analyst at Forrester Research. “Every company is trying to match the Xiaomi price,” he added, in Reuters. “The current market is so competitive that I don’t think it’s sustainable without consolidation.”
The challenges are not just financial for operators like Xiaomi, with legalities also draining revenue streams.
Last week Xiaomi was blocked by an Indian court from importing its smartphones into India. The High Court in New Delhi has forbidden the manufacturer from selling its devices in the sub-continent after Ericsson India filed a case.
The ex parte order prevents Xiaomi from selling, advertising, manufacturing or importing devices that infringe on patents held by Ericsson.
However the company is clearly aware of its restricted modes of income and is looking to diversify, investing in its first ever US company recently, Misfit Wearables. It also launched an air purifier last week, before investing over €160m in home appliance firm Midea.