In an interview with Reuters, Xiaomi’s Hugo Barra addressed a question that seems to be one the company has managed to avoid to date: its declining smartphone sales. For all the hype Xiaomi has generated over the last few years, it has recently experienced a sudden and dramatic shift in sales figures – and not in the right direction. In Q1 2016, Xiaomi’s handset sales were estimated to be down 25% over the previous year, versus a global smartphone shipment decline of just 0.1%. They declined a further 38% in Q2 2016. In Q3, its Chinese domestic sales have dropped an alleged 45%.
This is, despite whatever Xiaomi might claim, very problematic. Much of this misfortune seems to be to the benefit of China’s largest smartphone maker, Huawei, whose growth in the last year has been exceptional in its home market. Xiaomi, once the darling of specification-boasting bargain-seekers, seems to be losing its luster. According to Barra, these declines will “not have a major impact” on the company. To put it lightly, that’s hard to believe.
Barra’s reasoning is that because the company’s profit engine is tied up in connected services and accessories like air purifiers, headphones, and smart home technology, declining smartphone sales won’t hurt the bottom line much. It would, of course, be silly to suggest that these associated businesses aren’t hurt by Xiaomi’s failure to move as many phones. If the company’s most well-known product line globally isn’t achieving the kind of performance it was just a year ago, consumers are going to be less likely to notice or pay special attention to other products made by that company. Xiaomi’s entire model has its well-liked smartphones acting as a sort of advertising platform for the company’s other, more profitable products. If consumers don’t buy the ad platform, they’re a lot less likely to buy into the rest of the product portfolio. It’s not exactly rocket science.
Barra himself confirms this model: he alleges that Xiaomi could sell “10 billion” phones and not earn “a single dime” in profit. This seems exaggerated, but the statement is a clear affirmation of the idea that Xiaomi’s business is not one of selling smartphones, but of selling things to people who buy its smartphones. If fewer people buy phones, well, we’ve discussed this: it’s bad for business, full stop. “We’re not a smartphone company” seems to be the refrain of every struggling smartphone company these days.
Xiaomi’s latest device, though, has set off an absolute firestorm of positive coverage from the media and fans alike. The Mi Mix’s radical, largely bezel-less design has struck a chord with a segment of the smartphone enthusiast market that brands like Samsung, Huawei, and LG just don’t seem to be able to lately. It’s also easily Xiaomi’s most expensive smartphone ever, at well over $ 500. Given the huge amount of attention it has received, it could well be the product that rights the Xiaomi ship – if Chinese buyers are willing to fork over a very substantial premium for a phone from a company that has traditionally been known for its extreme value model. Xiaomi also plans to make a product announcement at CES in January, and we’ll be there to see it.
But the company’s flagging performance, regardless of what its hype-man Hugo Barra may say, is still deeply troubling. Xiaomi needs to turn things around, and if the Mi Mix is any indicator, they’re certainly trying.