Will Xiaomi benefit from Huawei’s woes?
With Huawei facing mounting troubles amid a US trade blacklist, rival Chinese smartphone makers have a chance to narrow the gap in market shares in the industry with their bigger rival. Among the firms that will be watched closely for any fresh product or marketing initiatives will be Xiaomi Corp.
Xiaomi’s chief financial officer Chew Shouzi said this week that his company is paying a lot of attention to the Huawei developments as it pursues international business expansion.
Following a US move to place special curbs on Huawei amid the firm’s perceived links with the Chinese government, Google will end access to some of its services on Huawei devices.
According to Reuters, Google has suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing.
The move could crimp Huawei’s smartphone business outside China as the Chinese firm will lose access to updates to the Android operating system as well as services like Google Play Store and Gmail and YouTube apps.
While the impact of the curbs will be limited in the Chinese market, where most Google mobile apps are banned anyway, Huawei is expected to suffer in the overseas markets, particularly in Europe, where it relies on Google services to sell its phones.
This situation, as can be expected, presents an opportunity for foreign rivals such as Samsung as well as Chinese brands such as Xiaomi, Oppo and Vivo to grab some of the market share currently under Huawei’s grip.
Analysts will particularly keep an eye on Xiaomi, which has shown signs of flagging growth in recent months as it faced intense competition.
Xiaomi has been lagging behind in both China and overseas in terms of shipments and market share. In the first quarter this year, the company shipped 27.9 million smartphones, little changed compared to the same period in 2018.
Huawei, meanwhile, achieved 50 percent year-on-year growth as it shipped more than 50 million units in the quarter on the back of strong demand for its new flagship P30 series devices.
As Huawei now faces a complete cut of American suppliers due to the US government order, there is no doubt that the №1 Chinese smartphone maker will face a tough time in the coming months.
The European business could take a hit at a particularly crucial time, given that the market is awaiting the launch of 5G mobile technology, which will see rising demand for new-generation mobile devices.
As Huawei faces hurdles amid Google’s restricted business ties, Xiaomi will see an opportunity thrown up to muscle in on some of Huawei’s turf in the market.
If the company plays its cards well, it could surpass Huawei in the 5G battlefield. Signaling its ambitions, Xiaomi launched its first 5G smartphone, Mi Mix 3 5G, in the European market early this month in Switzerland, and is set to now follow up with launches in Spain and Italy.
Xiaomi, as a matter of fact, has been taking the lead in offering 5G smartphones in the market ahead of other Chinese brands, as well as some overseas brands such as Apple.
That said, Xiaomi needs to do more to benefit from the Huawei problems. Making money in the smartphone arena, where competition is fierce and margin pressure is intensifying, won’t be easy. The company needs to look beyond the segment if it is to really improve its financials.
As smartphone sales could remain slow ahead of 5G technology maturity, Xiaomi may need to focus more on smart home appliances and Internet-of-Things (IoT) business.
Last month, Xiaomi launched three large appliances, including a full-screen TV and air conditioner. Chairman and CEO Lei Jun said home appliances will be an important part of the Xiaomi Artificial Intelligence and Internet of Things strategy.
In the future, Xiaomi will treat home appliances as one of the core pillars for long term sustainable growth. The company will promote more connected home appliances to boost its IoT business.
In the smart TV segment, Xiaomi saw its global shipments reach 8.4 million units in 2018, representing a whopping increase of 225 percent compared to the previous year. Xiaomi TV was the market leader in China in the fourth quarter of last year and in the first quarter of 2019.
Unlike Huawei which focuses its research and development effort on core telecommunications network infrastructure and mobile devices, Xiaomi has a more diversified product portfolio. The consumer products range from smartphones and tablets to wearable devices and a range of home appliances produced by partners.
All these create a Xiaomi digital ecosystem, with the company aiming to sell hardware at cheaper prices in exchange for service and advertising revenue.
The IoT business, in fact, has already emerged as a key revenue driver, accounting for 28 percent of Xiaomi’s first-quarter revenue, up from 25 percent in 2018. While smartphone sales proportion was down to 61 percent, from 65 percent previously, IoT revenue reached 12 billion yuan in the first quarter, marking year-on-year growth of 56.5 percent.
The growth was driven by strong demand for smart TV, Mi Band and the Xiaomi air purifier.
As Xiaomi seeks to explore new business opportunities outside the smartphone segment, a change in Huawei’s fortunes may not mean much for the firm.
An opportunity no doubt presents itself in the overseas markets, particularly in Europe, as 5G gets rolled out. But that will at best prove a short-term boost.
For its long-term future, the best bet for Xiaomi is a diversified product portfolio.