你好 – Nǐhǎo – good afternoon!
In this post I would like to introduce you to Xiaomi – often referred to as the Chinese Apple.
Although around 65% of sales are generated with smartphones, the company offers much more. Xiaomi sees itself as an internet company with smartphones and intelligent hardware that are connected to each other via an IoT platform.
In just eight years, Xiaomi has managed to become the fourth largest smartphone manufacturer in the world.
The company employs more than 14,000 people and is represented in 90 countries. More than 300 million people use the company’s products, services or one of the 50 apps.
Chinese manufacturers are gaining market share
I have included a graphic that shows the change of the past ten years in the highly competitive smartphone market.
At the end of 2009, Nokia had a world market share of 38.6% (Apple 16.1%, Samsung 3.3%).
In the middle of 2013, less than 4 years later, Nokia disappeared from the picture as a relevant manufacturer. Samsung is the market leader with 32.5%, followed by Apple (12.9%). For the first time, Huawei (4.9%) and Xiaomi (2.1%) are two Chinese manufacturers in the TOP4.
In 2019, Samsung remained the market leader with a 21.8% market share, but lost many shares in Huawei (18.6%) and Xiaomi (9.1%). The premium manufacturer Apple can hold its own with 13%.
As I said – it was only ten years that has changed the landscape of the relevant providers properly. So we can be very excited about what the next 5-10 years have in store.
The graphic above all illustrates the strong growth of Chinese smartphone manufacturers, who have long been exporting beyond national borders. India in particular has become one of Xiaomi’s largest customers.
Therefore I would now like to take a closer look at Xiaomi. If you are wondering why not Huawei – the company is not listed.
Xiaomi was founded by Lei Jun in 2010 and has been listed on the Hong Kong Stock Exchange since July 2018.
Lei Jun is a very experienced technology investor and manager. In 1992 he founded the software company Kingsoft. After the successful IPO in 2007, Lei Jun resigned from his position as CEO.
In 2000 he also founded the IT information service Joyo.com, which was sold to Amazon in 2004.
On April 6, 2010, he decided to restart and founded Xiaomi.
With a net worth of $ 12.5 billion, he is number 25 on the Forbes list of the richest people.
The company’s motto is:
“Always believe that something wonderful is about to happen.”
Sounds kind of naive – but the Chinese love it. Perhaps it is the belief in an ideal world that is inherent in them. But before I drift off into the philosophical, let’s take a look at the company logo.
If you are wondering why instead of Xiaomi there is only MI in the logo, then I have the explanation for you here:
It stands for Mobile Internet. According to the company, it also has the meaning Mission Impossible, because according to the founder Lei Jun Xiaomi faced many challenges that seemed impossible to overcome and were nevertheless overcome.
The company’s strategy is to offer smartphones at the lowest possible price. So here it differs significantly from the prime margin Apple.
In addition, Xiaomi uses its stores, which are very similar in design to the Apple stores, using other technical products, such as Notebooks, activity trackers and smartwatches, vacuum cleaner robots, smart home devices and even pillows.
I find it somewhat questionable whether someone with the intention of buying a cell phone also puts a robotic vacuum cleaner and a pillow in the shopping cart.
The success proves Xiaomi right. The share of products from the IoT / Lifestyle category is taking up an increasing share of sales. In 2017 it was 20.5% (smartphone 70.3) of sales, in 2018 it was 25.1% (smartphone 65.1%).
I find it particularly exciting that Xiaomi is already the leading smartphone manufacturer in India. With almost 1.5 billion people, the company has positioned itself very well in the two nations. The company will benefit from the rise of people to the middle class.
As already mentioned, Xiaomi is a true success and growth story. Revenue has increased from $ 9.6 billion to $ 25.2 billion in the past four years. This corresponds to an annual growth rate of more than 27%. Since the company has so far offered the products at a very reasonable price and at the same time further growth has top priority, the profit is still very sparse. At the end of the 2018 fiscal year, only $ 170 million was available.
However, a look at the balance sheet shows that the company is financially well equipped.
Tier 1 liquidity – the ratio of cash ($ 4.37 billion) to current liabilities ($ 8.93 billion) – is 49%. This value can be considered very solid.
If we add other liquidable assets such as inventories, securities or receivables (2nd degree liquidity), the amount increases to $ 15.28 billion or a ratio of 171%.
In short – there are sufficient funds available so that Xiaomi’s solvency does not appear to be at risk.
With a market capitalization of $ 28 billion, Xiaomi is not yet one of the major Chinese stock exchange stocks. Maybe this will change in the future? What do you think?
In particular, the good positioning in China and India should continue to give the company good growth prospects. The brand, products and services are very popular in both markets.
The trend towards 5G technology could continue to fuel sales. With the Redmi K30, Xiaomi offers the cheapest smartphone in this class ($ 284).
The company is also trying to conquer the Internet financial market in India by offering small loans.
However, I find the strategy of turning the company into a general store less good. I personally think focused companies are more promising.
Similar to Apple, Xiaomi should prefer to rely on a few and well-known products with a strong ecosystem.
I would also like to be instructed otherwise and will continue to monitor the company.
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