China’s Xiaomi plans to refocus on ‘cool stuff’ as phone sales fall short

January 16, 2016 06:00 AM

(Bloomberg)—Xiaomi Corp. sold more than 70 million smartphones last year, falling well short of its target and prompting founder Lei Jun to tell employees he was refocusing research efforts into “cool stuff” like robotics and virtual reality.

The Chinese mobile phone, which mainly sells online and ranks No. 2 in the Internet Retailer 2015 China 500 Guide, had a stated goal of selling 80 million devices. Xiaomi originally predicted selling 100 million units, but then changed that after China set its lowest growth target in 15 years and copycat vendors started taking away market share. The miss was a blow to company morale, Lei said in an email to employees.

“We set a target of 80 million and, before we knew it, it became an obligation,” Lei said. “We changed under this pressure, and everyone’s faces gradually lost all traces of humor.”

The smartphone maker was one of China’s most exciting startup stories of past years, with a valuation of $45 billion that trailed only that of Uber Technologies Inc. Xiaomi, which had Internet Retailer-estimated 2014 web sales of $9.44 billion, according to data, thrived through online sales of budget-priced devices with advanced components, overtaking domestic competitors and challenging Apple Inc. (No. 11 in the China 500) and Samsung Electronics Co. (No. 360) for supremacy in the world’s biggest market.

Huawei, Meizu

Xiaomi’s meteoric ascent helped it secure $1.1 billion in 2014 from investors including GIC Pte., All-Stars Investment Ltd. and Russia’s DST. Xiaomi even drew comparisons to Alibaba Group Holding Ltd. and other more established technology powerhouses.

Xiaomi’s market share has been pinched by competitors including Huawei Technologies Co. and Meizu Technology Co. (No. 168), said Jeff Pu, an analyst at Yuanta Securities Co. They are among the Chinese vendors that have flooded the Internet with ultrathin phones offering similar features and prices to Xiaomi’s Mi 4i and Redmi Note 2.

Huawei said it shipped more than 100 million smartphones last year as it expanded in the U.S. and Europe, defying an industry slowdown.

Pu expects Xiaomi’s sales growth to slow to 10% this year.

“With sales growth slowing, Xiaomi’s valuation will be hurt,” Pu said. “It could even face a down round, as investors are less willing to pay.”

‘Cool stuff’

In his speech, Lei said he would bring back the “fun times” by starting research into “cool stuff” like robotics and virtual reality.

“Even as we labor on our core business, we must never forget to gaze toward the stars, the future,” he said. “We’ve decided to hive off a small team to begin building a research lab, initially to focus on virtual reality, robots and other new directions. This will help us lay the foundation for Xiaomi’s next phase.”

In his address to more than 8,000 employees, Lei also lashed out at how the company was treated last year.

“I’ll be frank, I’m not OK,” he said. “The past year has been extraordinarily difficult. All of you saw all sorts of negative reports and criticism, even low blows.”

He continued: “And that’s why our most important goal in 2016 is to be happy.”




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