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Source: China Daily China Daily

US smartphone launch still some time off for Xiaomi

Published: 25 Feb 2015 01:21:14 PST

US smartphone launch still some time off for Xiaomi

Cameramen focus on Xiaomi's new tablet at the device's unveiling on May 15, 2014 in Beijing. [Photo provided to China Daily]

Xiaomi Corp is unlikely to launch its smartphones in the United States any time soon, industry experts said on Friday, after the Beijing-based company said it was looking to dip its toes in Apple Inc's home turf.

Top executives of the smartphone maker said in San Francisco that it was opening an online store in the US later this year. But the Chinese company is nowhere ready to really challenge Apple, which is the market leader in the US. The store will only sell handset accessories including headphones and affordable fitness bands. Its flagship products - the smartphones and tablets - will not be available for purchase.

Hugo Barra, Xiaomi's vice-president in charge of international operations, said Xiaomi will be very cautious about launching the Mi devices in the US market.

"The amount of effort required to bring those products (smartphones and tablets) to market is significant. We just have to move at the right pace," Barra said. "So we are accelerating our entry in a sense by bringing simpler products."

Barra, a former Google Inc executive who joined Xiaomi in 2013, said manufacturing, software compatibility and regulations are among the biggest hurdles for the company to introduce smartphones in developed markets including the US and Europe.

The small patent portfolio of Xiaomi will greatly hinder its business outside China.

Earlier this week, Qualcomm Inc, the world's largest mobile chipmaker and investor of Xiaomi, was fined a record 6.08 billion yuan ($975 million) for violating China's antitrust rules.

The US company also pledged to change the way it practiced the cross-licensing policy in which clients surrender their patents to Qualcomm in exchange for its technology.

Large smartphone vendors in China have criticized the model because smaller players can use their patents for free under the protection of the cross-licensing contract they have signed with Qualcomm.

Milly Xiang, an analyst at research firm IDC, said young vendors with fewer patents may face lawsuits if companies such as Lenovo Group Ltd and ZTE Corp stopped signing cross-licensing deals with Qualcomm.

Without the protection of Qualcomm, Xiaomi, a less than 5-year-old company, has to be cautious in patent issues.

Lin Bin, president and co-founder of Xiaomi, was quoted by Bloomberg News as saying that the company had been filing thousands of patents because lawsuits are inevitable.

Xiaomi's overseas expansion plan encountered a major setback in India last year after Ericsson AB sued the Chinese company for stealing patents. A local court at one time banned Xiaomi from selling its smartphones. In Singapore, the only developed smartphone market where Xiaomi has a presence, Xiaomi faced privacy investigations.

In addition, Xiaomi is inexperienced in selling devices with US carriers, another barrier for its US market entry.

Bryan Wang, vice-president and principal analyst at consultancy Forrester Research Inc, said telecom carriers are the biggest smartphone distribution platform in the US and it needs a long time for Xiaomi to forge relationships with the carriers to put the Mi phones in AT&T and Verizon's outlets.

"In the US, people are used to purchasing contract phones and top-tier devices such as the iPhone 6 can be really cheap compared to their original price. Xiaomi will find very difficult to survive when competing with Apple head-to-head," Wang said.

Xiaomi said its smartphone and tablet users exceeded 100 million. The company is fighting for the title as the top handset vendor in China with Samsung Electronics Co.

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US smartphone launch still some time off for Xiaomi

Two men use Xiaomi smartphones at Xiaomi product experience center in Beijing, Jan 12, 2015. [Photo/IC]

Related story: Chinese mobile sensation dips toes in US with accessories, by Agencies

Xiaomi, one of China's hottest companies, is bringing its blend of cheap yet fashionable technology and crowd-pleasing antics to the United States.

Although its smartphones won't be available in the US anytime soon, Xiaomi unveiled plans Thursday to test the US market by selling inexpensive headphones and other accessories online. It plans to hew to the Internet-driven, customer-friendly model that has helped turn the company into a major player in mobile computing just five years after its founding.

Xiaomi pronounced schow-mee has made a name in China by selling sleek gadgets at relatively low prices, using online sales and social media to keep marketing and distribution costs low. Some analysts have hailed the company as the Chinese equivalent of Apple, in part because of its intensely loyal fans.

There are some significant differences between the two companies' approach, though. While Apple tends to keep its future product plans secret, Xiaomi has invited customers to nosh on popcorn at company parties, chat on Xiaomi's online forums and review or make suggestions for new features, which Xiaomi frequently builds into its weekly software updates.

"We don't have customers or users. They prefer to be addressed (as) fans,'' said Hugo Barra, who defected from his job overseeing Google's Android products in 2013 to help plot Xiaomi's expansion outside China.

Barra was joined Thursday by Bin Lin, Xiaomi's co-founder and president, at the company's first major press event in the United States.

In an interview with The Associated Press, Barra described the US website as "an experimental launch'' that will help the company raise awareness in the US, which in turn would help its profile in other countries. He said the company also is hoping to get the kind of feedback and ideas from US consumers that the company gathers in China.

Xiaomi has emerged as a mobile-computing sensation with a line of smartphones sold in China, India and six other countries where much of the population still lacks Internet access. The company plans to expand into Brazil later this year. The phones offer a smattering of the sleek technology featured in fancier devices made by Apple and Samsung, but they sell at much lower prices, ranging from about $95 to $280. In comparison, an iPhone 6 starts at $650 without subsidies for signing two-year contracts.

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A Xiaomi phone "may not be the best product out there but a product with the best combination: a very affordable price and good quality,'' said Teng Bingsheng, a corporate strategy expert at the Cheung Kong Graduate School of Business in Beijing.

While the iPhone still dominates the smaller luxury segment of China's market, Xiaomi's devices are being snapped up by the masses almost as quickly as the company starts accepting online orders. Xiaomi sold about 61 million phones last year, more than tripling its 2013 volume, Lin said. That established Xiaomi as China's top seller of smartphones with a 15 percent market share to edge out Samsung at 14 percent, according to research firm IHS. But another firm, Canalys, estimates that Apple sold more phones in China than either of those companies in the fourth quarter of 2014, when Apple's new iPhone 6 models came out.

By concentrating on online sales of phones and accessories, Lin said, the company has built the third-largest e-commerce site in China. Besides phones, Xiaomi has an electronics lineup that ranges from a 49-inch flat-panel TV for $550 to a fitness band for about $13. The company also has sold about 2 million stuffed bunnies that serve as Xiaomi's mascot.

Xiaomi is just dipping its toes in the US market by selling accessories for now, including headphones for about $80. Barra said it takes "an incredible amount of work'' to bring more technologically complicated products, such as a smartphone, to a new market. He didn't say when that might happen.

But executives acknowledged the company would face big hurdles in the US, where most consumers buy smartphones from wireless carriers at subsidized prices. That could make Xiaomi's low-margin business model less effective here.

In addition, Xiaomi has been accused of copying or at least closely imitating some designs from Apple or other companies. At the San Francisco event Thursday, executives stressed an array of software and features that Xiaomi has developed to run on top of the Android system that Google makes available for other device makers. They range from games and messaging features to services that let users search for a nearby doctor and make an appointment on their phone.

When asked whether a fear of patent lawsuits could deter Xiaomi from selling phones in the United States, Lin implied that it's not a big factor for the company. But he said, "all companies have had patent litigation.'' He said Xiaomi has filed for hundreds of patents in part to beef up its own defenses against such claims.

Xiaomi raised $1.1 billion late last year in an investment that valued the privately held company at $45 billion. The company's eight founders include CEO Lei Jun, one of China's best-known technology entrepreneurs; Lin, a former engineer at Microsoft and Google; and former Motorola executive Zhou Guangping.

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