The supply chain troubles of big domestic rival Huawei have opened up opportunities for the Chinese electronics firm within the global smartphone market.
Xiaomi has long trailed market-leading Huawei in smartphones. But this year the beleaguered tech giant has been hobbled by U.S. sanctions, which restrict it from purchasing chips that contain American technology. The consequent breakdown in Huawei’s supply chain is affecting its handset output – creating a gap in the market which Xiaomi has been eager to fill. Its share price has doubled since June, and on November 5, the electronics company’s value surged to $80 billion.
Xiaomi has been able to remain above the fray of trade tensions between the U.S. and China, largely because it sells only to consumers. Doing no business with telecoms network operators, it is able to dodge accusations of the sort lobbed at Huawei. This leaves Xiaomi free to purchase advanced chips from major producers like Taiwan Semiconductor Manufacturing Company (TSMC), which is barred from supplying Huawei. TSMC’s own performance declined in October.
Meanwhile business is booming at Xiaomi. Data from research firm Canalys indicate that the company shipped 47 million smartphones worldwide in the third quarter, jumping 45% over last year. Huawei is still ahead, having sold 52 million in the same period, but this represents a 23% drop. More decline is expected in the fourth quarter. If these trends persist, The Economist speculates, Xiaomi could displace Huawei as the world’s second-biggest smartphone vendor. Samsung leads the pack, selling 80 million smartphones in the same quarter.
A comparison to Apple is instructive, as Xiaomi beat the American giant in the third quarter, with the latter selling 43 million units. This suggest that consumers consider Xiaomi’s smartphones a more suitable replacement for Huawei’s, compared with Apple’s higher-priced handsets. Xiaomi is more akin to Huawei in that it offers both high-end and mass market phones, appealing to a broader swath of customers – though Huawei now plans to sell off its budget-brand smartphone unit.
With a new administration taking office in America next year, the restrictions on Huawei could be lifted, allowing it to resume buying chips from global suppliers and reassert its position in global telecoms. Xiaomi is preparing for this eventuality, and has floated the idea of building on an “ecosystem” to keep its customers engaged. It may also further diversify its already broad electronics product mix, in which smartphones account for three-fifths of the company’s revenues.