Xiaomi Is Facing Tough Questions About Its Future

Growth has slowed at the world’s second most-valuable startup

Xiaomi Redmi 2 prime launched by AP  chief minister Chandrababu Naidu 

 

Not long ago, China’s Xiaomi was being called  , an epithet that rankled some at both companies. “I don’t see it as flattery,” scoffed Apple’s Jony Ive, who said of Xiaomi’s business model, “I think it’s theft, and it’s lazy.” Meanwhile, Xiaomi CEO Lei Jun felt the analogy was off the mark. “You can say it looks a bit like Apple. But it’s really more like Amazon with some elements of Google.”

This year, Xiaomi is looking like Apple in a way few expected: It’s already struggling with slowing growth.

In a few weeks, Xiaomi will turn six. It’s rare for any tech company to go from startup to global giant in such a short span of time. But if Xiaomi’s growth came at a breakneck pace, it is also showing signs of reaching maturity just as quickly, facing the growing pains of a middle-aged tech company even before it can celebrate toddlerhood.

In early 2015, Xiaomi was a company coveted by investors and feared by competitors. The firm had earned $12 billion in revenue in 2014, a year when sales of its smartphones more than tripled to 61 million units. Thanks to a private investment round that raised $1.1 billion, the company had a $45 billion valuation. Some investors, like Russian billionaire Yuri Milner, believed that figure would rise to $100 billion.

Today, Xiaomi remains China’s most highly valued unicorn and worldwide is second only to Uber. The company just released an update to its flagship Mi phone as it pushes into new countries while pumping out new gadgets. But that $100 billion valuation is likely going to have to wait. Because while Xiaomi is still growing, it’s doing so more slowly than the company had projected—or investors had expected.

These days, instead of fielding comparisons to Steve Jobs, Lei has found himself on the defensive. He recently spoke out against rumors that Xiaomi not only needed more cash, it was having trouble finding it. “There’s no pressure to raise funds,” he told Sina Tech, saying Xiaomi still has $1.5 billion in cash. Lei did admit he’s spoken with regulators about an IPO in China, an option he had previously ruled out.

What changed? Xiaomi’s smartphone sales in China fell from a 227% growth rate in 2014 to 17% in 2015. Xiaomi initially said it would sell 100 million phones in 2015, then ratcheted the estimate down to 80 million. It ended up selling 70 million. This year, Xiaomi is hoping to boost growth with the release of the well-reviewed Mi5 last month.

That may not happen, and the main reason is that China’s smartphone market is getting saturated: IDC estimates it to grow between 1% and 2%this year after growing 2% in 2015. Not long ago, the market was doubling every year. The slowdown is leading to a consolidation of the market that is already shaking out smaller, copycat manufacturers and favor the big players like Xiaomi.

Even so, the firm’s bigger rivals appear to be benefiting more than Xiaomi, which saw its market share inch up to 15% in 2015 from 14% a year earlier, according to Strategy Analytics. Huawei, meanwhile, saw its share jump from 10% to 14%, while Apple’s share rose from 7% to 11%. Apple, with its aspirational brand, and Huawei, thanks to investment in R&D and marketing, are both growing twice as fast as Xiaomi in China and could overtake it this year as the market leader.

-more at Time

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