Based on Android body materials
The past 12 months have already been a milestone for Xiaomi, as the company overtook Huawei to become the number three smartphone brand in global shipments in 2020. The rise did not end there. Xiaomi built on this success by beating Apple for second place in the global stock market, according to Canalys Q2 2021 report. The company took 17% of the market with 14% from Apple, which was quite a significant achievement.
However, the growth has not stopped, and Counterpoint Research reports that Xiaomi has surpassed Samsung for the lead in June 2021. Xiaomi accounts for 17.1% of sales compared to 15.7% for Samsung.
This raises a serious question. Will Xiaomi be able to maintain this momentum and outpace Samsung by more than a month?
How did Xiaomi win first place?
Perhaps the most obvious reason for Xiaomi’s new status is the US sanctions against Huawei. They caused the company to plummet in the global rankings and paved the way for Xiaomi to overtake Huawei in the third quarter of 2020. Meanwhile, Huawei dropped out of the top five globally and in China by July 2021. Xiaomi has used this opportunity to enter (or grow) more than 100 overseas markets, often targeting Huawei’s traditionally strong markets in Europe, Southeast Asia, etc.
Canalys noted that Xiaomi has actually grown by 50% in Western Europe, aiming to take second place in the world. It has also posted impressive year-on-year growth in Africa (150%) and Latin America (300%) in recent months.
Huawei’s departure opened the door for Xiaomi to partner with carriers, which is especially important in the 5G era. The company has shown progress in this area even before the Huawei ban, thanks to a collaboration with European carriers on the Mi Mix 3 5G in early 2019. Since then, the situation has only improved.
The company announced that at the end of 2019 it established a business development group with operators. The formation of such a team, like other activities of Xiaomi, has led to direct cooperation with 150 carriers around the world, as the company explained. That’s a pretty big jump from September 2020, when the company announced partnerships with «50 carriers spanning over 100 networks.»
Xiaomi is not the only manufacturer to benefit from Huawei’s departure from the US, as companies like Oppo, Realme and Vivo are also looking to new markets to fill the void. But market share reports show that Xiaomi is leading in this regard. It is not uncommon to see multiple Redmi devices in the top ten most popular smartphones in the world.
Will it be possible to keep the lead?
It seems like a daunting task for any brand to force Samsung into the market for any significant period of time, as the Korean company has been at the top for nearly a decade. Huawei may have been able to do this during the quarter, but the combination of pandemic factors and trade sanctions showed that this was a coincidence rather than a major change.
The latest report from June 2021 clearly shows that Xiaomi can outperform Samsung, even if only by a month. In addition, the Canalys Q2 2021 market share report shows that the two brands held just 1% of the market. At the same time, the company managed to record 83% year-on-year growth against Samsung’s 8% growth.
In other words, it looks like Xiaomi will be able to hold the lead for more than a month if it continues its explosive growth. However, Samsung has an excuse — COVID-19 in Vietnam. Canalys noted that the new wave of COVID-19 has affected smartphone production in Vietnam, resulting in a shortage of Samsung phones in online and offline stores. Xiaomi was able to take advantage of this, especially when it came to the lack of A-series phones.
According to Canalys senior analyst Maurice Klen, Samsung is likely to regain its position in the third quarter of 2021 as it resolves supply chain issues. The analyst adds that Samsung will be able to use its significant market share to gain priority in the supply of components.
The Korean manufacturer is expected to release new foldable phones later this year, and according to Klen, a threefold increase is expected compared to 2020. But what does this mean for Samsung’s overall market share?
«While this indicates strong growth, in terms of total volume, it will remain quite small in 2021 as we estimate total market shipments to be around 9 million, while Samsung’s market share will be over 88%» , says the analyst.
Xiaomi can lay the foundation for long-term dominance by beating Samsung and regional players in other parts of the world.
Samsung is not the only company that Xiaomi should consider as it also needs to secure a certain separation from Apple. After all, the iPhone maker allegedly became the number one brand in the fourth quarter of 2020 after nearly four years, thanks to sales of new iPhones and Samsung’s massive supply cuts. And we know that the quarter following an iPhone launch is usually a good one for the Cupertino company.
Once Xiaomi manages to strengthen its position in relation to Apple, it will be able to focus on Samsung. But defeating Samsung in the long run will also require Xiaomi to defeat regional leaders.
For example, she managed to take third place in Latin America. Motorola is a major player in this region, coming in second with a 21% market share, and Xiaomi could lay the foundation for sustained success here by capturing this share. Its recent success here, especially in Mexico and Colombia, is evidence that the company is on the right track, according to Counterpoint research. This would be a radical change from the failed attempt to enter the Brazilian market in 2015.
Latin America is not the only region that has other players besides Samsung, for example, it is also Africa. Xiaomi has shown success here, as evidenced by the growth rates mentioned above. But, like in Latin America, Motorola is a big player in this market, plus there are Transsion-owned brands in Africa (Infinix, Itel, Tecno).
Counterpoint Research reported that in fact Tecno was the top brand in Africa in 2020 with an 18% market share. On the other hand, Xiaomi doubled its share from 2% to 4%. Obviously, there is something to fight for here. And having recently opened its first African office, Xiaomi seems to recognize the possibility of a long-term game in this region.
Does Xiaomi need the US market?
The North American market has been a mainstay of Samsung for many years. Huawei achieved its impressive results without the help of the United States, but for Xiaomi, success in the region would certainly make it easier to maintain leadership.
Chinese players have had a hard time in the United States as Huawei’s attempt to enter the market with AT&T was blocked due to government pressure. Xiaomi also announced its intention to enter the US as early as 2018, with an eye on late 2018/early 2019. The company said last year that it was in the «preparatory stage» for entering the US market. So these intentions have clearly not been shelved. Unfortunately, the company has told the Android Authority that it does not have «any specific timeline to communicate» regarding smartphone sales in the United States.
Can Xiaomi avoid the sanctions problem that befell Huawei? It’s a key issue, but the company has already won a major battle with the government after it was accused of ties to the Chinese military. This would mean that American companies cannot invest in Xiaomi. Luckily for the latter, the US government was ordered to drop the charges after Xiaomi managed to challenge the ban in court, in a major legal and PR win for the brand. Another encouraging sign for Xiaomi is the rise of OnePlus in the US. The brand has been on the market since 2018 through a partnership with T-Mobile, and its subsequent partnerships with Sprint and Verizon have also been welcome news for Chinese brands. OnePlus started almost from scratch, introducing a budget portfolio only last year, which could have skewed growth numbers. But still, it was the only brand to grow in the US in 2020 and was reported to be the fastest growing brand in the first half of 2021.
The emergence of Xiaomi premium devices
When we thought about whether Xiaomi would repeat the success of last year, we noted that the brand has significantly strengthened its premium segment. In the second half of 2021, the company really broke the premium tier barrier with the launch of the Mi 11 Ultra.
Xiaomi’s first water-resistant flagship comes with a host of features and challenges for Samsung and Apple Ultra/Pro smartphones. QHD+ 120Hz screen, impressive main camera, secondary rear display, and fast wired/wireless 5000mAh battery charging. All this is not cheap, 1200 euros, but in terms of features, the device definitely lives up to its ultra-premium ambitions.
Premium smartphones could be a key element of Xiaomi’s growth strategy. Of course, these are not devices that can provide volume, but they potentially allow the manufacturer to subsidize mid-range and budget devices that provide volume, which provide the main profit. Increased margins will also generate additional funds that can be spent on R&D and advertising (eg additional bonuses for expensive devices and stronger incentives for sellers).
Increasing profits could also help the company increase its advertising spend, which has traditionally been Xiaomi’s weak point. In this regard, Samsung is a real giant, in the past its marketing budget has often eclipsed rivals such as LG and HTC. And that may have been one of several factors that contributed to Samsung’s lead — even when Samsung phones were nowhere near the best.
But what does the premium approach mean for Xiaomi’s previously stated 5% profit pledge? «We will always adhere to a common profit margin of 5% across our entire equipment segment,» the company said in an emailed response to an inquiry.
In other words, this means that Xiaomi can make more than 5% profit on some hardware products (such as flagships) and less than 5% on other products to get a total profit limit of 5%.
What can we expect in 2022?
Xiaomi is in great shape in 2021 and there is no reason to doubt that it will be able to maintain this momentum in 2022. The growing market share in Europe, Latin America, Southeast Asia and Africa certainly points to a fairly strong position that allows Samsung to pose a threat in the long term.
In addition to Samsung winning back, there are still a number of real and potential hurdles to overcome. First, there is still a threat that Apple will again overtake Xiaomi in the fight for second place, since the company was able to take the first place from Samsung in the fourth quarter of 2020. The fact that Apple is rumored to release one or two cheaper iPhone models doesn’t improve the big picture.
Huawei could be another possible hurdle if the trade ban in the United States is eased in 2022. A revived Huawei may not immediately return to the top three or four, but it could reclaim market share that might otherwise have gone to others. This scenario looks increasingly unlikely as the Biden administration may even tighten sanctions on the company.
Finally, the Chinese domestic market for Xiaomi is another hurdle to overcome in 2022. The company is currently ranked third in China behind Vivo and Oppo. He still has the most impressive growth of the top five players in the region, but hasn’t been in contention for the top spot for years. So the company will have to work hard if it wants to bypass the BBK brands in 2022.
Do you think Xiaomi will be able to stay in first place in terms of shipments of smartphones? What does she have to do to do this?