Xiaomi has gone from zero to hero in under five years, from forming in 2010 to becoming the third largest smartphone manufacturer in 2014. Their devices are good quality, well specced and extremely competitively priced: their rise is associated with being able to provide customers with a better device compared with their competitors for at least the same money and often less. There’s much to admire about a business that manages this: Xiaomi have successfully navigated perilous waters through hunger marketing, keeping customers interested and demand high by releasing small numbers of handsets into the market. We’ve also seen the business start to sell the handsets into the Indian market and quickly become the number one smartphone retailer, although the shine has come off this in recent days as sales have temporarily been banned because of a patent infringement trial from Ericsson. Xiaomi’s smartphone margins are also wafer thin, at under 2%; the business describes itself as an Internet company and aims to make money through its online and cloud services.
But what of the business behind the branding, MIUI operating system and smartphones? This week we may have seen something of a rare insight into Xiaomi’s profits and corporate structure. Data released shows that businesses 2013 revenue was 26.6 billion yuan (approximately $4.3 billion, or £2.75 billion) but with a net profit of just 350 million ($56.5 million, £36 million). The Wall Street Journal had previously quoted profits ten times this amount, citing a confidential document; it’s unclear where this information came from or why it differs so greatly from this weeks leak. We have seen Xiaomi’s senior management claim that 70 billion yuan revenue for 2014 is possible and for 2015, 100 billion: these estimates appear to have been made before the Indian sales ban. When it comes to Xiaomi’s corporate structure, this is rather stiffly showing as “undisclosed.” It’s believed that the majority of the shares are owned by four senior managers, over three quarters by Lei Jun and the balance by three other senior managers. If the business is indeed owned by four senior managers, this certainly aligns their interests with the business and may explain the drive behind Xiaomi over the last four years.
Going forwards, Xiaomi probably need to change their approach when it comes to patents if they’re to significantly expand beyond Asia. Their suppliers have, so far, been Chinese and Asian businesses but should they wish to start using other components, they may need to disclose more information about how their business operates. Perhaps they won’t need to.