At what point does an entry level Android powered smartphone become too compromised? That’s a question with a constantly changing answer as customer preferences, operating systems and applications are evolving, whilst the price of hardware is falling. It’s a question that Google has attempted to answer with Android One by setting a minimum hardware specification and selling devices built down to this cost but still offering a respectable experience. And it appears to be something that Xiaomi have also asked themselves and now appear to be working on at least one smartphone that’s priced at or under the 500 Chinese yuan, or $80, point. This information is derived from component suppliers and the rumor was started by the news that LCD panel supplier, BEO Technology, is set to be the main screen manufacturer. Xiaomi, like most manufacturers, use a number of different component suppliers depending on the handset being build and BEO Technology appear to have won the contract to provide screens for a new low priced device. At this juncture, we don’t know the likely specification of the device such as processor type, memory, screen size and resolution, but if Xiaomi continue to release handsets in 2015 as they have for 2014, you can bet it’ll be a tough act for their competitors to follow. They have consistently offered the same specification as similar devices from ZTE and Huawei, but have a cheaper price. Or it’ll meet the ZTE and Huawei devices in price but offer a better specification. This business approach has slimmed Xiaomi margins down to under 2% but has helped the business to become the third largest ‘phone manufacturer in the world after just four years trading.
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It’s difficult to try to assess the impact that a new low entry price will have on the market. As smartphones become more and more capable and are sold at lower and lower prices, it seems that the days of the dumbphones or feature ‘phones are well and truly numbered. This, however, is not news, but a trend that’s been happening since Xiaomi started selling smartphones. Putting brand new smartphones under the psychologically important 500 yuan level will help persuade potential customers sitting on the fence and should help Xiaomi’s relative sales growth in China. It will also continue to put massive pricing pressure onto ZTE and Huawei, although these manufacturers have at least been able to start selling their handsets around the world, something that Xiaomi has struggled with (witness the Indian sales ban). Nevertheless, I’m curious to see what Xiaomi can bring to the market for such a small sum and how the competition will fight back.