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Xiaomi Could Take A Serious Financial Hit Due To India Sales Ban

December 14, 2014 - Written By David Steele

Xiaomi is one of the world’s fastest growing Android device manufacturer. They’ve grown from zero to hero in a few short years in their home Chinese market and have been rapidly expanding their operations: make no mistake, the Chinese are coming and Xiaomi is at the front of the queue. It’s easy to see why, because Xiaomi manufacturer well-built devices running a pleasant take on Android, called MIUI, for less than the competition. Their on-box specifications are usually the equivalent of the competition but prices are lower. A great example of Xiaomi’s success has happened in India, where the business has only been officially selling their smartphones since July but has already become the fastest seller of Android devices with minimal advertising. Xiaomi’s devices are outselling everything in the class including the inexpensive Android One devices. Former Google executive explained last month that after a single Facebook post, he drew dozens of Xiaomi fans to a California Pizza Kitchen in Mumbai to meet him. Smartphone penetration in India is around 10% and the market is growing very quickly.

And then this week, things came to a grinding halt as on Wednesday a court order stopped Xiaomi from selling their devices. This followed a patent infringement case filed by telecommunications equipment maker, Ericsson. The ban will last until the 5 February, when the Delhi court will hear the case again. In the short term, this could result in even greater pent up demand for Xiaomi devices and assuming that the business is able to sell devices early next year, it could be good news. However, there are other implications of the patent infringement case that we should consider. You see, Xiaomi’s leadership has known about its vulnerability to patent entanglements presumably right from the start and it has almost certainly guided the businesses expansion plans, by guiding Xiaomi to explore the Indian and Asian markets first as the risks of intellectual property patent cases is higher in Western markets. If Xiaomi’s foothold in India is under threat, this has widespread implications for their planned expansion across the rest of the world.

What can Xiaomi do? It may be time for them to reach into their pockets and start licensing patents from across the world’s other telecom manufacturers. In a statement, Xiaomi concurred that “it isn’t easy” to build a patent portfolio but intends to have filed eight thousand by 2016. However, they’re playing catch up with their two greatest Chinese competitors, Huawei and ZTE. Both of these manufacturers have been able to sell their devices overseas, including North America. And both of these businesses hold a large number of telecommunications patents. Meanwhile, given how quickly Xiaomi became the number one handset seller in India, this leaves a significant gap in this market: we can expect the competition to move quickly to sell handsets into this space. It may only be a three-month lull in Xiaomi’s India expansion, but it could cost the business far, far more.