how-xiaomi-lost-40bn

The Chines smartphone major Xiaomi is going through a transition phase and, as a result, the company has decided to detour from its previous style of functioning. Among all the new strategies, one that is making heads turn is that Xiaomi would no longer be revealing the sales figures of Smartphones.

In a recent email Xiaomi’s CEO, Lei Jun, revealed that the company is chasing an aggressive revenue target of $14.5 billion set for 2017. Jun also mentioned that the exponentials growth of Xiaomi in the last few years had helped the company to grow leaps and bounds. From selling just 7.2 million smartphones in 2012 to 70 million devices in 2015, Jun believes, the company has moved too quickly.

“In the first few years, we pushed ahead too fast. We created a miracle, but also drew on some long-term growth… We have to slow down, further improve in some areas, and ensure sustainable growth for a long-term future”, Jun said.

Jun also emphasised on the fact that Xiaomi’s internet services business model is a success as revenue from Internet services has been doubled in 2016.

Xiaomi, a company which positions itself as a mobile internet company instead of mobile devices manufacturer in the market, has over 50 million connected devices on its Mi Ecosystem IoT platform. The total revenue from Mi Ecosystem products has crossed US$2.17 billion in 2016.

But if Xiaomi is really spinning the growth cycle too fast, why become so secretive? Isn’t it the high time when the company needs to go all out riding on the back PR forces to shake the grounds of competitors? Let’s dig deep to solve the mysterious puzzle.

Xiaomi Smartphone Sales is Stagnating

One of the major, and also the most convincing, reasons behind Xiaomi’s move to pull down curtains on its sales figures is the stagnating sales of devices. At the global level, the company has been struggling to keep its sales growth intact. The company’s struggle was very much visible by the end of 2015 when the company missed the set target by a sizable margin. In 2015, despite revising and lowering its original targeted from 100 million to 80 million, the company failed to meet the goal and left short of 10 million.

In early 2016, the company faced huge criticism for its smartphone sales performance in 2015. Despite the flourishing smartphone scenario worldwide, the company could push its sales only to 70 million units in 2015 from 61 million units in 2014 – mere 15% year over year growth.

It has been fairly evident that 2016 didn’t favour Xiaomi much. And that’s the most justified reason why the company wants to get secretive. However, it is a normal practice when a company goes through a transition period or reshuffling of operations/strategies or under the process of raising a new big round of fresh funding.

But, by Jun’s statement, it looks like Xiaomi is going through a phase of rough patches.

Jun Sounds Disappointing

Xiaomi may argue to justify Lei Jun thoughts and email, but analysts are very much able to hear the disappointing tone of the email. Besides claiming that Xiaomi has grown too fast too big, and boasting about the past figures, Jun tried to set the expectations of employees towards the right direction.

Difficult times are behind us.

The statement is a clear indication what Xiaomi could be up to and probably it’s an indirect message to employees to be ready for unwelcome scenarios. Once Xiaomi changed the rules of the game of smartphone industry by flooding the market with smartphones available at a low price but sporting high-end components under the hood.

Xiaomi grew too fast by riding on the back of price advantage in the absence of competition. Over the period of time seasoned manufacturers like Lenovo, Huawei and newbies like Oppo, Vivo opted the same price strategy and flooded the market with devices to fuel the competition in the budget segment. On the level playing field Xiaomi found itself on the tough side and slowly started losing the early mover advantage in the budget segment. For nearly 4-months in the mid of 2016 Xiaomi struggled badly with the supply chain issue, while competitors, especially Lenovo gaining grounds.

Though Xiaomi has displayed a splendid sales performance in India, it failed to keep the pace aligned with the industry growth. The company also failed to capture a sizable share of the new market in Asia in the last few quarters.

The statement ‘company grew too fast too soon’ also have a lot more to read into. Besides smartphones, Xiaomi got its hands into film production, home appliances, connected cars and what not. However, the market didn’t appreciate Xiaomi’s moves and strategy. Probably, that is the reason Xiaomi’s jaw-dropping valuation of $45 billion is being questioned.

Jun is aware of all the challenges Xiaomi is starring at in 2017. And, apparently, that was a reason a CEO took some time off from its busy schedule to write such a long and elaborative email with a justifying tone to all its employees. How Xiaomi is going to turn the table back into its favour, is a question only Jun and his team can answer at this moment. But, one thing is sure – the road ahead is only going to be tough for Xiaomi as price war on hardware level in the budget segment has almost come close to an end.