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Why This Chinese Company Could Replace Apple's iPhone

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Despite being three years old and having only 3,000 employees, private company Xiaomi could become a disruptive force in the smartphone market, currently dominated by two of the biggest companies in the world: Apple (NASDAQ: AAPL  ) and Samsung (NASDAQOTH: SSNLF  )

Despite its small scale of operations, Xiaomi is already selling more smartphones in China than Apple. This is very surprising because there's a common belief that a company needs to be big in order to succeed as a smartphone manufacturer. Apple and Samsung dominate the market, while small companies, like BlackBerry (NASDAQ: BBRY  ) , are struggling to survive. However, Xiaomi has enough competitive advantages to avoid becoming the next BlackBerry. How does this Chinese start-up plan to conquer the fierce smartphone world?

Xiaomi's explosive growth plans
Xiaomi seems to have studied BlackBerry very well, as it is avoiding some of the biggest mistakes made by the Canadian manufacturer. Like BlackBerry, Google, and Apple, the company knows that creating a mobile operating system is the best way to promote its own payment ecosystem. However, in a world where Google's Android and Apple's iOS combine for more than 91% of total market share, Xiaomi realized it had to create not only a friendly operating system, but also something compatible with Android or iOS.

This is why, unlike BlackBerry, the company based its MIUI operating system on Android, which has an active open-source community. Therefore, any Android device can run Xiaomi's operating system. So far, more than 20 million users, including many Android users, have downloaded it.

But, Xiaomi's operating system isn't just another Android variation. From a lock screen flashlight to a one-click cache clean up option, the company has added more than 200 new features. It has also given more personalization power to the user.

So, why is Xiaomi promoting its own operating system? The company is selling its devices very cheap, practically at cost price. Therefore, it plans to get profits through its software.

During the development phase, the company tried to remove and replace Google services with its own cloud services, games, paid themes, and apps store. This shows Xiaomi is well aware of the importance that Google Play and iTunes have in Google and Apple's cash flows.

Of course, Xiaomi's apps store is not as rich as iTunes or Google Play, but unlike BlackBerry OS, the company can easily rely on Google Play to offer localized applications and content if it ships overseas.

Notice, however, that despite its size limitations, Xiaomi's app store is performing better than expected. It reached one billion downloads in only 391 days.

In terms of hardware, Xiaomi's flagship product, the Mi3 TD, has nothing to envy in the world. Compared with Apple's iPhone 5s, the Mi3 TD has bigger resolution, a more powerful camera, and larger display. More importantly, the Mi3 TD is equipped with some of the most powerful mobile processors the world has ever seen. Xiaomi's customers can choose between Nvidia's Tegra 4 quad-core -- the world's first 1.8Ghz quad-core processor -- and Qualcomm's Snapdragon 800.


Source: Xiaomi

Xiaomi's smartphone is so good that even Samsung's latest device, the Galaxy Note 3, may have trouble competing in China, despite having a similar processor. This is because Xiaomi offers top technology for a bargain price.

In terms of sales, Xiaomi's Mi 2S device is the most popular phone in China, according to Chinese benchmarking company Antutu. Technically, the Mi 2S performed better than HTC's flagship device, but was slower than Samsung's Octa S4. However, that was no problem for Xiaomi because its phone sold for less than half the price of Samsung's S4.

But, Xiaomi's aggressive pricing is allowing the company to capture more than just market share from Samsung. Xiaomi has already beat Apple in China. According to Quartz, the company shipped 3.3 million phones in the last quarter, versus Apple's 4.3 million.

Final foolish thoughts
Xiaomi's aggressive pricing, outperforming hardware, and user-friendly Android-based operating system have contributed to the company's amazing early success in China. The company can easily replicate this growth story in other emerging economies, where the increasing smartphone penetration ratio is still low, and customers are highly price-sensitive. It won't be hard to replace Apple in South America, East Asia, and Africa.

After it develops a strong community of users, strengthens its brand, and increases the number of applications in its store, Xiaomi can move to mature markets, where Apple and Samsung remain securely positioned.

Profit from Apple's destruction
Xiaomi has been a tremendous success story, but can they really hurt Apple's growth prospects in China? Also, Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, “Apple Will Destroy Its Greatest Product.” Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2013, at 2:31 PM, bearmarketken wrote:

    Xiaomi has already beat Apple in China. According to Quartz, the company shipped 3.3 million phones in the last quarter, versus Apple's 4.3 million.

    So 3.3 million is more than 4.4 million?

    They need to learn how to write so readers are not confused.

  • Report this Comment On October 21, 2013, at 2:56 PM, Snoopy2012 wrote:

    Crap...give back my 3 mins of life.

  • Report this Comment On October 21, 2013, at 4:40 PM, ckgod wrote:

    Haha you are using the word disruptive too loosely. Disruptive products usually don't mean cheaper copies that are doing pretty much the same thing as the existing products.

  • Report this Comment On October 21, 2013, at 7:23 PM, johnnytrader23 wrote:


    Xiaomi shipped 4.4 million in the last quarter.

  • Report this Comment On October 21, 2013, at 9:31 PM, xmfan wrote:

    i own the mi2s. very nice look phone overall. however, clearly lacks the refinements of an Apple device. also, not as stable but acceptable. the major selling point of xiaomi phones was overlooked in this article - regular OS updates. Like Apple, regular OS updates keeps the phone feeling new. also, it gives me confidence knowing that any bugs i report will eventually be fixed in a future release. without regular OS updates, i would not own this phone because it would be like 'other' chinese products.

    Overall, there are some nice east meets west touches - like the FM radio - common on chinese phones but no so common on U.S. phones. Its music player is powered by real - very nice. overall, i agree with the author, this company can beat apple on price as things stand now for cost sensitive customers. however, i don't loyal Apple customers who can afford would consider trade out to this phone. (I also own the iphone).

  • Report this Comment On October 21, 2013, at 9:44 PM, anrbfan wrote:

    Yeah, yeah...another "Apple Killer"...just like the famous RIMM /Blackberry.

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