Can This Fast-Growing Company Challenge Apple, Inc.?

One surprising company in China is about to unveil a high-end smartphone. Can it compete with Apple?

Jul 19, 2014 at 12:00PM

China's fast-growing smartphone and tablet company, Xiaomi, is undoubtedly a disruptor. But, so far, it's only been causing a stir at the low end of the world's fastest growing smartphone market. Now, however, the company looks poised to attempt to stake out some territory in the premium smartphone market next to Apple (NASDAQ:AAPL). Does Xiaomi have a chance competing with the Cupertino-based tech giant?

Xiaomi's high-end attempt
In an invitation stamped from steel, Xiaomi has invited press to an event dated the same day Apple reports third-quarter results: July 22. The event is dubbed "The Journey of a Piece of Steel."

Xiaomi Invitation

An steel-stamped invitation letter for the 2014 Xiaomi Annual New Product Launch Event. Image source: Xiaomi

The invitation is likely in reference "to the milling and machining process used to take steel from blanks to a finished product. As if to drive home their point, the company formed each invitation in the shape of a mobile phone case," AppleInsider's Sam Oliver speculates. 

As Oliver notes, metal casings are only found on higher-end mobile devices. While Apple has popularized the style as a luxury approach to consumer electronics design with its aluminum casing, it is also more costly than plastic alternatives.

The phone-shaped invitation is almost a certain indicator that the China-based company is about to unveil a high-end smartphone.

Who may be threatened?
Dethroning Apple's leadership in China's high-end smartphone market won't be easy. While Xiaomi is a respected company in the country, the brand is certainly not associated with premium hardware. And Apple's presence at the high end in China is dominating. Of the 27% of smartphones in China in the $500 plus segment, 80% are iPhones, according to data from Chinese app analytics firm Umeng.

But Samsung? While it certainly wouldn't happen in the near term, a well-positioned Xiaomi at the high end could pose a threat to Samsung. The company is already showing weakness in the smartphone market. While analysts estimate year-over-year growth for Apple's smartphone sales in the quarter ended in June, Samsung released pre-earnings guidance saying smartphone sales were down, year over year. 

In China specifically, Samsung noted that one of the reasons for the weakness in its smartphone sales was "intensified price competition among local players." In other words: Xiaomi is already stealing market share from Samsung.

Mi

Xiaomi's Mi 3. Image source: Xiaomi.

Indeed, one analyst is already predicting Samsung's potential trouble with Xiaomi in the premium-phone market. Yesterday Needham & Co. analyst Charlie Wolf said that Xiaomi is positioned better than any other smartphone manufacturer to dethrone Samsung from its spot as the number one Android manufacturer in Asia. While Wolf was referring to all Android smartphones, not just the high-end, his confidence gives credence to Xiaomi's potential if it can carve out a place for itself in higher-end phones.

Apple will be a tougher target for Xiaomi. Purely targeting the high-end of China's smartphone market, the American smartphone company is the unquestioned leader in the country's premium market. Until Xiaomi can prove that it can gain meaningful traction at the high end, Apple's position at the high-end of China's mobile market is too strong to call Xiaomi a threat.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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