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

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."

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.

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.

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  • Report this Comment On July 19, 2014, at 1:05 PM, mds wrote:

    Answer is no. Xaiomi is eating Samsung's lunch at all levels.

    They have no effect whatsoever on AAPL; and quite possibly help them by introducing yet another inferior challenger to the game.

    Notice I didn't say contender; I said challenger.

    It's a fools mission for them to even try.

    In China especially; they want American Brands and will pay dearly to get them.

  • Report this Comment On July 20, 2014, at 7:18 AM, Mathman6577 wrote:

    I don't think Apple is worried about Xaiomi (and probably not about Samsung anymore either). Except for going to a bigger iPhone screen size it usually doesn't react. Apple owns the high-end (where all the money is made) and now will start moving into the enterprise with IBM. Lots of cash will keep flowing to Cupertino (or to Ireland) and into the brokerage accounts of investors who own $AAPL.

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