Chinese upstart Xiaomi has taken the Chinese smartphone market by storm. The company was founded just three years ago, but has risen to grab 5% of the growing market. That's a larger share than heavyweight Apple (NASDAQ:AAPL). Xiaomi shipped 7 million smartphone units last year and is targeting 20 million this year.

Xiaomi has largely accomplished this by incorporating high-end specs, including the newest processors from NVIDIA and Qualcomm, while selling the devices close to cost. Xiaomi may see slim hardware margins as a result, but it hopes to make up for it later on in content and services. If that strategy sounds familiar, it's because it's the exact same one that uses in the tablet market with its Kindle Fires.

China is a huge market for Apple, but the company remains intent sticking to the high end of the market. CEO Tim Cook has acknowledged that the smartphone market is bifurcating, but also expressed little to no interest in lower-end-market segments. Apple still sells a three-year-old iPhone for more than Xiaomi's latest and greatest.

Despite the fact that Xiaomi devices run Google (NASDAQ:GOOGL) Android, all those units don't directly benefit Google since Xiaomi runs a distinct Android fork that doesn't feed into Google search or services. Forking Android is extremely prevalent in China, so Android's broader domination in the country doesn't help Google meaningfully.

In this segment of Tech Teardown, Erin Kennedy discusses the Chinese smartphone market with Evan Niu, CFA.

Erin Kennedy owns shares of Apple. Evan Niu, CFA, owns shares of Apple and Qualcomm. The Motley Fool recommends, Apple, Google, and NVIDIA. The Motley Fool owns shares of, Apple, Google, and Qualcomm. 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.