It may seem strange, but the world's third largest smartphone maker doesn't sell any handsets in the United States. Xiaomi has cultivated a massive customer base in its home market of China, but its handsets are largely unknown in the West.
That could be about to change. Last month, Xiaomi's Hugo Barra told Bloomberg that his company intends to enter the U.S. smartphone market at some point in the future, putting it into more direct competition with Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH: SSNLF).
A year plus
Although Xiaomi is not selling its handsets in the U.S., it has entered the market -- sort of. In May, it launched Mi.com. American consumers who visit the site can purchase a variety of Mi-branded accessories, including a fitness tracker, headphones, and two different power banks. Barra explained that his company intends to use the website as a staging ground, slowly introducing consumers to the brand and preparing for the day when Xiaomi brings its Mi handsets stateside. Barra insisted that it would take some time -- upwards of a year -- but that it was his company's clear goal.
"Our goal [with Mi.com] is very simple. We want to be in [the United States]. Of course we know that we got to start small -- there's so much work to do. But we want people to get acquainted with our brand...we've picked our best-selling accessories...five of them to start with and we're bring them to [the United Sates]. Many others will follow over time...[As for when we will bring our handsets to the U.S.] we don't have a set date yet. We don't have a project that we're targeting the U.S. quite yet.
Selling phones is a big step up. You're talking about a very large ticket item device...its a huge marketing undertaking, building a smartphone brand...it takes a huge amount of work...we're going to work our way to that but we're not quite ready yet...we will someday...it's no less than a year plus away."
Xiaomi's Chinese growth has been stellar
Xiaomi's growth has been impressive. Founded just five years ago, Xiaomi's Mi-branded smartphones have captivated Chinese consumers and generated massive sales. According to research firm IDC, Xiaomi was the world's fourth-largest handset vendor in the second quarter, shipping 17.9 million handsets. The majority of these handsets were sold in China, though Xiaomi has expanded to other Asian markets including India, and most recently, Brazil.
Xiaomi's strategy has been fairly straightforward: offer high-quality handsets at bargain bin prices. Xiaomi's 2014 flagship, the Mi 4, offers specs on par with Samsung's competing Galaxy S5, but retails for about half the price. For consumers in emerging markets, the prospect of cheap, high-quality phones is clearly enticing. Last year, Xiaomi sold more smartphones in China than any other company.
The death of subsidies could make Xiaomi's handsets more attractive
But in these markets, smartphone subsidies are either low or nonexistent. Chinese consumers buy Xiaomi phones directly from the company. Consumers often don't have the benefit of subsidized devices or interest-free financing.
That's not the case in the U.S., were smartphones have historically been bought on two-year contracts. Those subsidized plans have largely fallen by the wayside, but in their place, carriers now offer interest-free financing and, increasingly, phone leasing programs. It's not clear that a $200 or $300 flagship from Xiaomi would be appealing to U.S. consumers when they can purchase Apple's iPhone 6 for no money down.
But the U.S. smartphone landscape is changing. Motorola plans to sell its new Moto X Pure Edition directly to consumers, eschewing carrier partnerships entirely. Although it requires spending more money upfront, buying an unlocked phone can be significantly cheaper in the long run. If Motorola is successful, Xiaomi's business model might have a chance.
There's also the issue of intellectual property. Xiaomi has frequently been accused of copying Apple's designs. Many of its devices bear a striking similarity to Apple's competing products: the Mi 4 is almost indistinguishable from Apple's iPhone 5, for example. In the interview, Barra admitted that the two phones do look similar, but downplayed the resemblance, equating it to "one chamfered edge."
But the similarities clearly extend beyond the Mi 4, and even beyond Apple. Xiaomi's tablet, the Mi Pad, looks like an iPad Mini. It's used Apple's trademark "one more thing" in its presentations, and its version of Android, MIUI, resembles iOS in its appearance. its new phablet, the Mi Note, shares its name with Samsung's flagship line. In markets with relatively modest patent protection, this is not much of an issue, but in the U.S., Xiaomi could face a wave of lawsuits. Barra said that Xiaomi has been filing for thousands of patents, building a "war chest" it could use to limit litigation, but until Xiaomi develops a design language of its own, it could struggle.
Nevertheless, given that the U.S. remains the second largest smartphone market in the world, vital to the success of both Apple and Samsung, it's certainly worth watching.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns and recommends 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.