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This Fast-Growing Chinese Startup Could Take Over the PC Market

By Sam Mattera - Sep 20, 2015 at 12:04PM

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It took Xiaomi only a few years to win a large share of the smartphone market -- PCs may be next.

Chinese smartphone giant Xiaomi plans to enter the PC market in the near future, according to a report from Bloomberg. The company's first laptop could be marketed as a low-cost alternative to high-end models from the likes of Apple (AAPL 4.08%) and Hewlett-Packard (HPQ 5.38%).

Given Xiaomi's smartphone dominance, it's a threat that should be taken seriously. Still, it's not clear which market segment Xiaomi PCs would serve.

Coming early next year
Xiaomi has allegedly held talks with Samsung to supply memory chips for a forthcoming laptop, which could arrive in the first quarter of next year. In addition to its Galaxy smartphones, the Korean tech giant is a major supplier of PC components, including RAM and solid-state drives. Samsung makes its own PCs, which would compete against Xiaomi, but Samsung isn't a major player. According to research firm IDC, it doesn't rank among the top five vendors, and Samsung has shown signs of winding its PC business down -- it exited the European market last year.

But other firms more dependent on PCs could be negatively affected by Xiaomi's entrance. Hewlett-Packard is the second largest PC vendor in the world with 18.5% market share for the second quarter. Today, Hewlett-Packard is a complex business with several segments, but in November, it will complete its planned split into two entities. One of them -- HP -- will be centered around traditional PCs and printers, and Xiaomi's entrance could pressure the PC sales that make it just over half of HP revenue.

Apple's Mac business is overshadowed by the iPhone, but it is still the second largest segment. Last quarter, it generated about 12% of the top line and made Apple the world's fourth largest PC vendor with a nearly 8% market share. The company has been consistently capturing a larger segment of the market even as the demand for PCs contracts. Of the top five PC vendors, Apple was the only one to experience shipment growth on an annual basis last quarter.

Catapulting to fourth place
Xiaomi has no experience selling PCs, but it shouldn't be discounted. The company was founded just over five years ago, but is already the fourth largest seller of smartphones in the world. Xiaomi derives the bulk of its sales from its home market of China but has expanded to other countries in recent months, including India and Brazil.

The company has found success selling high-end hardware at bargain-bin prices. Were it to adopt a similar strategy with its PCs, it could emerge as a top vendor, particularly in emerging markets, where PC sales have been especially weak. But there are still plenty of questions that surround these plans.

For starters, It's not clear what operating system Xiaomi PCs would run -- Windows 10? Chrome OS? Some version of Linux?

Xiaomi executives have consistently described the company's hardware as a platform -- a platform that they can use to make money in other ways. Xiaomi smartphones run Android but sport a heavily modified skin. This skin, known as MIUI, includes many of Xiaomi's own services, including an app store. Xiaomi could preload a Windows 10 machine with customized apps without directly modifying the operating system. Chrome OS is even more restricted. Some modified version of Linux would seem to support Xiaomi's broader goals but would make its PCs a tough sell and a non-starter with businesses. Obviously, Xiaomi laptops cannot run the proprietary OS X. That insulates Apple products from direct competition, as those who desire the Mac operating system have no other option, but Xiaomi could still offer Mac users a compelling alternative.

Given Xiaomi's tremendous success and its rapid expansion, it shouldn't be overlooked. But until Xiaomi actually unveils a laptop, it's hard to gauge what effects it could have on the broader PC market.

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