Amid Xiaomi frenzy, China's smartphone market changes dramatically

When iPhone frenzy gripped China in late 2010, it seemed unlikely a Chinese smartphone brand could compete with global giant Apple, let alone surpass them in sales.

But in the first five months of this year, Chinese-born smartphone brand Xiaomi has done just that, taking the market and Xiaomi's founder and CEO Lei Jun by surprise.

According to a report released on July 31 by UK-based market research company Kantar Worldpanel Comtech, Xiaomi's sales in major Chinese cities reached a pre-tax revenue of 33 billion yuan (5.36 billion U.S. dollars) in the first half of this year, earning the company an overall market share of 21 percent and inching them closer to market-leader Samsung, who maintain 23 percent.

By comparison, Apple Inc. occupies 16 percent of the Chinese smartphone market.

"No one could expect (Xiaomi) to become a top mobile phone brand in China in less than three years after (we) unveiled the first mobile phone," Lei said to Xiaomi's fans in a letter posted on his social media account last month.

Xiaomi Inc., who's name translates into the grain 'millet', was founded in April of 2010 by Lei and his friends in Zhongguancun, Beijing's technology hub dubbed China's Silicon Valley.

On Aug. 16 of 2011, Xiaomi's first smartphone debuted quietly, selling a healthy, but unremarkable 10,000 smartphones in the first month.

In the first half of 2014, Xiaomi shipped 26.11 million units, enjoying growth of 271 percent from the previous year. Sales revenues from the first half 2014 marked a year-on-year growth of 149 percent.

The balance of power in the Chinese mobile sector can change incredibly quickly. According to Kantar, Chinese consumers tend to switch brands far more often compared with other global markets.

But Xiaomi frenzy is showing no signs of slowing. In the second quarter of 2014, the company secured a 27-percent share of smartphone sales, compared with 21.1 percent for Samsung, according to data from Kantar.

Their latest model, Xiaomi RedMi, which was introduced last July, continues to attract new Chinese customers and their soon-to-be-released Xiaomi Mi4, was announced recently.

"The current momentum behind Xiaomi, off the back of its latest product announcement, the Xiaomi Mi4, shows that the company's success isn't expected to slow down any time soon," the Kantar report said.

Significant numbers of existing smartphone users in China indicated they were looking to switch to Xiaomi -- some 8 percent of Apple customers, 12 percent of Samsung customers and 13 percent of Nokia customers are all actively planning to switch to Xiaomi when they upgrade. The number of those planning to switch to Xiaomi is even higher for China's local brands such as Huawei and ZTE.

In less than three years, Xiaomi had rolled out five hot-selling smartphone models and sold a total of 57.36 million units, Lei said.

Latest figures from another market researcher, Strategic Analytics, showed Xiaomi has become the world's No. 5 smartphone maker by market share, claiming 5.1 percent of global smartphone sales in the second quarter, up sharply from just 1.8 percent a year earlier.

According to consultancy Boston Consulting Group, Xiaomi is among the top 10 Chinese companies, with the list composed mainly of similar businesses that are finding success on their own and winning against multinationals.

They are competing with innovation instead of lower cost, said Boston Consulting Group, which ranks the top 50 domestic-focused companies from emerging markets.

"This is a Xiaomi-created miracle," Lei said. "All these (phones) have fully demonstrated our strength and the progressiveness of (Xiaomi's) business model."

Xiaomi has largely followed Apple's model of integrating the Internet, hardware and software - a combination which Lei has nicknamed the "triathalon".

From Day One, Xiaomi had deep Internet roots. Lei, also chairman of China's leading software developer Kingsoft, is himself an Internet pioneer and has extensive reach across the industry.

Xiaomi "has skyrocketed to success by capturing the enthusiasm of young people in China for the Internet", said Boston Consulting Group. It has been gaining ground by shunning costly retail stores and by selling online.