Why Xiaomi Will Never ‘Be Apple’

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February 3, 2015 by ...

China’s Xiaomi has been hailed as the ‘new Apple’. Funny how that works, isn’t it? I mean, if they were the ‘next Apple’ then they’d be the next big thing, and if that were true, we would be calling Apple, ‘America’s Xiaomi’. But of course we don’t do that because it would be stupid. Sure, the two firms theoretically make the same stuff, but so do Starbucks and Nescafe. Both beverage producers offer flagship coffee-based products which can be consumed at home and on the road. These choice also come in a variety of packaging as, well as regular and decaf. Viewing the landscape like this, we can say that ‘They are equals’ and at any moment Nescafe merely needs to discount their coffee even more, mimic the Starbucks look and feel and start to degrade the latter in its promo vidoes. Having done that, it will be hailed as the ‘next Starbucks’

But of course an idea such as this is inane. Just because two firms make the same products means little to nothing. After all, the Yugo made cars just the same as Mercedes does but how did that work out for them?

And so it shall be with China’s Xiaomi. Oh sure they will go public. And most definitely they will get an ‘Alibaba-sized’ payout, but will they be Apple? Of course not.

Despite what we are all reading, Xiaomi is little more than the Walmart of the handset world, ‘Everyday low prices.’ They are not, however, anything like that firm in Cupertino.

In fact, much of the Xiaomi hype is little more than spin-doctoring by vested interests seeking to cash out when Lei Jun hits paydirt. Don’t get me wrong, Xiaomi sells decent phones, but once again, they don’t sell ‘iPhones’. In fact, they are arguably a step below Lenovo and a bound beneath Samsung.

While it may be compelling to talk about this Chinese juggernaut which is taking the world by storm perhaps it is time to take a Xanax, breathe deeply and reflect on this:
Last year Xiaomi sold approximately 60 million phones and had corporate revenue of around $10 billion.
In Q1, or the first three months of Apple’s 2015 fiscal year, they made profit of more than $13 billion

In case you were not paying attention, I wrote that in the first three months of this fiscal year, Apple made 30% more in profit than Xiaomi made in sales for all of last year. If what I learned in my MBA classes is correct, then this means that after Apple paid all of its expenses for the past three months, it still had $3billion more in the bank than Xiaomi made in all of 2014.

Yeah, hard to believe isn’t it?

Apple had a miraculous first quarter. They not only sold more phones than Xiaomi did in China and the world, but also banked more money after taxes than Xiaomi made last year.

Even more incredible is how Apple did this on sales of under $60 billion. In other words their profit margins are incredibly phat. Xiaomi, on the other hand, struggles along with 8-10% margins. On top of that, Xiaomi avoided paying license fees and royalties that can easily drop their take down 3-4%. With margins like that, Xiaomi would need yearly revenue of nearly $260 billion just to match Tim Cook’s last quarter profit numbers. Yeah, its insane how that works.

This is not to take anything away from Xiaomi, they had a great year. Xiaomi sold a ton of phones, opened up new markets and gave us all something to write about. They are not, however, Apple. And as we can see by the numbers, they are not even in the same galaxy.

Apple commands a premium for the quality and design they have to offer. We are willing to pony up absurd chunks of change for the right to own the sexiest commodity on the market. We will not, however, do the same for a mere Xerox copy.

If nothing else, the numbers tell the tale. Apple is in a universe all its own. Xiaomi, on the other hand, lies somewhere catfish at the depths of the river bank, feeding on whatever it can scrounge up. Their real gift to the world is exposing a world of people to entry level smart phones which can one day be traded up for gear which has redefined the industry. Of course this is honorable, but once again, it’s not the kind of thing that $13 billion-profit quarters are made of.

Not to beat a dead horse, but xiaomi had to work 4.33 days just to earn enough revenue to pay for the profit that Apple earned in 1.

With facts like this, calls for the demise of Apple seem anything but credible. Note to Xiaomi, sell more phones than Huawei and build your brand. Having done that, invest in R&D because your bench is really lacking.

When and if you can accomplish all of these things, then start to consider moving up,the food chain. Until then, however, remember the Wal-mart slogan, ‘Everyday low prices’.


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