Xiaomi aiming to take a smaller bite than Apple

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Xiaomi founder Lei Jun at the Cross-Strait Mobile Internet Conference in Taipei in January 2015. Photo: CSMIC

Who does not like Apple’s iPhone? According to non-official survey, many people like Apple products and the brand, but stay away due to the high prices.

iPhoneX, for example, earns a gross margin of more than 60%. No wonder they are taking close to 90% of the profit of the phone universe despite having less than 20% of the market.

However, if Apple is the premium brand, Xiaomi is the value-for-money model. The Chinese manufacturer known to be Apple’s imitator appears to have grabbed a large number of non-iPhone fans because of its low pricing strategy.

On Wednesday Xiaomi chairman Lei Jun said starting this year, he would cap the net profit margin of his company at 5%.

This was not the first time he said he wanted to make his product the most affordable to the mass market. But it was the first time his company board members passed a resolution to put a cap on profit margins and redistribute the excess by reasonable means to its customers.

Last month, Lei told the South China Morning Post that Xiaomi “must curb the tendency for greed and win absolute trust from consumers,” and highlighted the urgency to cap the margin in the company charter to avoid people “messing with it after 50 years.”

Did Lei, who reminds people of Steve Jobs when he wears a T-shirt and jeans to new product launches, see the end of the high-margin phone business ahead of his company’s listing?

After all, very few companies would be like Xiaomi – which is reported to be seek more than US$10 billion in its Hong Kong listing next month – and laying a cap on its margins unless it was able to grow its top line.

In fact, many are skeptical this strategy is nothing more than a sales pitch. But Lei made it clear he was determined to offer the company’s customers goods at a reasonable price.

“From the beginning, we embarked on a relentless pursuit of innovation, quality, design, user experience and efficiency advances to provide the best technology products and services at accessible prices,” he said.

“We hope that our products and services will help our users to achieve a better life. We have always viewed our hardware as the gateway to providing our users with internet services, and providing value to them over time.”

Now we enter a new world where the two firms that dominate – one at the high end with fat margins and the other with thin margins – leaving everyone else in between.

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