Big country, China. Lots of people, and lots of people who buy smartphones. And Samsung is no longer the best-selling smartphone maker in the People's Republic.
China's own Xiaomi has surpassed Samsung as the No. 1 smartphone purveyor. By the numbers, in the second quarter, Xiaomi now has 14 percent of smartphone sales in China, Samsung has 12 percent.
Canalys research analyst Jingwen Wang praised Xiaomi's ascendance, accomplished in a relatively short period of time, saying, "This is a phenomenal achievement for Xiaomi. Undoubtedly, this was helped by an anticipated, temporarily under-strength Samsung performance during the quarter."
Wang noted that Xiaomi also helped itself by successfully executing on strategy to generate volume through competent products at very attractive price points. He did caution, though, that in order to grow the company must make a stronger push toward adoption of LTE technology to meet the demand for 4G service in China.
Xiaomi's rise to prominence is partly based on learning how to make smartphones and tablets with competitive specs and large screens at half the cost of comparable Samsung products. Samsung is discovering that to compete it must sacrifice profit, and that is taking a toll on the company's earnings; the company recently released its worst earnings report in two years.
Samsung's quarter two results revealed that revenue was down by almost 10 percent over second quarter 2013, profit down by almost $2 billion. The company had issued warnings that this report would reflect the impact of increased competition in the Asian and European smartphone markets as well as increased production costs on its Galaxy S5 Android phone. The outlook for a recovery in the remainder of 2014 is not optimistic, due the same factors.
The surge of Xiaomi and other Asian makers such as Huawei and Lenovo will keep the pressure on Samsung's revenue and profits. Samsung, Apple and other U.S.-dominant brands should be fearful about the future arrival of Xiaomi products on these shores.
At the same time Xiaomi has been chipping away at Samsung's profits and market share, it has been blatantly copying Apple's industrial design standards. Xiaomi recently introduced its newest smartphone, the Mi4, which is easily a replica of the iPhone 5S. Xiaomi's tablet, the Mi Pad (get it?), is very much like an iPad Mini, right down to its screen size and resolution. If that's not enough, and don't you think it ought to be, Xiaomi's CEO Lei Jun appears at events dressed in a very Steve Jobs-like outfit of a black turtleneck, jeans and sneakers.
However, Xiaomi's efforts in its home market have not really hurt Apple sales and profits in China -- yet. The company's all-too-obvious flattery of Apple designs will likely come to a head should Xiaomi attempt to engage the U.S. market.
