Xiaomi Caps Net Profit Margin Earned from Hardware to a Maximum of 5% Forever

By April 25th, 2018 AT 6:49 PM

Xiaomi’s aggressive pricing strategy has always caught the attention of the media and consumers alike. In an interesting move, Xiaomi today announced that it’s permanently limiting the net profit margin earned via hardware sales including smartphones, IoT and lifestyle products to a maximum of 5% after tax. Now this move will sound like a lot, but the company has been doing the same for years now. In the past as well, Xiaomi never focussed on earning profits via its hardware sales, which is the reason behind the cutthroat prices. During the launch event of the Xiaomi Mi 6X, the company’s CEO Lei Jun made this announcement stating that all the Xiaomi hardware products will fall into this category.

xiaomi-redmi

Speaking in terms of the Indian market, Xiaomi is now the leading brand with over 31% market share in the smartphone space, but little did it focussed on marketing its products. Until the Redmi Y series launch last year, Xiaomi did not focus on marketing, nor a brand ambassador, but things have changed in the last six months as the Chinese company is aggressively promoting its products both online and offline. That’s because of the company’s foray into the offline market.

Besides smartphones, Xiaomi also manufactures various IoT products (only a few of them are available in India) and lifestyle products as well, and the net profit margin cut will apply to these products too.

Xiaomi’s net profit margin is so low which is the reason why the flash sales exist in both the Indian market and China (post the product launch). Xiaomi conducts flash sales for its products in India because of the very thin net profit. Imagine if the company manufactures 20 million units of the Redmi Note 5 Pro and what if there’s no demand for the product? The company will go bankrupt. This is one of the reasons why Xiaomi is not looking to avoid flash sales in the country.

Nevertheless, it will be interesting to see if Xiaomi actually keeps this promise. That said, Xiaomi had the same thin net profit margin before this announcement, so I wouldn’t be surprised if the Chinese company keeps up this hard promise. Globally, Xiaomi is looking to ship more than 100 million smartphones this year and is expected to launch a new smartphone in the country next month.

Read more on:

46
Leave a Reply

avatar
Photo and Image Files
 
 
 
4 Comment threads
42 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
11 Comment authors
Kaushik IMANikhil Mumbai-PuneAU(Airtel User)SandyGirish Gowda | BengaLuru Recent comment authors
newest oldest most voted
Kaushik IMA
Kaushik IMA

Today I found out by actually going to the resale market that Redmi resale value is better than Moto. Motorola is scrap. Moto G5 3GB and Moto X Play sells at around the same resale value as Redmi 3S Prime in resale market (a bit lesser actually). Given the difference in launch prices, this is appalling – understanding that resale value is decided by the TRUST and FAITH in the product. This actually shows the resale channel or even the 3rd party service channel has no faith in Motorola, owing to poor parts availability and low brand recall. Asus ZenFone… Read more »

Nikhil Mumbai-Pune
Nikhil Mumbai-Pune

I was getting Moto G5 Plus in 6K which was in top condition!!!!!! Still I didn’t purchased!!!!!

Nikhil Mumbai-Pune
Nikhil Mumbai-Pune

Even Honor has great resale value due to Vodafone-Idea VoLTE!!!!!

AU(Airtel User)
AU(Airtel User)

Visit gaffar market you can get 1 kilo xiaomi phones in 5000rs, what resale you are talking about cheap chinese brands.
Go out and see the no one is not even interested in buying oppo xiaomi vivo gionee etc.
You are a certified xiaomi apoligists.

Kaushik IMA
Kaushik IMA

Xiaomi apologist? I just stated Asus ZenFone 3 is doing well in resale market while Moto is SCRAP.

I can feel your burn little boy, I am sorry but Moto’s days are numbered in India.

Went through all of Vashi Plaza (Navi Mumbai) today and each of them said there is little faith in the channel or service network of Motorola.

I can count similar stories from Rajasthan to Karnataka and all states west east and north of that.

AU, give it up, send your CV to other companies, drop this sinking ship.

Kaushik IMA
Kaushik IMA

I see this as a bad news: it means the profit will only go towards paying employees and recovering investment, and there will be no budget for RnD. This of course means xiaomi will never be innovative, just a specs heavy VFM budget brand with no engineering level differentiation.

This also means they are not going to push technology forward, only Biggies like Samsung and apple will….

Too bad.

Girish Gowda | BengaLuru
Girish Gowda | BengaLuru

They did push technology forward and people didn’t care until it was put into Samsung and Apple devices. So, I can understand their predicament.

Nikhil Mumbai-Pune
Nikhil Mumbai-Pune

As long as Xiaomi keeps everything under 20K until Redmi Note 10,I won’t mind purchasing them!!!!!! Excellent devices so far in my life!!!!!Typing this from Redmi Note 4!!!!!Using RN3/5 as well!!!!! Sold A1 recently!!!!! Really excellent devices!!!!! Will be getting Note 5 Pro and Mi A2 soon!!!!!!

AU(Airtel User)
AU(Airtel User)

Hey mumbai pune highway, since you havent used flagships hence you like scrap cheap chinese brands like xiaomi gionee zte etc. Samsung are good with service centers which cheap chinese brands lack.

Nikhil Mumbai-Pune
Nikhil Mumbai-Pune

Samsung are good but their software sucks!!!!! Their J and A series sucks too with arrival of Honor Xiaomi and One Plus!!!! Now with the arrival of Nokia 7 Plus and Oppo F7, Samsung will face stiff competition!!!!! Let’s see what they bring on the table in 2018 for midrange and Upper midrange segment!!!!!

Nikhil Mumbai-Pune
Nikhil Mumbai-Pune

Some findings during recent journey to Goa: I went by travels and returned by train….. Most of the people were having Samsung J series and A series from Past two years models!!!!! Still there is inclination to Samsung devices from Rural area from Maharashtra!!!!! When I talked with them curiously about why they bought these Samsung phones over Redmi/Honor series, I was surprised to see they were not aware about Redmi/Honor series!!!!! I hope situation will improve over the next two years!!!!!! There is no point buying Samsung J and A series now!!!!!

Recent Posts

Asus Zenfone Max Pro M1, Max Pro M2 and Max M2 to Get Android 9 Pie Update by April 15

Android 9 Pie is coming to three Asus phones including Zenfone Max Pro M1, Zenfone Max Pro M2, and Zenfone...

Vivo V15 Pro Review: Bringing Innovation to Masses

Although Vivo isn’t a brand you would prefer when it comes to buying phones in the premium segment; there is...

Dell and Alienware Launches Three New Gaming Laptops in India

Refreshing its PC gaming portfolio in India, Dell and its subsidiary Alienware on Monday launched Alienware Area-51m, Alienware m15 and...