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.

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