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

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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49 Comments on "Xiaomi Caps Net Profit Margin Earned from Hardware to a Maximum of 5% Forever"

 

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Kaushik IMA
April 27, 2018 1:25 pm 1:25 PM
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 »
AU(Airtel User)
April 28, 2018 2:03 pm 2:03 PM

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
April 28, 2018 9:35 pm 9:35 PM

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.

Nikhil Mumbai-Pune
April 27, 2018 5:25 pm 5:25 PM

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

Nikhil Mumbai-Pune
April 27, 2018 5:25 pm 5:25 PM

If this is the condition of Moto G5 Plus, who will buy Moto X play and MOTO G5? There should not be standard variant in G series!!!!! Plus variant should be standard variant(4GB 64GB should be standard in all the phones from 11000-20000) !!!!!I am still inclined towards Redmi series rather than buying these shitty Moto G series!!!!! No Oreo Update yet on Moto G5 Plus!!!!! Oreo will come on Honor 7X in next month or so!!!!!

Nikhil Mumbai-Pune
April 27, 2018 5:21 pm 5:21 PM

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

Kaushik IMA
April 26, 2018 12:07 am 12:07 AM

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.

Nikhil Mumbai-Pune
April 26, 2018 7:43 pm 7:43 PM

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!!!!!

Nikhil Mumbai-Pune
April 26, 2018 7:39 pm 7:39 PM

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)
April 26, 2018 8:53 pm 8:53 PM

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
April 28, 2018 4:29 pm 4:29 PM

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!!!!!

Girish Gowda | BengaLuru
April 26, 2018 1:37 am 1:37 AM

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.

Girish Gowda | BengaLuru
April 25, 2018 11:21 pm 11:21 PM

If apple did the same they would be selling the iPhone X at less than 25k.
Still, kudos to Xiaomi. They are bringing the latest tech to everyone’s grasp with their affordable range of phones and other products.

AU(Airtel User)
April 26, 2018 12:07 am 12:07 AM

GG, dont mind but apple will not be doing that. You cant get authentic Italian pizza at a price of 2 minutes noodles. You just cant.

Girish Gowda | BengaLuru
April 26, 2018 1:38 am 1:38 AM

I know. Apple will no longer be coveted if it ever lowered their prices.

AU(Airtel User)
April 26, 2018 12:35 pm 12:35 PM

GG, you are free to form your opinions but that will not change the truth.

Idea1947
April 26, 2018 4:08 pm 4:08 PM

@AU (AUtistic)… Nobody is expecting pizza at the price of the noodles. All people are asking is not to peddle pizza as gold and over-charge customers! But your morally skewed brain will not understand this… Your are just like the company you (keep) use – Airtel… always justifying wrongs.

AU(Airtel User)
April 26, 2018 4:26 pm 4:26 PM

Hey idea1947 ( low paid agent ) yes you are expecting because you want ticket of of business class of airplane at a price of general compartment of rail ! That’s the kind of people you are. Nobody is overcharging anyone its your call. I use airtel and jio much superior then third class idea.

iPhone X have the best dual camera setup out there in flagship category and face detection technology is out of reach of androids atleast for 2-3 years. Best display even samsung its manufacturer admits it. I can continue but i think its sufficient for you..

Sandy
April 28, 2018 11:31 am 11:31 AM

AU, Now u r talking like isheep.

Kaushik IMA
April 27, 2018 1:29 pm 1:29 PM

It’s OK u want to justify spending so much on a phone.

You can feel however you want about that iPhone X.

The fact is that Apple itself is reconsidering the iPhone X, analysts are saying it will be discontinued soon, and that Apple wrote off the R&D costs for it’s successor and will release it only to recover whatever it can.

P. S. DxOMark proved Samsung S9+ has a better camera than iPhone X. Sorry to say.

P. P. S. Fudzilla also confirmed the pixels on iPhone X OLED degrade faster than Samsung S8.

Oops. So much money down drain?

Nikhil Mumbai-Pune
April 28, 2018 4:30 pm 4:30 PM

+1

AU(Airtel User)
April 28, 2018 2:12 pm 2:12 PM
See Ima, all these numbers are for those android pidis to feel good who dont buy apple reason best known to them. Nobody buys a 50000rs xiaomi or honor LoL, does facts dont matter dont matter in those, why you quote dxo or whatever of huawei p20, kid go play with cheap chinese brands because you ain’t gonna win against me and i will spank you on every argument you produce to justify that cheap chinese brands xiaomi. Just with the launch asus zenfone max pro so many xiaomi fanboys have already shifted to asus zenfone max pro LOL, shows… Read more »
Kaushik IMA
April 28, 2018 9:37 pm 9:37 PM

LOL AU, the burn is starting to show and you are the star of TT comedy central.

8 million S9 units didn’t get shipped because of you, okay?

I have already won against you, because you are now crying like kids. 🙂

And numbers are not for Android Pidis, those same numbers in GMACs were being quoted by Apple fanboys for their so called AI prowess just a few months back.

Do not call the kettle black, understand that you have wasted money.

Apple too knows it.

Kaushik IMA
April 27, 2018 7:35 am 7:35 AM

Look at the justification of iPhone X. I guess you gotta do it, that’s money lost for good. LoL.

Girish Gowda | BengaLuru
April 26, 2018 2:11 pm 2:11 PM

I agreed with you on this.

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