CELLPHONES: Xiaomi On Defensive As Momentum Slows

Bottom line: Xiaomi’s latest moves and remarks reflect attempts to rekindle its fading momentum, as its growth slows and it faces a rising challenge from LeTV and a resurgent Apple.

Xiaomi battles slowing momentum

Sputtering smartphone sensation Xiaomi is in a flurry of headlines as we go into the weekend, spotlighting the recent challenges it is facing as it tries to maintain its breakneck growth and live up to huge expectations it created for itself. The most revealing of those portrays Xiaomi’s charismatic chief Lei Jun in a rare defensive posture, at a company event where he took aim at the increasingly threatening LeTV (Shenzhen: 300104).

The second headline comes from the same event, and boasts of Xiaomi’s heavy spending on content for its online services over the last 2 years, again taking aim at LeTV. Lastly there’s the news that US chip giant Qualcomm’s (Nasdaq: QCOM) China chief has jumped ship to take up an executive position at Xiaomi. Again, this looks like Xiaomi’s attempts to portray itself as a hot company that can still attract top talent away from leading western companies.

I honestly don’t have much sympathy for Xiaomi’s sudden slowing of momentum these last few months, since it aggressively courted the media attention that ultimately created such high expectations in the first place. The company was king of the world at the start of this year, when it took the spot as the world’s third largest smartphone brand and earned a hefty valuation of $45 billion just 4 years after its founding. (previous post)

But since then its growth has slowed dramatically, partly due to a resurgence by Apple (Nasdaq: AAPL) in China and also an intellectual property dispute in India, its second biggest market. Frankly speaking, I think Xiaomi’s biggest enemy in this case is itself. It makes a reasonably good product and has developed a cool and trendy image that is the envy of many smartphone rivals. But the huge expectations it has created for itself are forcing it to take steps that could dilute that image and ultimately overextend itself.

We’ll begin this Xiaomi round-up with the headline that has Lei Jun making numerous comparisons between the content available on his own products with rivals offered by LeTV. (Chinese article) LeTV’s equally charismatic and aggressive CEO Jia Yueting is never mentioned in Lei’s remarks, but he’s certainly in the background as LeTV poses a growing threat.

Lei made his remarks at a press conference where Xiaomi made a number of announcements, including the fact that the company has spent 1.8 billion yuan ($300 million) to build up its content business since 2014. (English article) Xiaomi ultimately hopes to build up an ecosystem around its products, offering content and other services over its smartphones and Internet-connected TVs.

That strategy looks increasingly similar to LeTV, which began its life in the video realm by offering products and services via computers and later TVs. This year LeTV also moved into the smartphone space, posing a direct challenge to Xiaomi, saying it wanted to create a similar ecosystem of services offered over a wide array of products like computers, TVs and smartphones.

We’ll close this post with the executive move, which has Qualcomm’s Greater China chief Wang Xiang leaving to take up a position as a senior executive at Xiaomi. (Chinese article) The high-profile defection is the latest in a long series of such executive moves from major western companies to Xiaomi, which is always quite happy to publicize its new recruits. I honestly think Xiaomi is a good company with solid products and good marketing skills. But if I were advising it, I would suggest it take a break from its usual headline-chasing ways for a while and focus instead on the more serious business of laying a more solid foundation for its future development.

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