SMARTPHONES: Huawei Lifts Prices, Xiaomi Drones

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Bottom line: Huawei’s smartphone prices should continue to rise this year as it rolls out more higher-end models, while Xiaomi’s new drone product looks like a publicity ploy to draw attention back to its sputtering smartphones.

Huawei smartphone prices rise in 2015

Just days after new data showed Huawei finishing 2015 as China’s smartphone leader, different new data is revealing the company was the market’s only domestic brand that was able to raise prices for its products during the year. That boosts the growing perception that Huawei is emerging as China’s first solid mid-range smartphone brand, as it tries to climb the value ladder to someday challenge global leader Apple (Nasdaq: AAPL).

Meantime, domestic rival Xiaomi, which once also liked to compare itself to Apple, is diverging from its former US role model by preparing to roll out a drone product, according to media reports. If the reports are true, this would look like a somewhat desperate move by the fast-fading Xiaomi, which is unable to generate much positive buzz these days for news related to its struggling smartphone division.

Last year will go down as a major turning point for China’s domestic smartphone sector, marked by the rapid rise of Huawei and the similarly sudden stalling of Xiaomi. Of course there’s no guarantee that 2016 won’t see more big shifting in the space, where change has become the norm and Apple is the only company with any real staying power.

But for now at least, Huawei can certainly pat itself on the back for ending 2015 on a high note that bodes well for the first half of 2016. Huawei ended last year with 15.2 percent of the China smartphone market, giving it the crown for the world’s biggest market, as sales surged 50 percent. (previous post) Xiaomi also managed to post 15 percent growth to finish third in China for the year, but that was well below the much higher growth it was accustomed to in the previous 2 years.

Rising ASPs

Now the latest data are showing the average selling price (ASP) for a Huawei smartphone in China grew 21 percent last year to $213. (Chinese article) The only other top 5 brand that also managed to post ASP  growth was Apple, whose prices also rose by 16 percent to $718. By comparison, Xiaomi prices slipped 7.6 percent to a meager $141, reflecting the growing importance of its ultra low-end Red Mi smartphones to its story.

The pricing trends, combined with the actual ASPs, are quite revealing. Apple is clearly the gold standard in the market, with an average price that’s more than triple Huawei’s and 5 times as high as Xiaomi’s. But the fact that Huawei could raise prices at all is quite an accomplishment due to intense competition that has forced everyone else to slash prices. I expect Huawei may continue to notch price gains this year as it rolls out more higher-end models and tries to create a solid mid-range brand.

Meantime, there are the separate reports saying that Xiaomi is preparing to roll out a consumer drone, and may announce the product at a launch event for its latest Mi 5 smartphone set for February 24. (English article; Chinese article) The reports cite a leaked photo, which is a bit flimsy in terms of sourcing, but is quite consistent with Xiaomi’s previous pattern of strategically leaking information before a new product launch.

If true, my reaction to this latest product would be: “Who cares?” Even in a developed market like the US, drones are still a very niche product and thus can’t make a significant contribution to a company of Xiaomi’s size. What’s more, Xiaomi’s record for products outside its core smartphones is quite weak, with its set-top boxes and air purifiers both running into problems after their debuts. Accordingly, these new drones look like an insignificant development for Xiaomi and more like a publicity-attracting play, if it’s even planning such a move.

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