SMARTPHONES: Xiaomi Plays Catch-Up with Late-Arriving Mi 5

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Bottom line: Xiaomi’s new Mi 5 model is likely to get a tepid reception due to its lateness to market and a fading corporate image, and the company’s valuation is likely to shrink when it returns to market later this year for new funding.

Xiaomi rolls out Mi 5

If faltering smartphone sensation Xiaomi is still in business a decade from now, 2015 could well go down as a “lost year” when the company’s sales slowed sharply as its image for making cool, affordable products took a beating. A major factor behind the sudden stall was Xiaomi’s failure last year to release a new fifth generation of smartphones, which were supposed to power sales in the second half. (previous post)

Now Xiaomi is trying to play catch-up with the unveiling of its Mi 5 more than half a year after its originally intended launch date. (English article; Chinese article) It’s probably far too early to say if the Mi 5, along with another new model called the 4S, will be enough to revive Xiaomi’s fading fortunes. But I suspect the damage has already been done, and this new model will ultimately fail to find a big audience due to its late arrival to a fast-moving smartphone market where half a year is really equal to an eternity.

Most of the latest reports are filled with product specifications and not many actual reviews, which seems to indicate Xiaomi isn’t giving out many of the new models for gadget junkies to try out in advance. That kind of shyness would have been unthinkable for Xiaomi at this time last year, when the company was riding high on booming sales, a hip and trendy image and a mega-funding that gave it a lofty valuation of $45 billion.

Xiaomi unveiled the new phone at the Mobile World Congress, the world’s biggest annual telecoms show taking place this week in Spain, reflecting its global aspirations as it tries to move beyond its crowded home China market. Here I have to admit my own small gaff, as I wrote just yesterday that Xiaomi seemed to be avoiding the show due to high costs, and its plans for a new product launch in Spain would probably be just a small event.

Long Wait

Many of the media reports are pointing out that Xiaomi’s Mi 5 launch comes a lengthy 18 months after the launch of its fourth-generation models that were its newest offerings during all of 2015. As I’ve previously said, the Mi 5 was reportedly originally set to come out around last July, but was delayed for quite some time due to technical issues involving areas such as fingerprint recognition technology.

The Mi 5 will officially go on sale on March 1, with a relatively high starting price of 1,999 yuan ($306), reflecting the company’s desire to move away from the low end of the market that was its main source of sales last year. Reflecting the company’s recent de-emphasis on breakneck growth, charismatic CEO Lei Jun said at the launch event that he will focus more on building customer loyalty this year over simply gaining market share.

Xiaomi’s sales grew just 20 percent last year, marking a sharp slowdown from the triple-digit growth it had posted in earlier years, as its image and momentum faded rapidly in its fiercely competitive home China market. The company hasn’t announced any final sales figures for last year, though third-party researchers put the figure at about 70 million — far less than the 100 million it originally aimed for. It hasn’t given any targets for this year either, reflecting Lei’s new conservatism after last year’s rapid slowdown.

Personally speaking, I do like Lei’s lower-key approach that contrasts sharply to his earlier chattiness when he welcomed frequent comparisons between his company and global leader Apple (Nasdaq: AAPL). Still, I doubt the new Mi 5 will be able to reignite Xiaomi’s former growth, partly because it’s so late to the market and also partly because of Xiaomi’s fading image that was a large factor behind its earlier success. But the company will undoubtedly survive for at least the next few years, though I suspect its valuation could come down a bit when it’s forced to return to market for new funding later this year.

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