Xiaomi admits it doesn’t make money on smartphone hardware sales
Xiaomis business model isnt about selling handsets, except insofar as those handset sales lead to recurring service revenue later on. So said Xiaomi global VP and former Android VP Hugo Barra in an interview with Reuters. The executive for the device maker was commenting on a drop in its smartphone sales in China, explaining that they wouldnt impact the companys long-term profit growth.
Barra explained that Xiaomi could sell 10 billion smartphones and [the company] wouldnt make a single dime in profits, speaking to Reuters, adding that Xiaomi is essentially giving away its smartphones without making any money, because ultimately it care[s] about the recurring revenue streams over many years rather than immediate margins on hardware.
Xiaomi is also focusing increasingly on other categories, including smart-home device sales, and, as suggested by Barra, revenue driven by software and services. Smartphone sales, once its core strength, dropped 12 percent globally last year, and IDC stats suggest its Q3 sales in China for the devices will be down 45 percent.
The company doesnt need to IPO or even raise funds privately, however, Barra told Reuters, and is looking forward to CES where its participating for the first time, and where itll unveil a new product.
It sounds like Xiaomis approach has more in common with Amazons hardware strategy than with Apples, even though when it debuted it seemed poised to threaten the latter, especially in markets like China. Dwindling hardware sales also arent great for service revenue potential long-term, its worth noting, but Barra and Xiaomi are probably hoping other device categories and overall installed base can carry that weight regardless of smartphone device sales performance.