Xiaomi Drops Out of China’s Top 5

Key Takeaways

  • Xiaomi reached its peak in smartphone market share in 2021.
  • Huawei’s temporary departure lifted Xiaomi to its peak but it was Honor, spun off from Huawei, that dethroned Xiaomi.
  • Xiaomi’s range of so-called flagship phones failed to generate sufficient excitement for upgrades. In fact, even Apple’s iPhone hasn’t produced any significant updates in recent years.
  • Before realizing these trends, Xiaomi optimistically opened over ten thousand stores and stocked them with products, leading to a surplus that persisted until 2023.
  • According to IDC, China’s smartphone shipments for the full year of 2023 were about 271 million units, down by 5.0% year-on-year, marking the lowest in nearly ten years. However, the fourth quarter of 2023 saw a 1.2% increase, reaching approximately 73.63 million units—first growth after ten consecutive quarters of decline.

For the full year of 2023, Apple claimed a 17.3% market share in China, seizing the top spot for the first time. During the fourth quarter of 2023, Huawei made a comeback to the top five (13.9%) in the Chinese market, while Xiaomi dropped out of the top five.

Decline of Xiaomi’s Smartphone Business Since Q1 2022

Xiaomi’s market share in the Chinese smartphone market climbed from 8.9% in 2016 to 15.8% in 2021, but it began to fall in the first quarter of 2022.

Simultaneously, Xiaomi’s smartphone business revenues decreased from around 50 billion yuan per quarter in 2021 to about 40 billion yuan per quarter in 2022. In Q4 2022 and Q1 2023, revenues continued to slide to 36.7 billion yuan and 35 billion yuan, year-on-year decreases of 27% and 23% respectively.

The fourth quarter of 2021 was the pinnacle for Xiaomi’s market share in smartphones. During that time, Xiaomi’s market share reached 15.8%—surpassing its previous best in 2015 when it had a 15% share. However, in terms of smartphone shipments, Xiaomi still ranked fifth in China during Q4 2021.

Huawei’s brief exit was what catapulted Xiaomi to its peak. Due to U.S. sanctions in 2021, Huawei’s P50 series incorporated only a 4G chipset, a downgrade from the previous year’s 5G P40 series. In its high-end Mate series, Huawei was absent entirely that year, with the Mate 50, which should have been released during that period, delayed until the second half of 2022.

Manufacturers including vivo, OPPO, and Apple vied for the high-end market Huawei left behind. Xiaomi emerged as a relative success story, with its smartphone shipments in Q4 2021 up by 11% compared to Q4 2020. During the same period, Apple’s shipments grew by 3%, while vivo and OPPO lost 9.1% and 16.6% of their market share, respectively. Instead of dividing Huawei’s vacant market space between them, it was Honor, spun off from Huawei in November 2020, that weakened their brands.

Miscalculated Timing and Tempo in High-end Market Entry

In 2019, just as Huawei began to face sanctions, Xiaomi unveiled a high-end market strategy with two moves. First, it implemented a ‘Redmi + Xiaomi’ dual-brand strategy, positioning Redmi as a brand focused on ultimate value for money, tackling the e-commerce market, while the Xiaomi brand aimed to transition to an Apple-like high-end brand. Second, Xiaomi kicked off channel reforms in 2019, launching three types of offline retail stores: Xiaomi Flagship Stores, Xiaomi Exclusive Stores, and Xiaomi Authorized Stores. Flagship stores are directly operated by Xiaomi, while the exclusive and authorized stores use a franchise model.

Then, in 2020, Xiaomi launched its first high-end product—the Xiaomi Mi 10 series. In 2021, Xiaomi released a dense lineup of similarly high-end Xiaomi Mi 11 and Xiaomi Mi 12 series. At the end of 2021 during the Xiaomi Mi 12 series launch event, Lei Jun, Xiaomi’s CEO, declared that Xiaomi was “officially benchmarking against Apple and learning from them.”

To accompany the sales of these high-end models, Xiaomi significantly expanded its offline stores from over 2,000 by the end of September 2020 to more than 10,000 by the end of September 2021, averaging over 20 new stores daily. According to the plan, Xiaomi intended to increase the number of stores to 30,000 within two to three years.

However, this dream of moving upmarket soon collided with reality for two reasons. On one hand, the era of high-end smartphone demand Xiaomi sought had changed since Huawei’s rise, with a sharp global decline in the desire for phone upgrades post-2021. The pandemic led many consumers to start saving money, and Xiaomi’s so-called high-end phones—the Mi 10, Mi 11, and Mi 12 series—did not offer enough innovative features to spark an upgrade spree. In fact, even Apple’s iPhones hadn’t seen major updates in the last few years.

On the other hand, Honor swiftly rose after its detachment, turning around its market share from a mere 4.6% in Q4 2020 to 17% a year later—an increase of 253.4%—thus capturing most of the market left by Huawei.

It was Huawei that had lifted Xiaomi to its zenith, and it was the spun-off Honor that pulled Xiaomi down from its throne. Indeed, Xiaomi only sold an average of 6 million high-end phones per quarter in 2021, and this figure further declined to 4 million units in Q1 2022, shrinking by a third. Since then, Xiaomi stopped disclosing the sales volume of its high-end models in its financial reports.

Despite this, Xiaomi’s optimism led it to rapidly expand its number of offline stores in 2020 and 2021, as well as to overproduce phones, widely stocking them in offline outlets. Data from Wind indicates that for the first time, Xiaomi’s inventory on its books exceeded 50 billion yuan at the end of 2021 and set a new record of 57.8 billion yuan by the end of June 2022, accounting for 19.72% of total assets—the highest proportion since its public listing. The company has been digesting this overstock well into 2023.

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