Xiaomi mobile phone will put pressure on Lei Jun to return to the top of China. Can he achieve his goal?

At the beginning of 2018, Lei Jun's goal of returning the mobile phone business to the top of the domestic market within ten quarters is still fresh in our minds. However, halfway through the year, Xiaomi's domestic market share is still hovering at fourth place.

Internal worries: Shipments have declined year-on-year for two consecutive quarters

In early May this year, IDC released data on global smartphone shipments for the first quarter of 2019, showing that Xiaomi shipped 25 million units, a year-on-year decline of 10.2%. Xiaomi once issued an official announcement, pointing out that IDC data was wrong, saying that Xiaomi's shipments in the quarter were no less than 27.5 million units.

However, even so, Xiaomi could not escape the trend of declining shipments.

According to Xiaomi's Q1 2019 financial report released recently, the smartphone division's revenue for the quarter was approximately 27 billion yuan, a year-on-year increase of 16.2%. Smartphone sales for the quarter reached 27.9 million units.

Although smartphone revenue increased year-on-year, Xiaomi's smartphone sales fell 1.76% year-on-year this quarter. In the fourth quarter of 2018, Xiaomi's smartphone sales even fell 12.3% year-on-year.

Xiaomi CFO Zhou Shouzi explained in a media conference call in the fourth quarter of 2018 that the main reason for the decline was the adjustment of Xiaomi's mobile phone product portfolio in the quarter, which focused on the mid-to-high-end market. In the fourth quarter of 2018, Xiaomi only released two products, one was the Xiaomi MIX3 released in October, and the other was the Xiaomi Play released in December. Zhou Shouzi believes that Xiaomi MIX3 is a high-end product and its shipment volume will not be particularly large; and Xiaomi Play was released later, so its sales did not show up in the quarter.

In an interview at the Xiaomi 9 launch conference, Lei Jun also revealed a key piece of information. He said that in the fourth quarter of 2018, the sales of Xiaomi products accounted for the vast majority in China, not Redmi.

The decline in the fourth quarter of 2018 was understandable. However, in the first quarter of 2019, Xiaomi had already split the Redmi brand and released three mid-to-high-end models, Xiaomi 9, MIX3 5G version, and Xiaomi 9SE, and three entry-level models, Redmi Note 7Pro, Redmi Note 7, and Redmi 7, but it still did not get out of the downward trend in sales.

The Chinese region is the hardest hit area for Xiaomi's smartphone business.

According to the Chinese smartphone market data for the first quarter of 2019 released by Counterpoint, Xiaomi, Huami, OV and other brands occupied the top four positions, but among the top four, only Xiaomi experienced a year-on-year decline, as high as 21%;

According to the Chinese smartphone market data for the first quarter of 2019 released by Canalys, among Huami, OPPO and Vivo, only Huawei achieved year-on-year growth, but Xiaomi's decline was 13%, the largest decline among the three.

In these two quarters, Xiaomi mentioned that the focus of its smartphone business was also on increasing ASP. From the year-on-year trend, the ASP of Xiaomi mobile phones is indeed on an upward trend, but this and the trend of declining shipments undoubtedly form two contradictions that are difficult to reconcile. Whether the spin-off of Redmi can balance the growth of shipments and the increase of ASP will be a test for the subsequent operation of the two brands.

External threat: Both brands are eroded by Honor and OV

If Xiaomi's adjustment to split Redmi is the internal reason for the decline in Xiaomi's smartphone shipments, then the competition between Honor and OV is the external reason.

Honor has always been Xiaomi's old rival. While Xiaomi's mobile phones are working hard to go global, Honor also started its international journey in 2018. At the same time, when Xiaomi realized the shortcomings of offline channels and vigorously opened Mi Home to layout offline channels, Honor, on the one hand, surpassed Xiaomi in online channels to become the world's largest Internet mobile phone brand, and on the other hand, improved its offline channel layout through a light asset model. Under similar brand and price positioning, Honor has undoubtedly been eroding Xiaomi's market.

And this year, OV will further ignite the war.

In February this year, vivo's sub-brand iQOO was officially launched. Different from previous vivo products, iQOO focuses on cost-effectiveness, positioning itself as an Internet flagship series, and is equipped with the flagship processor Snapdragon 855, which is rare in vivo's previous products. However, Xiaomi 9, which was also released in February, was out of stock due to low lens yield, which gave iQOO an opportunity to take advantage of it.

The split Redmi brand has also encountered a strong rival. In April this year, Realme, which has been focusing on overseas markets under OPPO, officially announced its return to the Chinese market and launched the Realme X series in May. It is worth noting that with OPPO's supply chain capabilities, the Realme X series directly brings Sony's 48-megapixel camera and lifting full screen to the price of 1,499 yuan. This has invisibly added a lot of pressure to the upcoming Redmi K20.

Before 5G mobile phones are put into commercial use on a large scale, the Chinese smartphone market will continue to be in a stock state. This also means that the competition among the four top companies, Xiaomi, Huami, OV, will be zero-sum. To achieve their own growth, they must seize the market from the stock users of other brands. In the current market structure, Xiaomi is at a considerable disadvantage to a certain extent.

Can I return to the country?

In 2014, Xiaomi, which had only been established for four years, took the throne of the domestic smartphone leader by relying on its cost-effectiveness and online channels. However, it suffered a continuous decline in shipments in 2015 and 2016, and once fell out of the top five in the world and ranked fourth in China.

In 2016, Lei Jun personally took over the development of Xiaomi mobile phones and hardware to solve supply chain and production capacity problems. At the same time, he vigorously promoted the construction of Xiaomi Home and made up for offline channels. Lei Jun's personal rescue finally allowed Xiaomi to return to the growth track in 2017.

The downward trend since the fourth quarter of 2018 seems familiar. After two quarters of decline, Lei Jun personally took over the China region and saved the situation again.

Although Xiaomi's IoT and Internet businesses are growing, the mobile phone business is undoubtedly still Xiaomi's basic plate and a stronghold that cannot be lost. This is also the reason why Lei Jun called for returning to the top of the domestic market in ten quarters at the beginning of 2018.

Xiaomi has always been criticized by the outside world for its low R&D investment and proportion. This also led to Xiaomi products being in a relatively passive position when Huawei Honor and OV took the lead in developing new technologies such as photography, under-screen fingerprint, and lifting camera.

Xiaomi is gradually increasing its R&D investment and improving its technological innovation system.

Data shows that Xiaomi's overall R&D investment in 2018 was 5.8 billion yuan, an increase of 83.3% from 3.2 billion yuan in 2017; in the first quarter of 2019, Xiaomi's R&D expenses reached 1.7 billion yuan, an increase of 50% year-on-year. In terms of the technology system, Xiaomi established the Group Technology Committee in February this year. Lei Jun even emphasized at an internal meeting that it is necessary to continue to strengthen the technology business, as technology is related to the survival of Xiaomi.

Technology is related to product competitiveness, while channels are another important factor in sales.

The construction of Mi Home has been very effective, and the multiple categories of Xiaomi's ecological chain have also contributed a lot to improving the efficiency of its offline stores. However, the low profit of Xiaomi mobile phones has become the biggest obstacle for offline dealers to sell Xiaomi mobile phones. The new retail system is still a key factor that Xiaomi needs to further streamline in 2019.

After three years, Lei Jun comes out again. Can he continue to create miracles this time? Let's wait and see.