Xiaomi goes full communist, vows its phone profits will never exceed 5%

Xiaomi goes full communist, vows its phone profits will never exceed 5%
Yes, you can get a sturdy 6" metal phone with thin bezels, midrange Snapdragon, good camera, 4GB RAM/64GB storage, and 4000mAh battery for $220. Yes, we are talking about China's new sales darling, Xiaomi. Despite having little retail presence, and counting mostly on direct online sales, the company is now one of the best-selling brands in its home turf, moving 12 million units there in Q1.

Needless to say, the secret of its success is great handsets sold at ultrathin profit margins. While that last thing can be said for a lot of Chinese brands, the first is usually reserved for the top dogs, and that's where Xiaomi shines. How does the company do it, if it manages to keep prices so low? Well, its former CEO, ex-Googler Hugo Barra, disclosed that they usually start selling their devices around cost, but give them a very long shelf life, compared to the direct competitors. When the components' prices eventually go down, Xiaomi manages to set on a decent margin, and that's how it keeps the business sustainable.

Thankfully, this will be the business model for Xiaomi going forward, too. In fact, its founder Lei Jun just got on stage today, and announced that Xiaomi will strive to never exceed a 5% profit margin on all of its gear, including phones. If, for some reason, net income goes above 5% after taxes, the company will find ways to compensate consumers, he added. It's a pretty admirable idea from the user point of view, as things that cost peanuts to make in China, can arrive with a 10x markup in the stores, and not only Western ones. 


Call it populism or even communism, Xiaomi has proven it can deliver great phones at near cost, and it is seemingly a company philosophy rather than one-off shots. The founder used today's Mi 6X launch to hammer the point home, and hinted at plans for global expansion, too, with the following:


source: Xiaomi

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31 Comments

1. bur60

Posts: 981; Member since: Jul 07, 2014

Very nice of them

13. Nimbus

Posts: 442; Member since: Apr 02, 2018

I hope all companies do bussiness model like xiaomi,one+,Huawei,Asus on midrange phones,flagship phones to attain sustainable profit growth and provide value for bang devices to consumers.This will enable consumers to buys product in the longer run with good software support date which will enable consumers remain loyal to the brand which apple do it on their own product range and so do Microsoft on windows 10 software cumulative update sytem as a service on all their windows products and launch product on consumers feedback.

17. Papa_Ji

Posts: 838; Member since: Jun 27, 2016

Imagine mid ranger iPhone x made by Xiaomi ..... no more than $400

18. Papa_Ji

Posts: 838; Member since: Jun 27, 2016

Even with 5% margin, Xiaomi manages to support it's devices for more than 6 years of software updates.https://m.gsmarena.com/xiaomi_will_update_40_devices_to_miui_9-news-29199.php

20. Nimbus

Posts: 442; Member since: Apr 02, 2018

Nope i heard they only provide one update to their midrange and rest update the MiUi for 5 years but still good as apple,windows updates sytem.

23. Sammy_DEVIL737

Posts: 1529; Member since: Nov 28, 2016

You get updates for MIUI and not any security or Android updates for 6 yrs.

30. GalaxyLeads_iCrapFollows

Posts: 216; Member since: Nov 29, 2017

Not nice. Just business tactics to hurt the competition. Guys do not support them. They are chinese and communist!

2. pokharkarsaga

Posts: 547; Member since: Feb 23, 2012

Looks like Samsung and other OEMs are about to get destroyed by Xiaomi.Samsung already beaten in India.

3. Jacksie66 unregistered

I'm not sure you understand what communism really is

8. Crispin_Gatieza

Posts: 3122; Member since: Jan 23, 2014

Not one bit.

26. dimas

Posts: 3342; Member since: Jul 22, 2014

PA should stop using too much political words if they don't understand it.

4. MINDoSOUL

Posts: 322; Member since: Feb 28, 2014

Good on you Xiaomi!. I would love to own one of your devices if you give me a phone with slim even bezels, dual speakers, Great Camera and the rest of a flagship specifications. Love everything you do but you are not there yet in terms of a flagship mobile device, but with your strategy i believe you will reach soon. Good luck.

5. tiara6918

Posts: 2263; Member since: Apr 26, 2012

Xiaomi will soon dominate with their fairly reasonable price tags and excellent devices. While others oems cheat their consumers, xiaomi sticks to their principles kudos to them

6. Ghost04

Posts: 517; Member since: May 03, 2014

There quality needs improvement.

7. Crispin_Gatieza

Posts: 3122; Member since: Jan 23, 2014

I'm Cuban, I know Communism. And this ain't it. Using borderline slave labor to produce on the cheap is a despicable trade practice but it doesn't appear anywhere in the collective works of Marx and Ingalls. I suggest picking up a copy of Das Kapital or the Communist Manifesto the next the author makes a bathroom trip. Consumers need to send a loud message to Xiaomi that their business model will not be accepted no matter how much they sweeten the pot. Actually, the same message should be sent to Apple, Wal-Mart and a host of others. Think globally, act locally.

25. dimas

Posts: 3342; Member since: Jul 22, 2014

"Consumers need to send a loud message to Xiaomi that their business model will not be accepted" So that's why after all these years, they're still famous to the mass chinese population? As for the communism thing, I think we can all agree that it should die and only works great in philosophy schools. That "I work hard for my money but we will share it equally" is the biggest bullcrap I've heard. Capitalism all the way.

27. Crispin_Gatieza

Posts: 3122; Member since: Jan 23, 2014

So that's why after all these years, they're still famous to the mass chinese population?" You think it was because their overwhelming popularity? Cuba has had free elections since the Revolution. Except that for the past 48 years there's only been one candidate and his last name was Castro. You have to wonder why Fidel was so beloved that no one else saw fit to challenge his presidency.

28. dimas

Posts: 3342; Member since: Jul 22, 2014

"You have to wonder why Fidel was so beloved" Wow, you really made me laugh on that one. Beloved? You're lucky if you compete with Castro on a "free election" and get out of your province alive the next day. And you're comparing a capitalist company to a ruthless dictator. I think you should bring your politics somewhere else and focus on the tech article.

9. Yeahseen

Posts: 16; Member since: Apr 08, 2017

world leader in the making

10. piyath

Posts: 2445; Member since: Mar 23, 2012

If Xiaomi comes to US they'll also most definitely face some resistance from the government. All these big Chinese companies are deeply affiliated (although reluctantly) with the Chinese government thus it'll be a national security concern once again. Chinese gov forces their smartphones OEMs to do stuff for them and mostly gov wins unlike in the US. Who knows....

11. TechSceptic

Posts: 1156; Member since: Feb 05, 2018

This is fantastic for consumers, as excessive profit margins means the company is so greedy that they're making you pay a lot of money for a product that isn't worth that much. I could tell you about such a company, but you should all have a specific one in your head as you read this.

12. midan

Posts: 2707; Member since: Oct 09, 2017

Samsung and other big old android companies can only follow from distance how these chinese companies stealing their sales. That's the problem when they all share same OS. Eventually someone else does it cheaper and you are screwed. Big companies can't follow prices like this.

14. vasta

Posts: 74; Member since: Apr 02, 2018

That makes absolutely no sense...

15. PhoneCritic

Posts: 1354; Member since: Oct 05, 2011

This is not a good thing - in fact it creates a market where no innovation happens. IF all companies sell their product at such a low price that they make minimum profit and then pay their employees just minimum wages what incentive would there be for people to do better? If we all make the same amount regardless if on works twice as hard or hardly at all it would only breed apathy and pure laziness. what set Samsung and Apple And Microsoft and Google apart from Chinese run companies is profits and competition ( we may not like it but it benefits us all in America and democratic societies ). If I pour money into R&D (hiring intelligent motivated hungry researchers, Engineers, programmers, Marketers, Support) I get a better product then my competition and thus can charge more and make more and pay my employees higher wages ( their reward for working hard) so they can buy more , homes, cars, Phones, etc.. Capitalism yes has it faults and yes sometimes it can run a muck but remember they people always have the power as they can choose with their wallet. With a scenario like Xiaom is proposing there would be no choice all the companies would be selling the same thing with no advantage over one another as all companies would only be making 5% profits so what motivation would there be to make a better product? We do not need this. I can't understand this generation of young adults who actually believe socialism and Communism are good things. Americas Universities are all garbage now if this is what they are teaching our young people.

19. Crispin_Gatieza

Posts: 3122; Member since: Jan 23, 2014

You don't seem to understand that Xiaomi is doing all these things you're mentioning except they're not paying minimum wage. It's basically slave labor. Get that Western mentality out of your head, countries like China have access to all the same R&D facilities as in the West but they don't pay s**t to their scientists and engineers. Another thing, don't confuse socialism with communism because despite what the right-wing fascists tell you, it's not the same. Germany is perhaps the world's strongest economy and it's a socialist nation just as Japan is. I may not agree with the tenets of socialism but you can't discard the results in some countries. I enjoy a very good standard of living in the US but like most people here, I'm one catastrophic medical emergency away from being homeless. Let that sink in for a minute.

29. PhoneCritic

Posts: 1354; Member since: Oct 05, 2011

How has socialism worked out in Europe? Don't even mention how communism worked out for the world you cant ask over the two million people who died under Stalin, Mao, the Kamer rouge etc... Capitalism has its issues but it is the better system than the others. "Get that Western mentality out of your head.." - Really ? "I enjoy a very good standard of living in the US" -seems Your argument falls by its own weight. but like most people here, I'm one catastrophic medical emergency away from being homeless. Let that sink in for a minute. - that's why taxes paying legal citizens have social services - you put in your fair share to be able to take out your fair share. Thats why we cant have lax immigration laws that allow illegals ( do we understand that word what part of that word do people not understand < My family, mom, and Dad, had to wait online by following all the legal procedures to get in to the country and when they got in they immediately went for and became citizens they worked hard two to three jobs and paid there taxes and never asked for hand outs < i have been working since they age of 10 and today have a very successful career in engineering> when the time came they retired with full pensions and social security ) That's how a capitalist society is to work but if we break the rules don't expect it to function then, "but they don't pay s**t to their scientists and engineers." Exactly and that's why they cant put into a system to be able to take out at a later time of need. that's why they are not motivated to do better or go above and beyond.

21. TheOracle1

Posts: 2213; Member since: May 04, 2015

The original Mi Mix and Mi Mix 2 and 2s scuttle your argument but don't let the facts get in the way. Xiaomi sell a whole range of products from tv's to laptops and desk lamps. Their origin is in software with miui being a very popular 3rd party rom. They certainly know how to innovate.

16. jphiller87

Posts: 92; Member since: Apr 23, 2015

iPhoneX $370 to manufacture and $1000 USD no thanks

22. kennybenny

Posts: 212; Member since: Apr 10, 2017

My next phone will definitely be Xiaomi when it becomes officially available in Canada

24. almostdone

Posts: 439; Member since: Sep 25, 2012

Unlike Apple who offers the complete opposite who are taking 95% profit and spending 5% on building their crapware.

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