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The Mi4 is one of the low-cost 4G models launched by Xiaomi.

China 4G services expansion intensifies Xiaomi-Lenovo rivalry

Lenovo may erode strong lead of smartphone start-up with Motorola acquisition amid the mainland's switch to the new 4G mobile trend

Lenovo

Xiaomi, the listing hopeful that aspires to become the world's largest smartphone company, could see Lenovo Group chip away at its strong lead on the mainland from next year as the computer giant drives 4G handset sales with its recently acquired Motorola brand.

It is a showdown that would also mark the strategic transition by the mainland's mobile-phone suppliers into shipping more 4G devices than 3G products in the world's biggest smartphone market.

The shift comes at a crucial time for a firm that some view as the mainland's main challenger to technology giants Apple and Samsung Electronics, with investment banking sources expecting Xiaomi to launch a US$1.5 billion Hong Kong share offering early next year.

Anything that casts doubt on a business model and product line-up that bankers calculate have put a US$50 billion price tag on Xiaomi could easily spook potential investors.

Once-robust shipments of 3G and basic 2G handsets on the mainland are forecast to rapidly shrink over the next two years, following the aggressive rollout of new 4G mobile infrastructure by the country's telecommunications network operators.

That could be a problem for Beijing-based Xiaomi, the marketing-savvy consumer electronics start-up founded in 2010 that has mostly sold 3G devices.

A Bernstein Research report showed 4G represented about 75 per cent of total smartphone shipments last month, up from 65 per cent in September and just 19 per cent six months ago, on the back of China Mobile's 4G network expansion.

"We believe that trend is going to continue and the number of 3G models on the mainland will continue to decline," Bernstein analyst David Dai said yesterday.

Dai pointed out that 163 4G smartphone models were released on the mainland in the past two months, compared with 71 3G models and 46 2G offerings. Bernstein has forecast 4G device shipments would total 135 million in the country this year.

Xiaomi has though shown an ability to swiftly refocus. It launched three low-cost 4G smartphone models in the third quarter on the mainland under its Mi4, RedMi Note and RedMi 1s brands.

Technology market research company Canalys put Xiaomi at the head of the mainland smartphone market last quarter, followed by Samsung, Lenovo, Huawei Technologies and Coolpad Group.

Worldwide, Xiaomi was ranked third behind Samsung and Apple in the same period.

But Shanghai-based Canalys research analyst Wang Jingwen said yesterday that Lenovo "has a chance to ship more smartphones than Xiaomi next year", following its integration with US firm Motorola Mobility.

Lenovo, the world's top supplier of personal computers, recently completed its US$2.91 billion purchase of Motorola from Google. According to Lenovo, this merger made the company the world's third-largest smartphone supplier.

Lenovo's two big advantages are its improved portfolio of intellectual property after the Motorola deal and its own manufacturing facilities for smart devices on the mainland.

Xiaomi has its devices made by contract electronics manufacturers like FIH Mobile, part of the Foxconn group of companies under Taiwan's Hon Hai Precision Industry.

"Xiaomi lacks the patents and other intellectual property essential to compete in mature markets such as the US and Europe, especially when compared with competitors Huawei and Lenovo," Dai said.

Xiaomi chief executive Lei Jun told a conference last week that the firm's smartphone sales would reach 300 million units next year, from 70 million this year, and "become the No1 smartphone company in the world" in the next five to 10 years.

This article appeared in the South China Morning Post print edition as: Pressure mounts on Xiaomi in 4G battle
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