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Opinion | Xiaomi low-end assault set to sputter
Xiaomi's new low-cost smartphone is likely to meet with a tepid reception after its launch in August due to recent stiff competition in the space.
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A flood of low-cost smartphones into the China market looks set to accelerate with word that the trendy Xiaomi is preparing to launch a low-end model that will sell for just 1,000 yuan (HK$1,255). Xiaomi's new phone, called Hongmi or "Red Rice" has been rumoured for a while, and was actually supposed to launch in June but ran into unspecified regulator snags. Now media are reporting the Hongmi phones could launch this week, adding a new player to an already overheated market for low-end smartphones.
The actual reports cite a launch date of July 30, with a mistakenly posted ad on a China Mobile website quoted as the source of the date and product launch. I've had a look at the Xiaomi website today, and so far there's no mention of the rumoured new phone. The 999 yuan price tag would mark a sharp reduction from Xiaomi's current cheapest product offering, the 2S, which carries a starting price of 1,699 yuan (HK$2,133).
Xiaomi's entry into the low-end smartphone space would follow a recent flooding of the market with a wide range of cheap rival models from the likes of Huawei, ZTE (0763.HK; Shenzhen: 000063), Lenovo (0992.HK) and Coolpad. I can personally attest to the fact that such an explosion is taking place, with many more consumers here in Shanghai selecting these cheap and highly functional models over costlier and more prestigious ones from sector leaders Samsung (Seoul: 005930) and Apple (Nasdaq: AAPL).
That explosion has resulted in a big build-up in inventory for these phones, leading market watchers to forecast a round of major price wars in the second half of the year. I've previously said that such price wars will ultimately hurt not only recent market entrants like Huawei and Lenovo, but could also take a bite out of the business for Apple and Samsung.
Against all that backdrop, Xiaomi's timing for its low-end Hongmi offering doesn't look too good as the product is likely to struggle to find an audience in the overheated market. It's still unclear why Xiaomi's plans for the Hongmi have hit so many delays, though it appears the company's inexperience at dealing with China's bureaucratic regulators is a major factor. In this case, those delays may cost Xiaomi millions of units in lost sales -- a difficult but important lesson for this young company as it seeks to become China's next Apple.
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