Xiaomi says it’ll cap hardware margins at 5%... but does it even make that much now?
Tight competition in China’s smartphone market squeezes profits
Xiaomi made headlines for an unusual pledge to limit how much profit it’ll make from its products. A company actively saying it plans to make less money isn't something you see every day. But some say Xiaomi’s promise isn’t quite what it appears.
In an open letter, CEO Lei Jun said Xiaomi’s board agreed to limit the net profit margin from its hardware division to 5% -- and if it exceeded that, it would find a way to return some of that extra money to users.
One of Xiaomi’s rivals also spoke to the SCMP -- and they were far more blunt.
“Among all the [tech] hardware companies in China, are there any of them able to achieve a net profit margin of five percent?” said Zhao Ming, president of Huawei sub-brand Honor. “If Honor was able to achieve that, we would be very pleased.”
And one analyst from the firm pointed at the reason Xiaomi is boasting about their new plan.
“It’s aimed at pleasing its users,” said James Yan from Counterpoint Research. “Xiaomi wants to tell users that they don’t make money or make only very little money.”
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