Xiaomi’s smartphone shipments soared +76% YoY in Q1 2021. Its smartphone wholesale ASP and operating margin also improved from a year ago. Xiaomi has successfully filled in the vacuum from the withdrawal of Huawei and Honor, with strengthened portfolio and successful offline expansion. It pushed into top 5 list in all regions, except North America, heading for the right direction being a real international brand.

Like other Chinese vendors (OPPO and vivo), Xiaomi now have two main product groups: the 5G line-up mainly for China, and the 4G line-up mainly for overseas markets. Though this increases the R&D cost, it makes sense given the different 5G development status between China and the rest of world. 5G has become the dominating tech in China.

Xiaomi successfully filled in the vacuum from the withdrawal of Huawei and Honor in overseas markets, by extending product portfolio and shifting towards offline. Meanwhile, the local distributors and operators’ preference to diversify OEM partners has also helped Xiaomi to gain more support over Samsung. Xiaomi penetrated to top 5 lists in all the regions where Xiaomi smartphone business has the operations. It is now the 2nd largest smartphone brand in Central Eastern Europe and in Africa Middle East, the 3rd largest in Western Europe and in Asia Pacific, and the 4th largest in Central Latin America.

In home market China, Xiaomi also posted strong rebound this quarter, thanks to the post-pandemic economic recovery, the strengthened 5G portfolio, and the solid progress in offline expansion. Xiaomi achieved impressive progress in offline expansion in Q1 2021. Xiaomi’s direct retail stores “Xiaomi Experience Home” hit 5000-unit bar in China in April 2021, up from 1000 unit that it achieved 4 months ago. We anticipate direct retail stores will play increasingly important role in Xiaomi’s offline expansion in China. Meanwhile, the third-party offline channel partners will remain as Xiaomi’s bottleneck, due to the low channel margin and the different pricing philosophy of Xiaomi products.

Under Xiaomi’s strong momentum, there are some headwinds that Xiaomi needs to pay special attention:

• First, we caution Xiaomi’s risks in channel inventories as well as components inventories under its aggressive expansion plan.
• Secondly, we caution the escalating situation of covid-19 in India which is likely to impact Xiaomi’s global performance in the following quarters.
• Thirdly, we caution the political risks for Xiaomi under US-China tension. The US ban on American investment in Xiaomi was temporarily halted by a federal judge, but the political risk remains and would play a critical role on the fate of Huawei smartphone business.
• Last, we caution the IPR risk from Huawei. Huawei announced in March that it would formally charge up to USD 2.5 loyalty fee per 5G device since 2022. This would bring in a huge extra cost to Xiaomi razor margin, if it will take place next year.

Our full report Q1 ‘21: Xiaomi: Becoming a Real International Brand is published. WSS clients could access the report via this link.