At the first important meeting of the year of the tiger, Lei Jun made it clear that the high-end road is the only way for Xiaomi to grow and the battle of life and death for Xiaomi’s development. Xiaomi will take the first share in the domestic high-end mobile phone market in three years.
This can be regarded as an advanced version of Lei Jun’s statement in early 2022 that “officially benchmarking apple, we must surpass Apple step by step in the future”. At the same time, it shows that Xiaomi continues to strengthen its existing business “basic sector” in addition to accelerating the car making business widely concerned by the market.
Since Huawei was suppressed, China’s smart phones urgently need a brand breakthrough to represent China at the technical and product levels. At present, many domestic mobile phone head manufacturers, including Xiaomi, are eager to try and strive to carry this banner. In terms of disassembly, Xiaomi has both commonalities and uniqueness among a crowd of trendsetters.
Lei Jun’s “bold words” include two important dimensions of “high-end” and “first”.
The first is the high-end of Xiaomi. Since the release of the first generation of mobile phones, Xiaomi has been equated with the word cost performance, so that the prices of all Xiaomi IOT products outside the broken circle are regarded by the market as the benchmark of cost performance. Although for consumers, they can experience flagship products with less money; But for the brand, it is hard to say good. With the listing of Xiaomi, after investors had higher requirements for profitability and brand premium, Xiaomi began to transform to high-end from 2019, during which there were twists and turns, which proved that it was not as easy to promote high-end as expected by the market.
The second dimension is market share first. This threshold is not strange to Xiaomi, but more like “picking up steps”. Xiaomi won the first place in China’s mobile phone market in more than two years since it launched its mobile phone at the end of 2011. This is also the first time that Chinese mobile phone brands have completely defeated foreign brands in the Chinese market, which has boosted the confidence of Chinese mobile phone products to attack cities and occupy land in the market. Finally, the top four domestic mobile phones of huami Ouwei won 80% market share in the Chinese market. In the second quarter of 2021, in addition to Samsung accounting for 19% of global smartphone shipments, Xiaomi’s shipments also soared by 83%, ranking second with 17%. This is the first time that Xiaomi has surpassed apple in the world. To this end, in August 2021, Lei Jun made a great ambition: “to stabilize the second place, Xiaomi’s next goal is to win the first place in the world in three years.”
Xiaomi’s high-end transformation has attracted the attention of multi-channel institutional analyst teams. Changjiang Securities Company Limited(000783) said in the latest research report that the high-end of Xiaomi is not only reflected in the improvement of the price belt, but also has undergone positive changes in R & D investment, channel layout and marketing strategy. With continuous investment, Xiaomi is gradually filling the market gap in the past. China’s share is expected to be stable and the global share continues to break through. With the increase of mobile phone sales and the improvement of the number of users and user structure, Xiaomi’s Internet service revenue is accelerating, and the company’s profitability is expected to be enhanced in the future.
This time, Lei Jun will promote “high-end” and “share first”, and one of his confidence lies in the “report card” of the market. The shipments of Xiaomi 12 and 12 pro in the first month far exceeded the sum of all other brands of Xiaolong 8 mobile phones. Among them, Xiaomi 12 Pro became the Android sales champion in the January 4000 + price segment of e-commerce platforms jd.com and tmall. Meanwhile, in the first three quarters of last year, Xiaomi’s total shipments of high-end smartphones priced at 3000 yuan and more than 300 euros at home and abroad also reached 18 million, a year-on-year increase of more than 180%.
Why can Xiaomi break out of the tight encirclement in the highly competitive mobile phone market?
One of the reasons is due to the multi-year layout of Xiaomi at the production end and channel end. In terms of intelligent manufacturing at the production end, Xiaomi took the lead in opening the unmanned factory mode in the mobile phone industry. Phase I realized the trial research and production line of millions of high-end smart phones, and phase II was completed in 2023, which can realize the production capacity of tens of millions of high-end smart phones. On the channel side, last year, Xiaomi reached the scale of WanDian in China’s offline channels, realizing 95% urban coverage and 80% County coverage. Changjiang Securities Company Limited(000783) believes that with the operation of thousands of stores opened in 2021 becoming mature, Xiaomi’s offline market share may be further improved.
However, this is not a sufficient condition to lead to the high end. Previously, although Huawei spent 15 years, it failed to completely surpass apple in the end. In order to impact the high-end, Huawei has cut off the low-end contract machine business with a scale of 10 billion. In addition, it has invested hundreds of billions of yuan in the R & D of core technologies such as Kirin chip and Hongmeng system. One of the reasons why Apple’s mobile phone has stood firmly at the high end for many years is that it has its own IOS system and A-Series chips, so that it can optimize the mobile phone to the greatest extent, make it different, and then constantly press its own competitive chips.
In recent years, Xiaomi is also obviously paranoid about R & D. In 2020, Xiaomi officially announced that “50 billion yuan will be invested in R & D in the next five years”, and the newly announced R & D investment will increase to 100 billion yuan in five years “. Whether from the point of view that reporters have participated in Xiaomi financial report communication meetings for many times and Xiaomi has emphasized” strong R & D “every time, or from the point of view that the R & D expenses of the company exceeded 7.5 billion yuan and 9.3 billion yuan respectively in 2019 and 2020, and the R & D revenue ratio has been close to 4%, This trend will continue to intensify.
This strong R & D brings at least two dimensional variables. First, the pace of technology accumulation has been accelerated. Under the “living water mode” of technology flow and sharing within the group, Xiaomi chip, image, fast charging and comprehensive screen have been significantly promoted. Taking comprehensive screen technology as an example, Xiaomi launched mix 4 last year, which indicates that the company has been recognized by high-end consumers; Xiaomi 11 t sells for more than $600 overseas, and technical support has become a stepping stone for Xiaomi to really open the high-end mobile phone market.
The second is the continuous expansion of talent construction. At present, Xiaomi has 16000 engineers. It has recruited 5000 engineers in 2021 alone and will continue to recruit 5000 engineers in 2022. After building a moat of high-end talents, how to retain talents has become a new problem. From the current visible path choice, equity incentive has become one of the ways. In 2020, Xiaomi granted equity to excellent engineers twice.
Although Xiaomi has made great efforts to build a moat in terms of technology, from the perspective of industrial logic, whether any brand is a high-end brand is often not only determined by the manufacturer’s pricing, but the result of long-term product quality, technical strength and user cognition.
Taking user cognition as an example, when the consumption cognition of “Xiaomi = cost performance” is deeply rooted, it is worth paying attention to whether Xiaomi will completely remove its “cost performance” label and enable a new brand in the process of leading to high-end.
Therefore, in essence, “winning the first high-end in China in three years” means that Xiaomi needs to make a comprehensive breakthrough in many dimensions such as technology, products, brand, quality and service. One side is the technical support, and the other side is the high-end attribute of enabling brand, which are the two fulcrums supporting the high-end of Xiaomi. Lei Jun said that the high-end of Xiaomi cannot be achieved overnight, but needs to maintain long-term strategic concentration and continuous investment. From a strategic perspective, it should also be a comprehensive system including brand reconstruction and service optimization.
