Friday, May 02, 2014

Xiaomi the money. Is the smartphone profit margin a thing of the past? Where will the money come from now?

(Yes, "Xiaomi" is sort of pronounced "show me" but soon "mi" will do fine.)

It's a bit sad to see the company where I worked for 16 years break apart. The Nokia I knew no longer exists. But there really are no surprises here. Clever companies know when it's time to move on.

All industries are special, sexy, and exciting. Until the day they aren't. Toasters, refrigerators, transistor radios, televisions, VCRs. They all had their day in the sun, but got covered in a thin, dull layer of boring. They became very everyday objects. Key players come, and key players go.

So, how much have the players in the handset industry changed? Completely! As I've pointed out before, not one single top-ten vendor from 20 years ago is still in the global handset business. They haven't just lost market share, they have given up competing in the industry. The big, fat hardware profits dried up so they just got up and moved on. Let someone else fight for the table scraps. That's the smart move so long as you have another watering hole lined up. (I'll say that the chunk of Motorola owned by Lenovo is a different company than the Motorola we knew.)

I remember five years ago when I first came across a top-ten global handset vendor named Xiaomi. Who? Some company few of us had ever heard of (and few knew how to pronounce) suddenly appeared as a top handset maker. I checked out their website. They had a portfolio of handsets a mile wide with features that must have been stuffed into devices with a plunger. There were phones with televisions, radios, touch input. There were sliders and colors galore. So what is Xiaomi up to now. Well, they are becoming a serious global smartphone company with sharp-looking gadgets. They even make bionic bunny rabbits.

But hey, it's getting crowded in here. Check out Huawei, another company name people can't quite pronounce, but matters a ton nonetheless. Huawei's goal this year is to ship 80 million smartphones. That would give them around 8% global share. And Huawei means business with a $300 million global marketing campaign.

So, what happens when Google brings out the advanced $100 smartphone? And Motorola/Lenovo the sub-$50 smartphone? What happens when good phones reach bubblegum-machine pricing?

How can you compete? No, it's not easy beating Mi. (

Is handset (hardware) profitability toast? Key players get burnt once an industry is no longer special.

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