Author(s): Raghu Gopal
Ben Wood, Marina Koytcheva
On 3 May, Hong Kong-based CK Hutchison and China-based Xiaomi announced a global strategic alliance. Under the agreement, Hutchison will begin selling Xiaomi smartphones and connected consumer products from its Mi Ecosystem in Three stores. Xiaomi products will also be sold by A. S. Watson Group, a major health and beauty retail chain majority-owned by Hutchison that includes stores like Fortress, Superdrug and Kruidvat.
For Xiaomi, the deal provides it with a new level of sovereignty. This recognition by a major global operator group will give it exposure to tens of millions of subscribers in many leading European markets. To be more specific, its products will be sold in Three retail locations in Austria, Denmark, Hong Kong, Ireland, Italy, Sweden and the UK. Three has almost 45 million active mobile subscriptions in the six European countries.
Xiaomi has risen quickly since it started selling smartphones in 2011 using a flash-sales model and a competitive offering. It might have derived its design language from other major smartphone makers, but it began building its brand value and marketing its hardware in unique ways, which, after some hiccups ultimately worked well in China and other Asian markets (see Xiaomi Shines a Light on Its Business). Xiaomi was the fourth-largest smartphone supplier in the world during the first quarter of 2018, selling 28 million units. This was thanks to a solid position in China and a surge in sales in India, where it's now the largest phone-maker by volume. Further details about the mobile phone market in 1Q18 will be published in CCS Insight's upcoming quarterly report.
Things are different in Western markets for Xiaomi. In Western Europe, Xiaomi sold less than 1 million smartphones in 1Q18, mostly in Spain, where it formally began sales, but also in other European markets through online channels such as Amazon. This gives Xiaomi much less than 1 percent of the Western European market. Nonetheless, its appetite for growth is clear.
Xiaomi has never hidden its aim to make it big in the West and has previously broadcast its intentions to enter the US market. With an upcoming initial public offering (IPO), Xiaomi needs to meet heightened expectations for expansion. In fact, with a valuation currently expected by financial analysts of about $70 billion, a successful entry into Europe and the US is a believable ambition.
It's perhaps no coincidence that this partnership news came on the same day as the formal IPO announcement. Hutchinson is providing Xiaomi with a level of recognition it needs. Xiaomi has now grown beyond being a challenger hardware maker, and as a top-five player can now claim a seat at the "top table".
In the US, Xiaomi is likely to initially sell smartphones on the open market, unlocked and unaffiliated to a specific wireless carrier. But we believe that Xiaomi is likely to be courting several of the major carriers in hopes of getting a device into their portfolios. Although the open market is a growing segment in the US, it's only about 15 percent of the market. For mass-market sales in the country, the phone-maker must get exposure to carrier channels. Logic would suggest a personality match with T-Mobile US, given the challenger mentality of the two companies.
Despite Xiaomi's success in other markets, we note that the company has a lot of work to do to increase its brand value in the West. Even with exposure and carrier stores, success is not guaranteed; better-known brands like Huawei and Lenovo have struggled. But for Xiaomi, this is a shining Mi Three moment that provides it with a new clout.
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