Despite selling its smartphones at razor-thin margin, Chinese smartphone maker Xiaomi has been able to make a decent profit, which grew 84 percent in 2013, revealed Wall Street Journal, citing a confidential internal document.
According to WSJ, Xiaomi’s net profit last year rose to 3.46 billion yuan ($566 million, INR 3,482 crores) from 1.88 billion yuan in 2012, while the revenue more than doubled to 27 billion yuan. The publication further notes that the smartphone maker is hoping for a rise of 75 percent in the net profit this year.
Being a private firm, Xiaomi does not have to publically report its financials, so we don’t hear about the profits or revenues, but it has been a popular assumption until now that smartphone sales at rock-bottom prices has come at the expense of profits for Xiaomi. It longer seems to be the case now and also shows why Xiaomi seem to think that it worthy of raising new funding round at a valuation of $40 billion.
It is, however, interesting to see how Xiaomi has been able to squeeze so much profit even after selling the phones like Redmi at $100. WSJ notes that one possible assumption could be the company’s inexpensive marketing strategy, which relies more on social media and word-of-mouth rather than snazzy TV commercials and newspaper spreads. According to the reports, Xiaomi does only one TV commercial per year, which is on the Chinese New Year’s Day.
Xiaomi’s marketing strategy is already being replicated by select Chinese smartphone makers.