Xiaomi Smartphones: US$65 Target Price

There are two key issues to Xiaomi getting involved with CPUs. PadNews has an analysis, reprinted from “21st century business Herald” [Google Translate].

1) Patent protection. There are issues regarding licensing fees that have to be paid to major patent holders such as Qualcomm, Nokia (now Microsoft), and even Samsung.

2) Lowering phone prices. Here in the U.S., we find China tech to be bargain priced. In the majority of the world, it’s still priced too high in places such as India and other developing nations.

Bing Translator does the best job on this paragraph:

Just a year ago at the Beijing Forum on Microelectronics, Lei has publicly called for: chip industry should learn from the Internet free of charge, in accordance with the cost price, “Why sell thirty or forty dollars, instead of three or four dollars? If the chip free, millet high-end cell phones only 500 Yuan.” The Lei predicted that the next 3-5 years, was” certainly is based on sand, the chip company sold chips and achieved great success. ”

At that time, price 699, 799 USD red rice has just released, Lei presented at the event: “I did not expect red rice is so successful. Low end of the market there was so big, so strong market demand.” Red Rice’s success in bringing the Lei is determined in the low-end mass market a go.

Boldfaced emphasis added by me.

Lei Jun is saying that selling a chip for $30-$40 is counterproductive to the overall good of the industry. It’d be better if they cost just $3-$4. But even better would be if the chips were free. He was also surprised by the sales of the low-end Red Rice phone. He didn’t know demand was so big at the low-end of the pricing scale.

Neither machine translation renders the following well, but I will boldface the key point (from Bing Translator):

“LCI’s market positioning and market millet basic agreement.” Old Yao predicted that “the next step, millet phone to launch 399-499 yuan estimated in December this year, based LC1860 millet phone will be available.”

Using the new CPU Xiaomi now partly owns, they can introduce a new phone with a price ranging from 399 to 499 yuan. That’s US$65 to US$81. And it could — but likely won’t — happen as early as this December.

But the other key thing, aside from the shocking price, is that this new phone will have worldwide cellphone frequencies.

That means anyone can use it anywhere.

It remains to be seen what exactly this new CPU can do. But the way Xiaomi works — the MiPad misstep aside — is to push pricing down with enough processing power to undercut all of the well-known brand-name rivals.

Samsung already thinks Xiaomi is a headache — but they’ve got even more pain coming.

It’s going to be very interesting to see if Xiaomi will subvert itself. Their goal is to sell one hundred million smartphones next year. That can’t happen if their pace of international expansion continues to be so slow. They’ll have to move faster. Will they take a page from the OnePlus One phone and start selling to power users at bargain prices via the Internet before setting up a local physical presence as they have been?

Apple probably thinks low-end Xiaomi phones are a joke.

Apple doesn’t see the trainwreck that’s waiting for them.

Xiaomi is number three in the world. As they increase production, they’ll need to contract for more manufacturing. At some point, they’ll collide with Apple’s need for manufacturing.

The day could arrive when Apple can’t sell enough phones because it can’t make enough phones — because all of those Foxconn factories have as their first priority turning out phones by Xiaomi.

And, one more thing.

I wouldn’t be surprised if by this time next year, we see the first Xiaomi phone officially on sale in U.S. — at T-Mobile stores. The Uncarrier meets the Unpricey.

2 Comments

Filed under Android, Digital Overthrow, Pricing

2 responses to “Xiaomi Smartphones: US$65 Target Price

  1. madmidmidori

    CPUs today integrate a lot of functionality and require a lot of R&D, that costs a lot (if you’re doing more that just using ARMs designs) + patent battle again giants will drain smaller companies of their resources. If Xiaomi starts producing their own CPUs they’ll still probably need to spin off the production itself to GlobalFoundries and they’ll need to sell a lot of phones to be able to offer them at a low price.

    While this could lower the CPU price 50-70% (eg. from $15 for Snapdragon 400 to $5 for own made) they’ll need to cut costs on all other components to be able to hit such low price ($60-80).

    While we see more companies trying to develop components in-house (Huawei, now LG, Nvidia etc.), Xiaomi seems more agile (maybe because they’re smaller?), modern and aggressive so we’ll see how it all plays out.

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