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Xiaomi Made Only $56 Million in Profit in 2013

The world's No.3 smartphone maker is grappling with razor-thin margins.

Reuters

Privately owned Xiaomi booked 347.5 million yuan ($56 million) in net profit last year, according to a regulatory filing that showed the world’s No.3 smartphone maker grappling with razor-thin margins.

The figure casts new light on the growth of a company that reached third place in just four years thanks to handsets lauded for balancing quality and affordability. Only this month did momentum finally stall when a patent challenge in India halted sales.

Valued by private investors at more than $10 billion, Xiaomi recorded revenue of 26.6 billion yuan and an operating margin of just 1.8 percent.

A Xiaomi spokeswoman confirmed the accuracy of the filing, but said it did not cover the entirety of Xiaomi’s business.

“They’re growing so fast and so lean, I wouldn’t be surprised even if they were losing money,” said Forrester Research analyst Bryan Wang. “The current market is so competitive that I don’t think it’s sustainable without consolidation.”

Xiaomi brands itself an “Internet company” that eschews traditional marketing and sells hardware at low prices as a distribution channel for its real moneymaker: software and services.

But the financial strain of such a business model, and whether Xiaomi can generate sustainable profit, has been a subject of long-running speculation in the technology industry.

All but leading smartphone makers Samsung and Apple are likely to see profitability dwindle in coming years due to pricing pressure from low-margin companies like Xiaomi, Fitch Ratings said last month.

Samsung’s mobile division reported an operating margin of 18.7 percent last year, whereas Apple reported 28.7 percent for the business year ended September 2013. LG’s mobile business posted a margin of just 0.5 percent.

South Korea’s LG lost its position as the world’s third-biggest smartphone maker during the third quarter of this year when Xiaomi claimed a global market share of 5.6 percent, according to Strategy Analytics.

Xiaomi’s financial results were included in a filing made on Monday to the Shenzhen Stock Exchange by Midea Group Co Ltd 000333.SZ. Xiaomi bought 1.3 percent of the electrical appliance manufacturer for 1.27 billion yuan.

Xiaomi has been investing heavily in such companies with the aim of building an ecosystem of Internet-connected devices and appliances to extend its reach beyond smartphones.

The filing also revealed Chairman and Chief Executive Lei Jun claims 77.8 percent ownership of the company he co-founded in 2010, while unnamed shareholders split the remainder.

(Additional reporting by Beijing newsroom; Editing by Christopher Cushing)

This article originally appeared on Recode.net.

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