Xiaomi, the Chinese smartphone maker tipped for a public listing this year, has made a unique pledge: if it makes too much money, it’ll give a chunk of its profits back to its customers.
Yes, that’s right.
The company said today it will forever limit to just five percent the net profit margins after tax for smartphones, smart home devices and other hardware. If it makes more money than planned over a calendar year, it plans to “distribute the excess amount by reasonable means to its users.”
Today our CEO Lei Jun announced a promise to all our fans…#Xiaomi will forever limit the net profit margin after tax for our entire hardware sales (including smartphones, IoT and lifestyle products) to a maximum of 5%.
Do you like the sound of that? pic.twitter.com/ZbEjaVeBLf
— Xiaomi (@Xiaomi) April 25, 2018
It’s hard to know exactly what “reasonable means” Xiaomi is referring to, but here are some thoughts.
Spoiler number one alert !! — Most companies in mobile make a scant profit, if any at all, on hardware.
Firms like LG and Samsung rely on component divisions and other consumer brands to record the bulk of the revenue that makes them profitable. More broadly, the competitive market means there’s not much money to claim in selling phones. Apple is estimated to account for a whopping 87 percent of all smartphone profits despite just 18 percent market share.
Spoiler number two alert !! — Selling hardware with a low net profit has always been a component of Xiaomi’s strategy.
Indeed, former head of international Hugo Barra previously said it didn’t make money on hardware sales. That approach may have changed, but Xiaomi had never put a figure on its take-home margin before.
This pledge aligns itself neatly with the company’s core focus of providing cutting-edge tech, or as close to, at affordable prices. Much has been said over the years of the bang-for-buck of its $150 Redmi range, while countless comparisons of its higher-end Mi phones — which typically sell for $150-$300 — and flagship products from Apple and Samsung have graced the internet.
Xiaomi has said from the get-go that smartphones are just one part of its wider ecosystem — which includes Xiaomi-branded smart home and “lifestyle” devices from third-parties, and, crucially, services that link all the hardware together. Those include services such as online video, e-commerce, financial products and other digital services.
“From the beginning, we embarked on a relentless pursuit of innovation, quality, design, user experience and efficiency advances, to provide the best technology products and services at accessible prices. We hope that our products and services will help our users to achieve a better life,” CEO and co-founder Lei Jun said in the money statement that accompanies today’s announcement.
Xiaomi is widely tipped to go public this year in an IPO that could value its business as high as $100 billion, according to Bloomberg. Chinese media recently claimed that the company is planning a dual-IPO that would see it list both in Hong Kong and on Mainland China, as our sister site Technode explained.
Such a double-headed IPO would be unique but, as Xiaomi showed today, it has no intention of sticking to so-called convention.
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