Xiaomi President: Supply Chain an Obstacle to Reaching Sales Goal

The startup that has rocked China’s smartphone market is aiming to sell 40 million phones this year. The only limitation, according to Xiaomi President Lin Bin, is how fast the company can make the phones.

In an interview, Lin said Xiaomi’s biggest obstacle to more than doubling phone sales in 2014 from 2013 will be how quickly the company ramp ups  production of its phones.

“When we began producing phones two and a half years ago we were making only tens of thousands a month, but now we’re at three million a month. This speed shows the limits of the supply chain,” he said.

“It’s not Xiaomi,” he said. “Hardware and software are different. Hardware needs a ramp-up period.”

He added, “I believe what we achieved last year means we can get to 40 million phones this year. This is something that we are working hard with suppliers to make happen.”

Last year Xiaomi sold about 18.7 million handsets, compared with 7.2 million in 2012.

The closely held company is well-known in China for releasing its phones for sale online in limited batches. Analysts say that element of scarcity adds to demand for its Android-powered gadgets, but Xiaomi has said that tactic is partially the result of an inability to make as many phones as people want.

“This is one thing people complain about. People say that [our limited sales of phones] is intentional, but actually it’s not,” he said.

Xiaomi has jumped to a 6% market share in China in the fourth quarter of 2013 on the back of its low-priced but competitively equipped smartphones, according to research firm IDC, making it No. 6 in the market. It has contributed to intensifying competition in a market dominated by Samsung Electronics005930.SE -0.39% and where AppleAAPL +0.37% holds a significant share of the high-end part of the market.

Lin said another bottleneck for the company, which was valued at around $10 billion during its last round of fundraising last year, has been ensuring the company has hired enough people to deal with repairs and service. Though he said only about 2% of phones usually require maintenance, given ballooning sales, the company in 2014 will continue to expand its investment in building out maintenance and services.
Lin spoke as the company prepares to begin selling its phones in Singapore, its third market outside of mainland China after Hong Kong and Taiwan.

Addressing the new expansion, Mr. Lin, said the company was “just getting started,” but that successful sales in Taiwan and Hong Kong proved that the company’s model also works in developed markets where carrier subsidies make consumers less sensitive to the pricing of phones.

Still some have warned that sales in Singapore could get a slower start, due in part to the increasing prevalence of faster phones that run on Singapore’s newer fourth-generation network. Calling its pricing in Singapore “very aggressive,” IDC analyst Melissa Chau said it could still face obstacles.

“In Singapore, we’re pretty much getting into 4G and their phones are not 4G, so their expansion into other markets isn’t going to be that straightforward.”


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