Xiaomi, Samsung compromise on profits in the battle for supremacy

While Xiaomi lands in the red for the first time in FY19, Samsung's profit after tax dips 59%

smartphone, mobile
Arnab Dutta New Delhi
4 min read Last Updated : Dec 02 2019 | 2:35 AM IST
The country’s two leading handset companies, Xiaomi and Samsung, seem to have forgone profitability in the battle for supremacy. In the financial year 2018-19 (FY19), smartphone market leader Xiaomi ended up in the red, while runner-up Samsung’s net profit plunged 59 per cent.

The filings available at the Registrar of Companies show that Xiaomi, which markets some of the top-selling handset models such as the Redmi series, reported a Rs 148.5-crore net loss in FY19. This is the first time that its bottom line has been in the red since its entry into the local market in mid-2014. 

Arch rival Samsung, whom Xiaomi replaced in 2016 to take top spot, posted a Rs 1,540 crore net profit — 59 per cent lower than the Rs 3,713-crore it had reported in 2017-18 (FY18). In fact, like Xiaomi, Samsung’s performance was worse in FY19 in terms of profitability.

The South Korean firm reported Rs 70,628 crore operating revenue during the year, becoming the largest consumer goods company in the country after auto major Maruti Suzuki. Its operating revenue surged by 19 per cent, backed by its consumer durables business.

Xiaomi, which continues to get over 90 per cent of its sales from smartphones, reported a 54 per cent jump in its operating revenue, only to further close in on Samsung. Its operating revenue stood at Rs 35,302 crore in FY19, up from Rs 22,947 crore. 



Top line growth, however, has come down significantly from earlier years. For example, while in 2016-17 sales had grown by a staggering 701 per cent, in FY18, the growth rate was 174 per cent.

In comparison, Samsung’s revenue from its mobile handset business surged 15 per cent to Rs 43,088 crore, up from Rs 37,350 crore. Interestingly, while Samsung’s top line has continued to grow steadily, its dependence on the mobile handset business has come down over the past five years. Whereas it used to get nearly 70 per cent of its sales from this division in 2014-15, the share has now fallen to 62 per cent.

According to experts in the industry, the competition Samsung has experienced from its Chinese rivals such as Xiaomi, Vivo, Oppo, Lenovo, and OnePlus has affected its overall grip over the handset market. Its market share, for example, fell to 18.9 per cent in July-September 2019, down from 24 per cent in July-September 2015. 

Moreover, in addition to losing the top spot to Xiaomi, it had to concede the No. 1 position in the premium market (above Rs 30,000 per unit) to OnePlus in 2018. Xiaomi’s rise has been phenomenal, from 2.5 per cent volume market share in the smartphone market in the calendar year 2015 to over 27 per cent in the September 2019 quarter. 

But it has had to compromise on profitability to stay ahead. Globally, the company plans to maintain its net profit margin below 5 per cent, but in FY19, for the first time, it posted a net loss in India.

Analysts point towards the heavy discounts that Xiaomi has been offering to customers as a possible factor. After the big shopping festivals in September and October that led to heavy discounting, Xiaomi is currently having its own shopping bonanza — the Black Friday Sale on Mi.com.

According to Anshika Jain, research analyst at Counterpoint Research, aggressive pricing, consumer offers, and easy financing options on e-commerce portals have benefited brands that are heavily focused on online channels. 

Xiaomi, which entered India as an online-only brand, continues to rule the market, with over 40 per cent market share in the online channel. Its in-house e-commerce portal Mi.com alone accounts for 12 per cent of all online smartphone sales. 

The combined efforts of Chinese brands in this space took the share of the online channel to an unprecedented 45.4 per cent in the September quarter.

In the online arena, Samsung has been launching online-only brands and exclusive tie-ups since 2017 to break into Xiaomi’s turf, but it continues to trail.


Topics :SamsungXiaomismartphonesmobile

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