Why Xiaomi needs Meitu brand to boost market share

November 21, 2018 14:07
Smartphone firm Xiaomi and selfie apps maker Meitu have forged a strategic alliance that promises to be a "win-win" arrangement for both. Photo: Reuters/Bloomberg

Chinese smartphone firm Xiaomi and selfie apps maker Meitu have entered into a strategic partnership that promises to be a "win-win" arrangement for both.

The agreement effectively allows Xiaomi to take over Meitu's smartphone business. Xiaomi will design and manufacture Meitu phones for 30 years, and in return give 10 percent of the gross profit from selling the phones to Meitu for up to five years, after which Xiaomi will pay US$10 million every year.

Meitu said its smartphone business may no longer be able to achieve profitability again after the deal, but it allows the company to focus on its social network user base through pre-installations, though it’s unclear whether that would also apply to Xiaomi-branded phones.

For Xiaomi, the deal will help the company to boost its market share and catch up with rivals such as Huawei, Vivo and Oppo.

While Xiaomi's smartphone shipments have maintained a strong momentum this year, it continues to lag behind its frontrunning peers in market share.

According to market research house Counterpoint, Xiaomi's market share in China remained stable at around 13 to 15 percent over the past five quarters. But Huawei has been outperforming others players with its market share up from 19 percent in the third quarter last year to 26 percent in the second quarter this year and 23 percent in the last quarter. Vivo and Oppo, both under the same owner, saw their market share remaining stable at 16 percent to 21 percent this year. Apple had a 9 percent market share.

In the third quarter, Xiaomi reported 35 billion yuan (US$5.04 billion) in smartphone revenue, an increase of 36.1 percent from a year ago. The growth was driven by increases in both sales volume and average selling price. 

Smartphone sales for the quarter reached 33.3 million units, up 20.4 percent from a year ago.

Xiaomi continued to focus on strengthening its presence in the mid-range to high-end smartphone market in China. Shipment of Xiaomi's flagship Mi 8 series reached 6 million units during the quarter. The company also launched Mi Mix 3 series to capture high-end users.

While Xiaomi’s performance this year appears satisfactory in terms of shipment and revenue growth, the company appears hard put in growing further.

One limitation that Xiaomi is facing is its lack of exposure in the female market segment. The company's smartphones are known for their solid hardware and fast processors, features that are more attractive to male users. Vivo and Oppo, on the other hand, have a clear focus on the female market, attracting them with high-quality camera performance for selfies.

That is why Xiaomi's alliance with Meitu is significant. Meitu can shift the burden of its smartphone business to Xiaomi and benefit from economies of scale. It can thus focus on building its social platform, including its beauty apps, to enhance its allure to female users.

Xiaomi, on the other hand, can take advantage of Meitu's popularity among female users by incorporating some of its design and mobile photography technology to boost its market share.

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EJ Insight writer