Chinese electronics giant Xiaomi has made a name for itself selling impressively durable smartphones at aggressive price points. But the company has so far focused on low and mid-tier handsets that it mostly sells in China and neighboring countries. At an event in New Delhi, India today, the world’s fourth largest smartphone maker announced an ambitious plan to expand its offerings and reach.
Xiaomi announced a new venture called Poco under which it plans to produce and sell high-end handsets that would compete directly with the top offerings by OnePlus and Samsung, two companies that have demonstrably performed well in what analysts call the “budget flagship” smartphone segment.
To mark the debut of the new venture, the company today unveiled the first handset under the Poco umbrella, the Pocophone F1. The handset houses top-of-the-line hardware modules, including Qualcomm’s flagship Snapdragon 845 SoC, a 20-megapixel selfie camera, and fast-cooling tech to sustain performance, in a polycarbonate body. The base model is priced at Rs 20,999 ($300), less than half the price of an arguably comparable Samsung handset. It is the cheapest handset to feature Qualcomm’s current flagship smartphone processors, the company claimed, which also announced a few introductory offers with the handset.
In an interview with VentureBeat, Jai Mani, a product manager of Xiaomi who is part of the eight-member core team of Poco, said phone makers often focus on a range of features that customers do not need. This makes a device more expensive than it needs to be, he said. With Poco, Xiaomi only wants to focus on features such as performance and battery life that he believes matter the most to customers.
Xiaomi has launched top-end handsets such as the Mi 8 in the past, but those phones rarely left the Chinese shores. On the rare occasions it did launch its flagship handsets in places like India, they fared poorly. In the meanwhile, companies such as OnePlus, Samsung, Vivo, and Oppo have gained significant foothold in the premium smartphone segment in India. The Pocophone F1, Xiaomi said, would go on sale in more than 50 markets in the coming weeks. Interestingly, the executives told us the company at present has no plans to sell the Pocophone F1 in China.
Poco means little in spanish, which underscores the company’s global ambition, its agility and scale within the company, and its obsession to be able to focus on fewer things, Alvin Tse, global head of Poco, told VentureBeat in an interview.
In the company’s Shenzhen headquarter, more than 300 employees are working on R&D, software and hardware for Poco, company executives said at today’s event. However, the Poco team borrows resources from its parent whenever it deems fit, they said, citing work on camera functionality as an example. Poco would also be leveraging Xiaomi’s logistic and services infrastructure, they said.
The Poco brand could help Xiaomi, which recently went public at a lower valuation than expected, boost its revenue. Ahead of its IPO in July, the company said it would curb net profit margins on its smartphones and other hardware products to a maximum of 5 percent, a promise that worried analysts at the time.
By expanding its premium smartphone portfolio, the company could potentially look at boosting its revenue. (As is the case with other smartphone makers.) For Xiaomi, that profit would be crucial. The company, whose founder and CEO Lei Jun has a vision of bringing “innovation for everyone” through its products and services, posted $1 billion dollar in losses in the first quarter of this year. On Wednesday, the company reported a net profit of $2.1 billion but also noted an operating loss of $1.1 billion, which it attributed to IPO-related expenditures.
Xiaomi’s Tse said Poco would adhere to the company’s five percent margin philosophy, adding that one can argue Xiaomi might operate at even lower margin for Poco. “The hope is that we can open up this new consumer need …. If we can offer them something compelling enough at a price point that they have never imagined before, suddenly a lot of people will show interest in availing the top technologies,” he said. Mani recalled that people were skeptical when Xiaomi first started selling phones at low cost. “Look where we are now,” he said.
So why couldn’t Xiaomi achieve this without the Poco brand? Mani said the company felt it needed to start afresh and not worry about carrying the baggage or legacy of the big brand on their shoulders. Jayanth Kolla, founder of consulting firm Convergence Catalyst, provided a bit more insight on that front. “Xiaomi has consciously catered to a certain geography and socio economic consumer segment and it has worked very well for them,” he told VentureBeat, adding that deviating from this path could prove challenging. The company has largely sold handsets that are priced between $100 to $200, so asking an additional $100 for a handset could curtail its appeal among its loyal base, he said.
Branching out a brand or spinning a new company out of an existing firm is something quite popular among Chinese phone makers. Huawei sells a range of midrange handsets under the Honor brand, for instance, and Oppo has a sub-brand called Realme in India.
“This has been a proven strategy in the automobile market for decades,” Kolla said. “A brand, especially from an Asian country, starts off and gains momentum because of lower prices. But their profit growth slows because they can’t breach the upper ceiling price points. So they often resort to a different branding to attract that market.”
India, where the Pocophone F1 would go on sale next week, could give us early insight into how the market sees Xiaomi’s new bet. In the last four years, Xiaomi has aggressively expanded its reach in India by undercutting competitor offerings in terms of price and specs. According to estimates from research firms IDC, Counterpoint, and Canalys, Xiaomi and Samsung are fighting for the tentpole phone maker position in India.
With nearly no marketing, Xiaomi scaled its presence in India, the world’s second largest smartphone market, by selling midrange and low-end handsets with comparable specs and features as its competitors but at much lower prices. In its early months, the company exclusively sold its phones through ecommerce platforms, cutting a chain of overhead costs. In the years since, Xiaomi has expanded its presence in India to include brick and mortar stores as well.
In many ways, Xiaomi, which offers an ecosystem of devices including laptops, speakers, and fitness wearables as well as software services, is among the handful of companies in a position to place major bets. When asked if the company plans to launch more phones under the Poco brand and consider working on other devices, Mani said the focus is on the Pocophone F1 for now, though the company is certainly thinking about other avenues.
Manish Singh is a technology reporter based in New Delhi, India. His work has appeared on CNBC, The Outline, Mashable, and CNET.