Simon Baker (Program Director)

The real battle for the Android market is between Xiaomi and the Chinese BBK group, as both are growing while Samsung struggles to retain its share — and now its market lead.

It took Huawei four and a half years to move from 5% of the global smartphone market to being the second-largest smartphone vendor in the world and overtaking Apple in volume terms (in the second quarter of 2018).

According to IDC’s Worldwide Quarterly Mobile Phone Tracker, Xiaomi has achieved the same feat slightly more quickly, in four years. In the second quarter of 2021 it emerged as the brand winner in taking the share Huawei has relinquished following the body blows to its business from US sanctions, losing access to Google Mobile Services and being banned from buying 5G processors from US companies.

When the sanctions broke against Huawei, many industry analysts thought Samsung would be the main beneficiary. After all, Huawei’s smartphone drive seemed to be modelled more closely on Samsung than any other big player. Huawei focused on “upwards mobility”, quickly pushing to establish a premium portfolio and aiming mainly at the world’s richer markets, notably Western Europe.

Huawei and Xiaomi Both Had a Dramatic Rise

The rise of Xiaomi has in many ways been as dramatic and significant as that of Huawei. Xiaomi started as a very different sort of company — yin to Huawei’s yang. While Huawei had been building up its position as a major telecoms infrastructure company for decades, and was a global player in that field before it went seriously into handsets, Xiaomi was a start-up whose initial focus was squarely on smartphones. Founded only just over a decade ago, in 2010, by Lei Jin and six other Chinese, three of whom had been working for Western IT companies, it faced challenges in raising capital and achieving scale, which Huawei, as a state-linked firm and de facto national champion, did not.

Xiaomi did not have Samsung as a role model; instead its early mantra was quality at a low price — with a mission to counter the cheap and cheerful reputation of many Chinese products. It soon built up a reputation for producing excellent products at sometimes remarkably low prices.

That reputation spread abroad, and its eventual international expansion was obvious long before it took place.

Two Different Approaches to Global Expansion

Xiaomi had to establish itself at home first. When it did start looking abroad after taking the leadership in its home market in 2014, it took the same route as its main Chinese private sector rival the BBK group — moving into close-to-home markets in Southeast Asia, then India, before looking to the richer Western markets. Currently it has around a quarter of the Indian market, where it competes ferociously with BBK’s brands and with Samsung.

That was in contrast with Huawei. Its footprint was skewed towards richer markets, except the US, and it never made much impact in India.

Xiaomi’s move into Europe began in earnest in 2017, starting from the East, building a position in Russia, Ukraine and Poland. In doing this it chose less wealthy markets where its quality for a low price would be immediately appreciated.

It then aimed for the similarly more modest income countries of Western Europe, such as Greece and Spain. Currently it is pushing north into the well-heeled markets of Italy and France. With its emphasis on its own stores and a broad product range beyond phones, and at home in China a big services ecosystem play, it remains a very different company to Huawei.

Xiaomi Still Challenged to Move Upmarket

Xiaomi has been less successful so far than Huawei in moving upmarket, and its average smartphone sales price is still well below Huawei’s international market peak. In recent quarters, however, it has managed to move towards more expensive products and this process looks set to continue.

A bit more than two years ago, before Huawei’s troubles with the US, the industry was asking itself how long it would take before Huawei overhauled Samsung to become industry number 1. Huawei said by 2020.

The same question can now be posed for Xiaomi.

Despite Samsung showing itself prepared to bring 5G into much cheaper sections of its model range, for instance in the A32, it is not gaining share as Huawei declines. In the second quarter Samsung’s position was made worse by supply shortages.

Xiaomi on the other hand undoubtedly has momentum in many markets, including Europe and Latin America, and it is holding its own in China.

How Long Will Samsung Remain Number 1?

The most likely scenario at the moment is Xiaomi rising consistently above Samsung within the next year or so. In value terms, drawing level could take a while longer (and Apple is almost unobtainably higher beyond that).

In one sense, Xiaomi has already been beaten to the line, by BBK. If one tracks the total volumes of its brands (principally OPPO, vivo, OnePlus and realme), the BBK group has already overhauled Samsung as the world’s largest smartphone maker, something it achieved by the end of last year.

The second key question is then can Xiaomi overhaul BBK? Xiaomi is growing faster at the moment, and has a chance of pulling ahead. BBK is not currently challenging Xiaomi strongly in many markets where Huawei’s rapid withdrawal has left a particular vacuum in the market, such as in Europe.

That is all of course unless some unforeseen circumstance hobbles either of these players as it did Huawei. Xiaomi has already fallen foul of US sanctions once, in the last week of the Trump presidency, allegedly because of links to the US military. This sanctions listing was overturned in May by a US court.

One thing though is for sure — there is no further generation of Chinese smartphone industry upstarts behind the current leaders that could obviously take their place. There is just one company to watch, Honor, now spun off from Huawei and free to source US 5G chipsets and other components. It is already showing some renewed momentum in the domestic market, but its overseas footprint was never very big and it has focused on just a few key countries.

The phone industry has seen some remarkably rapid rises — and falls — as key players have failed to traverse key technology shifts, decided they could not make enough money in the business or more recently fallen foul of politics. At some point as the industry matures it must become more stable, but it would take a brave or perhaps foolish pundit to say when.

 

To learn more about our upcoming research, please contact Simon Baker, or head over to https://www.idc.com/eu and drop your details in the form on the top right.

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