If we were to have you list the worldwide smartphone market share leaders, we bet nearly everyone would put Samsung at #1 and Apple at #2. But who's #3? LG? HTC? Sony? The correct answer would be "None of the above." Gartner recently released their smartphone market share numbers for Q3 2014, and the #3 spot is pretty much a three-way tie. Right behind the two leaders are a trio of Chinese companies: Huawei, Xiaomi, and Lenovo.
The actual market share numbers for Q3 2014 break down to Samsung at 24.4 percent, Apple at 12.7 percent, Huawei at 5.3 percent, Xiaomi at 5.2 percent, and Lenovo at five percent. At this time last year, Gartner reported Xiaomi was only at 1.5 percent market share, so the company has experienced a 336 percent jump. The big loser of the group was Samsung, which dropped 7.7 percent from last year. The company is still coming back down to earth after a record 2013, and it expected a 60 percent profit drop in Q3.
What's amazing about Xiaomi is that hit Top 5 market share while only being in a handful of markets. The company's primary market is its home country of China, and it also does business in Malaysia, Singapore, and India.
While Xiaomi's sales are skyrocketing, it's getting there on the back of razor thin margins. Re/code reports that Xiaomi only made $56 million in profits in 2013, a 1.8 percent operating margin. For reference, Apple's operating margin is 28.7 percent and Samsung's is 18.7. This was before the 336 percent market share increase, but it doesn't seem like the company will be rolling in cash anytime soon. Xiaomi is privately owned, 77.8 percent of which belongs to the founder and CEO. So, really, the company is free to do whatever it wants.
And Xiaomi's profit situation isn't as bad as it sounds. The company did invest $200 million into Midea Group Co Ltd, an electrical appliance maker, which is how their financial results became public. The goal of the investment is to create an ecosystem of Internet connected devices. Xiaomi seems to be following the Amazon model of growth: invest every cent you make and show almost no profits.
Earlier this year, we took a look at Xiaomi's flagship smartphone, the Mi4. It's a wonderfully-built device with a 5-inch, 1080p screen, Snapdragon 801 SoC, and all the bells and whistles you would expect for only $350. That's about half of what Samsung would charge for something with similar specs—you can see the low profit margins in the product pricing.