By Alexandra Burlacu | Aug 18, 2012 10:11 AM EDT
China's smartphone market is booming and is set to overtake the U.S. this year as the world's largest, and host of little-known local companies come armed with cheap, high-end smartphones to dent Apple's market share in the country. Xiaomi Technology unveiled its latest local challenge to the iPhone on Thursday, Aug. 16, launching the MI2 smartphone, the successor to its popular MiOne (MI). The MI2 not only sports better specifications than the iPhone 4S, but it sells for half the price.
The device packs a powerful 1.5GHz quad-core processor from Qualcomm, a high-definition touchscreen with a 1280 x 720 pixel resolution at 342 pixels per inch or ppi (iPhone 4S has a 3.5-inch 640x960 pixels resolution touchscreen with a pixel density of 330 ppi), and a Chinese localized version of Android 4.1. Despite such impressive specifications, however, it was the smartphone's incredible price that sparked the most excitement: 1999 yuan (US$315) without a contract. At $315, the MI2 costs less than half the price of rival smartphones from Apple, Samsung, or HTC. "Xiaomi is meant to give you a fever for life," Xiaomi CEO Lei Jun said during the unveiling on Thursday.
Xiaomi MI2's aggressive pricing is precisely what sets it apart from competing devices. The company used the same price of 1999 yuan a year ago for its first generation phone, and the handset reached 300,000 pre-orders in just two days. In fact, Xiaomi's smartphones have become so popular that they sell out in minutes after going on sale online.
Meanwhile, Apple's iPhone 4S starts at 4988 yuan, while Samsung's 16GB Galaxy S3 coss 4999 yuan without a contract. It is uncertain what profit margins Xiaomi earns from smartphone sales, but its aggressive pricing strategy has drawn a strong public following. According to the company, last month its first-half revenue was close to 1 billion, as it sold more than 3 million phones.
Xiaomi was founded just two years ago, in 2010, and is run by former executives from Microsoft, Google, and Motorola. In addition to its hardware, the company has also made a localized operating system for its phones. Called MIUI, the localized OS is based on Android and is key to Xiaomi's business. The company provides an updated version of MIUI every week, adding new enhancements which can be downloaded to users' phones.
Despite its great popularity, however, Xiaomi still has a long way to go before reaching the sales of smartphone giants such as Samsung in China. According to research firm Canalys, the company's first-generation smartphone reached a total of 3.5 million sales, but its smartphone market share for the first half of this year was still less than 5 percent. Meanwhile, Samsung led the market with a 17 percent share in the second quarter, overtaking other domestic companies such as Lenovo, ZTE, and Huawei.
On the other hand, the impressive MI2 could shake up China's smartphone market and heat up competition, boosting Xiaomi's market share. The Xiaomi MI2 will launch in October. The smartphone packs 2GB of RAM, 16GB of internal storage, and a powerful 2000 mAh battery.