Xiaomi could generate a gross profit margin of more than 20% percent on its own-branded smartphone, according to a teardown analysis by a Chinese semiconductor analyst.
Xiaomi phone’s profit margin is always a mystery to outsiders. Lei Jun, founder and CEO of the company first claimed to make not even a dime off hardware, saying software and Internet services are how Xiaomi makes money. Later on he admitted that the company gets RMB between 100 and 200 yuan by selling every Xiaomi phone. On the other hand, Zhou Hongyi, CEO of Qihoo 360 which just jumped into the own-branded smartphone war of Chinese Internet companies and launched its own smartphone AK47, insisted that the profit margin for Xiaomi phone could be as high as RMB 700 – 800 yuan.
Liu Hui, a Chinese semiconductor analyst concluded after a teardown analysis that the reasonable profit margin for Xiaomi phone would be 20%, or more than RMB 400 – 500 yuan, while the cost for Xiaomi phone is around 1500 yuan.
An Analysys International analyst said that, Chinese phone vendors’ profit margin varies as some could get up to 40% while the others could only get as low as 10%. So Xiaomi’s 20% is not a bad score.
Especially in a time when the so-claimed “making money off Internet service rather than on hardware” practice hasn’t been really proved yet.