(Chinese Version)

According to market research firm Canalys, Huawei made a huge jump in the third quarter of 2015, overtaking rival Xiaomi to become the No. 1 smartphone vendor in China, with 81% year-on-year shipment growth.

“While Xiaomi managed to sell 18.5 million smart phones in the third quarter of this year, a drop over the second quarter, Huawei sold in 27.4 million smart phones during the same period, a drop over the second quarter, but its’ domestic sales grew by 4%,” Wang Yang, IHS Technology China research director, suggested.

Important indicator as sales is, it can’t prove much. However, the inconvenient truth is that Xiaomi is indeed facing great challenges right now, as summarized into the following four aspects:

Fierce competition at home

On the one hand, smartphone shipments in China, the world's biggest market for the devices, fell to around 100 million in the first quarter of 2015, the first time in six years. In the second quarter, smartphone sales in China, accounting for about 30 percent of total smartphones sales, continued to decline by 4 percent year-on-year, the first time in history.

Since China remains the largest market for Xiaomi, the sluggish demand here might cast a shadow over Xiaomi’s future.

With a good marketing strategy via the Internet, Xiaomi developed rather rapidly along with the burgeoning Chinese smartphone market in the past few years. However, the figure in the third quarter might suggest that Xiaomi has lost the momentum in China.

On the other hand, Xiaomi is facing increasing competition from other smartphone vendors, as was Nokia a few years ago, which failed to address the increasing competition from Chinese low-price smartphone vendors and ultimately declined.

Currently, Xiaomi is facing fierce competition from a whole range of smartphone vendors, including Meizu, Smartisan, Oneplus, and OPPO, vivo, etc, all of which attempted to grab a piece of the pie from Xiaomi. Imagine the huge challenge Xiaomi is facing right now.

Huge challenge abroad

Rumor has it Xiaomi is planning to enter the US market. Lin Bin, co-founder and president of Xiaomi, hinted at the WSJDLive conference that the company might be selling its Mi Note and Mi Note Pro phones in the US in a few months.

However, it’s no easy task to enter the US market, since Xiaomi lacks an adequate number of patents and is facing a patent war out there. After all, when Xiaomi entered the Indian market last year, it was greeted by a suit from Ericsson.

In a recent report, CNBC warned Xiaomi, saying: “Xiaomi will need to strengthen its patent portfolio before it gets here…The U.S. market is no less litigious, especially for a device that bears a strong resemblance to Apple's iPhone.”

Worse still, Xiaomi is also facing fierce competition from other Chinese smartphone vendors in the US market. According to IDC, ZTE accounted for 8% of the American smartphone market in the second quarter of 2015 and became the 4th largest smartphone vendor in the US. At the same time, Huawei has confirmed that it would start selling its budget priced Honor series smartphones in the US sometime later in 2015, Coolpad has entered the US market for 4 years, Oneplus has collaborated with CM and planned to grab a piece of the pie in the global smartphone market (40% of its smartphones are sold in the US market), and even Smartisan has hinted that it would enter the US market soon.

It seems that Xiaomi has to continue to compete with other Chinese smartphone vendors in the US market. In this case, even ex-Google executives Hugo Barra and Jai Mani can do nothing.

No role in the high-end market

In addition, Xiaomi’s product line is too limited to maintain a wide user base after the feeding frenzy fades away.

While Huawei has some quite popular smartphone models in all price ranges from 599 RMB to 3,699 RMB (around 95 USD to 586 USD): the Honor Acer series below 1,000 RMB (around 158 USD) price range, Honor series in the price range of 1,000 RMB to 2,000 RMB (around 158 USD to 316 USD), Ascend P series in the price range of 2,000 RMB to 3,000 RMB (around 316 USD to 475 USD) and Ascend Mate series in the price range of 3,000 RMB to 4,000 RMB (around 475 USD to 633 USD), all of which sell quite well in the market, the price range of all Xiaomi’s four smartphone series, Redmi, Redmi Note, Mi, and Mi Note fall between 599 and 2,299 RMB (around 95 USD and 364 USD), making it hard for Xiaomi to harvest good sales in the long run. Although Xiaomi did have Mi Note Pro in the price range of 2,000 RMB to 3,000 RMB (around 316 USD to 475 USD), the smartphone model is more like a symbolic gesture of Xiaomi and won’t bring Xiaomi much sales growth.

In the price range of 3,000 RMB to 4,000 RMB (around 475 USD to 633 USD), while Huawei has surpassed Apple and Samsung and topped the Chinese market, Xiaomi hasn’t developed any model in this price range. No wonder Huawei managed to dethrone Xiaomi in the third quarter.

To some degree, Xiaomi is facing the same situation as Nokia in 2012. At that time, with the shift to Windows Phone, sales of Nokia’s Symbian-based smartphone braked sharply. To address the challenge, Nokia lowered the price of its smartphones significantly in hopes of attracting more consumers. However, that’s also when Nokia gave up the high-end market and was dethroned.

Going the wrong direction

It seems that Xiaomi is diverting too much effort in other areas. Beyond smartphones, Xiaomi has diversified its product line into smartphone accessories such as earplugs, mobile power banks, power boards, to smart home devices such as wireless switches, water and air purification devices.

On October 19th 2015, Xiaomi unveiled a so-called "next-gen toy", the two-wheeled vehicle Ninebotmini.

To be frank, a few practical problems have to be solved before the “next-gen toy” can be widely-used in China.

For one thing, since the Ministry of China didn’t classify such two-wheeled vehicle for a long time, several major first-tier cities such as Beijing and Shanghai have already banned such vehicles on the roads. It is expected that the ban won’t be lifted soon.

For another, the safety and practicability remains to be tested. Multi-millionaire Jimi Heselden, the owner of world-famous two-wheeled vehicle maker Segway Inc, died after reportedly driving a Segway scooter into a river.

In a word, I believe the time when a smartphone maker start to develop products have nothing to do with smartphones is the time it starts to go in the wrong direction.

It occurred to be Tesla’s CEO Elon Task’s remark on Apple’s plan to develop electric cars, saying that “But for Apple, the car is the next logical thing to finally offer a significant innovation. A new pencil or a bigger iPad alone were not relevant enough.”

I’m afraid that this remark remark applies to Xiaomi, too.

[The article is published and edited with authorization from the author @Li Yundie, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.