RAZOR-THIN

The world’s fastest-growing smartphone maker is barely profitable

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the mobile web
Obsession
the mobile web

Chinese smartphone maker Xiaomi posted a slim profit of 347.48 million yuan ($56.15 million) on 26.58 billion yuan ($4.30 billion) in revenues in 2013. The new information comes from a Chinese regulatory filing—the first time that the fast-growing, privately-held company’s finances have been made public—and was first reported by Reuters.

Crunching those numbers shows a profit margin of only 1.3%, which still puts Xiaomi ahead of its South Korean rival LG Electronics, which posted a 0.5% margin last year, but well behind Apple (28.7%) and Samsung (18.7%). Apple and Samsung have between them long dominated the high-end segment the smartphone market that actually makes money. In 2012, the companies together captured all of the industry’s total profits.

The Xiaomi financial figures contradict a report by the Wall Street Journal (paywall) last month that the company’s 2013 profits totaled 3.46 billion yuan ($566 million)—ten times the amount in the regulatory filing—based on a document given to bankers as the company tries to raise additional funding for expansion.

A Xiaomi spokeswoman confirmed the details of the regulatory filing, but noted that it only applies to Xiaomi Inc., not to the entirety of Xiaomi’s business. She declined to comment on the figures in the Wall Street Journal report.

Either way, the company’s revenues are likely to be substantially higher in 2014: Xiaomi’s growth has come mostly from mainland China, though it is also expanding in India and southeast Asia. Profit margins, however, will probably stay very thin: the company has been aggressively pursuing a strategy of low-cost, high-spec devices in new markets. (It also suffered a potentially serious setback last week when it was forced to halt India sales due to a patent injunction from Ericsson.)

Samsung has suffered its own difficulties, pinched between Apple at the high end and low-cost manufacturers like Xiaomi at the low end. But the telling glimpse at Xiaomi’s financial results—which came as part of the company’s purchase of a small stake in the electrical appliance firm Midea Group—shows that Samsung and Apple will be the smartphone industry’s twin profit engines for quite a while to come.

This post has been updated with comment from Xiaomi.

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