Xiaomi exec says China’s smartphone market is about to hit a ceiling – and that’s a good thing

One committed Xiaomi fan. Image credit: Xiaomi’s official Weibo.

“We think the natural ceiling for the market is about 500 million phones,” Xiaomi CFO Shou Zi Chew said today in an interview with Bloomberg. He was talking about new smartphone sales in China. The country saw 430 million smartphones shipped last year, he said – so that ceiling isn’t too far away.

China’s smartphone market is close to saturation, and the days of breakneck growth for companies like Xiaomi seem to be in the past – but Chew doesn’t seem too worried.

“Over the next five years, we think that the growth will slow down, but it will still continue to be there,” he said. “This is good news for a company like ours.”

What saturation means

From 2012 to 2015, Xiaomi’s phone sales increased nearly 10-fold. If the same trend held true over the next four years, then by 2019, Xiaomi would be selling enough phones to supply every American citizen with two of them each year.

Xiaomi has been in India for years now, but it hasn’t even cracked the top five.

In other words, the growth was ridiculous, and it was inevitably going to slow.

“In an explosive market, there are many inefficiencies that growth can help hide,” said Chew. “But in a market that is maturing, I think the companies with the highest efficiency, that focus on the right philosophy, will actually be the ones that will win.”

Chew cited Xiaomi’s model of largely eschewing physical retail stores in favor of online sales as one pillar of the company’s efficiency model.

But if you think this description seems a bit too neat and to Xiaomi’s favor, you may be right.

But what about India?

China may be nearing smartphone saturation, but the world isn’t. India, which has a similar population to China’s, saw only 100 million smartphone shipments last year – showing that there is still much room for growth.

Xiaomi has been in India for years now, and it hasn’t even cracked the top 5 smartphone companies there. Slowing growth in China may have been inevitable, but missing the boat in India was not.

Chew’s argument – and one that we will likely see from Xiaomi more in the future – fits with China. In a country where everyone has a smartphone, then companies will mostly fight on the margins, aiming for more efficient business plans and occasional eye-catching features.

If Xiaomi were only focused on China, then it would be a good argument. But right next door, there’s a country whose smartphone market is predicted to grow by 29 percent this year, and is dominated by the likes of Samsung and Lenovo. And Xiaomi also has to fight India’s homegrown Micromax, which leads the market.