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Xiaomi is on the fast track to surpassing Samsung and Apple

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Considering how the company doesn’t sell any products outside of mainland China and a few other Asian nations, it’s no surprise that Xiaomi (pronounced “shou-me”) isn’t a brand name that many in the West will be familiar with. Even so, that hasn’t stopped news of the burgeoning Chinese startup from popping up throughout the year thanks to its explosive growth and bold promises.

Despite the fact that the company isn’t even five years old yet, Xiaomi has already risen to become the third biggest smartphone manufacturer in the world behind Samsung and Apple, respectively. As if that wasn’t newsworthy enough, the Chinese startup has predicted that it’ll surpass both companies in terms of smartphone shipments within a decade.

That’s a bold statement to say the least, and one which both Samsung and Apple promptly dismissed as nonsense, but while its easy for the two electronics giants to dismiss Xiaomi now, the company’s growth numbers are difficult to argue with. As it stands, Xiaomi is already shredding Samsung’s market share in China, enough that the South Korean company has had to completely rethink its strategy in the country.

The biggest reason behind Xiaomi’s success its willingness to sacrifice a significant portion of its revenue for the sake of maintaining low prices. While the company is able to offer premium-level smartphones for the price of mid-level devices, it’s just barely able to make a profit. That’s why, despite the fact that Xiaomi pulled in more than $4.3 billion in revenue back in 2013, it only earned a measly $56 million in net profit.

This isn’t an unusually strategy. Although it makes tens of billions of dollars, Amazon’s profit margin has been hovering around zero for years because the company chooses to focus on growth for the present, with large profit margins being a long-term goal. This strategy has been working very well for Amazon so far, and its clear from the company’s explosive growth that it’s working Xiaomi as well.

It isn’t just Xiaomi’s affordable products that make it so successful either. The company has launched numerous clever online marketing campaigns that appeal to the growing ranks of young and affluent customers in China. With China housing the fastest-growing smartphone market in the world, and Xiaomi sitting at the head of that market, the company’s promise to overtake Samsung and Apple may not be as audacious as it seems.

This is something that investors clearly seem to think as well. Xiaomi formally announced on Monday that it has raised a whopping $1.1 billion from investors following weeks of rumors and reports about a massive funding round. This means that Xiaomi is now valued at more than $45 billion, making it the most valuable startup in the world.

“This is an affirmation of Xiaomi’s stellar results in four years, and heralds a new phase for the company,” said Bin Lin, the cofounder and president of Xiaomi, in a Facebook post. “We will strive to continue bringing innovation to everyone, with a goal of producing high-quality, high-performance devices with great user experience.”

With its $45 billion valuation and unprecedented growth, investors are staring to anticipate an initial public offering, but insiders within the company say that Xiaomi is still years away from such a move. However, if the company really wants to challenge Samsung and Apple, an IPO will be essential, as will expansion outside of its home market. While it has strong foothold in China, Xiaomi’s reach outside of the country is fairly weak, and that’s something that needs to change if the company wants to become the world’s biggest smartphone manufacturer.

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