First we take Beijing

Xiaomi's creative destruction may reach beyond China

Xiaomi has overtaken the mighty Samsung to become China's top smartphone seller. Could the same success follow in Kuala Lumpur and Bangalore? The four-year-old upstart's rise is evidence of the continuing creative destruction in the mobile market. Xiaomi's model of low-cost phones and software sales may squeeze rivals elsewhere.

The Beijing-based group shipped about 15 million phones to Chinese customers in the three months ending June. That's over three times the figure in the same period of last year, according to industry tracker Canalys.

With the overall market for smartphones slowing, Xiaomi's success came at the expense of others. Samsung and ZTE's shipments in the People's Republic dropped by an estimated 15 and 32 per cent, respectively, during the quarter.

As a private company, Xiaomi doesn't disclose much about its finances. The company says revenue jumped to about $5.3 billion in the first half of the year, but it's unclear whether the overall group is profitable.

Its most popular product is the Hongmi phone, which accounts for about a third of the 57 million smartphones the company has sold in the last three years. The Hongmi currently sells for just 699 yuan ($113). According to a person familiar with the company, Xiaomi does make a small margin on its handsets. But earnings may depend on sales of services related to its custom Android operating system, like games and graphic themes.

So far, Xiaomi's success has been limited to its home market. Though it recently started selling phones in Malaysia and India, 97 per cent of its shipments in the second quarter went to China.

However, others are learning from Xiaomi's approach. In India, for example, Samsung's market leadership in smartphones is facing a serious challenge from local upstart Micromax. Xiaomi's frugal yet funky model may ultimately succeed only in making the smartphone industry a more competitive - and less lucrative - business.