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China tech

China's Xiaomi aims past Apple and Huawei with 2021 orders

Smartphone maker raises $3bn as it plans to produce 240m devices

Xiaomi has moved quickly to seize market share from its beleaguered compatriot Huawei. (Photo by Karina Nooka)

TAIPEI -- China's biggest smartphone rival to Huawei Technologies is massively ramping up its factory orders for next year in a bold dash for growth that could also mount a challenge to Apple in the fiercely fought consumer market.

Xiaomi, the world's fourth-largest smartphone maker, has been talking to suppliers to book components and parts for up to 240 million smartphones, sources told Nikkei Asia. The number far exceeds Xiaomi's output this year and would surpass Apple's average annual level of iPhone shipments -- suggesting the scale of the company's ambition to overtake Huawei, which is laboring under U.S. sanctions.

To finance its bold expansion plans, Xiaomi on Wednesday raised nearly $4 billion, including $3.06 billion in Hong Kong's largest ever top-up share placement. The remaining $855 million came from a convertible bond offering that was heavily oversubscribed.

Trading in the company's shares was temporarily halted on Wednesday morning due to Xiaomi failing to submit an official notification of the share placement in time. Its share price took a hit in the afternoon, falling 12% when trading restarted, but later narrowed its losses to around 7%.

The Chinese smartphone maker told some suppliers that it has an even higher internal target to ship up to 300 million smartphones next year -- but the level is not seen as likely to be achieved. Qualcomm and MediaTek, which are key providers of mobile processor chips to Xiaomi, Oppo, Vivo and Samsung, are unable to commit to such volumes for a single company at a time when the whole tech supply chain faces component shortages, one of the sources with knowledge of the matter said.

"Xiaomi is setting a much more aggressive goal for suppliers as it hopes to expand the market before other rivals catch up -- and it also hopes to book and secure more parts to avoid any disruption from the current supply chain bottleneck and component shortage," the person said.

Even at around 240 million units next year, Xiaomi's shipments would be equivalent to Huawei's peak shipments of 240.6 million units of smartphones in 2019 -- the highest-ever for a Chinese smartphone maker, according to IDC. Apple ships on average around 200 million iPhones a year.

Xiaomi became the world's fourth-largest smartphone maker by volume in 2018. Its dash for growth comes after it shipped 125.6 million units in 2019. For the first nine months of 2020 its shipments have climbed 16% year on year to 104.5 million units, according to IDC data.

The overall smartphone market is expected to shrink by 9.5% this year, according to IDC, but next year the market is expected to grow for the first time since 2017 -- spurring growth plans by a number of manufacturers.

Xiaomi is not the only Chinese smartphone maker trying to capitalize on Huawei's problems, particularly in export markets.

Oppo, the world's fifth-largest smartphone maker by shipments, has told its suppliers that it would like to build some 170 million smartphones next year, another person told Nikkei Asia, which represents growth of nearly 50% from its 2019 shipment of 114.3 million units.

Washington stepped up pressure on Huawei from September, banning the company from accessing any semiconductors, components or parts made using U.S. technology.

Huawei's smartphone shipments fell 22% year on year in the July-September quarter with its global market share shrinking from 18.6% to 14.7%, according to IDC data. It is expected to sell even fewer handsets in the current quarter despite some of its suppliers, including Qualcomm and Sony, having been granted licenses to resume some shipments.

Huawei last month spun off its budget Honor brand, in an effort to help it regain access to vital components and parts to at least keep the business afloat.

Xiaomi meanwhile logged record revenue of 72.2 billion yuan in the July-September quarter. The company attributed its strong performance to robust overseas sales, which grew by more than 50% year on year. Net profit rose nearly 19% on the year to 4.1 billion yuan, another quarterly record. And for the first time ever, Xiaomi had the edge over Apple in the quarterly rankings and became the world's No. 3 smartphone maker after Samsung Electronics and Huawei.

Despite Xiaomi's ambition for next year, the tech industry is suffering a wide range of component shortages, as demand surges for devices for remote working, learning, and entertainment. Component suppliers have stepped up supplies of parts for notebooks, TVs, game consoles and data centers.

The growing rollout of 5G infrastructure has also boosted the need for networking products, while Huawei itself tried to secure as many components and parts as possible before the U.S. ban, unbalancing the industry's supply.

Xiaomi President Wang Xiang in late November acknowledged that the component shortage has affected his company's planning. Industry sources say it is not clear when supply constraints across the board will ease, or whether Xiaomi's aggressive goal is achievable.

Xiaomi, founded in 2010 by industry veteran Lei Jun, is known for building cost-effective handsets with high-end components -- which are also used by Apple -- as well as a marketing strategy of organizing fan clubs and activities to draw young users.

The company has branched out into smart speakers, smart wearables and wireless headphones and has also built an "internet of things" empire for smart home appliances that include routers, smart TVs, robotic vacuum cleaners, air purifiers, fans, web cameras and electromagnetic ovens.

The company ranks second in wireless headphone shipments behind Apple's Airpods, according to Counterpoint Research, and No. 5 in smart speakers and smart TVs. Xiaomi is the top 3 router provider in China after Huawei and TP-Link, and the country's leading smart TV maker. Xiaomi has become the world's No. 4 smartphone maker since 2018.

The smartphone market is expected to see its first recovery next year since 2017 and could grow by 10%, according to Brady Wang, an analyst with Counterpoint Research.

"It's true that everyone is trying to expand its market share and booking very aggressively for electronic components at a time when Huawei is losing ground and the industry is facing supply shortages," said Wang. "However, the issue is whether they could really get as many components as they want, as industry players are all fighting for component supplies, and whether their products are competitive enough to sustain the market share they gained from Huawei."

Xiaomi and Oppo declined to comment for this story.

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