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Nikkei Markets

Xiaomi jumps after China launch of low-cost 5G phone

Redmi K30 5G could help company regain lost market share

Xiaomi's shares surged 8.5% to HK$9.99 ($1.28) in Hong Kong on Wednesday, its steepest single-day increase since Nov 2018.   © Reuters

HONG KONG (Nikkei Markets) -- Shares of Xiaomi jumped the most in more than a year, a day after the Chinese handset maker launched a 5G smartphone for the masses -- the world's cheapest yet -- fueling hopes for a rebound in mainland sales.

The Beijing-based company launched the new phone, the Redmi K30 5G, in the mainland with retail prices starting at 1,999 yuan ($284).

The device is also available in a 4G version, with prices starting from 1,599 yuan. Xiaomi said in a blog post that the handset "is one of the most price-worthy 5G offerings in the market." Official sales of the 4G version start on Thursday, while the 5G version will be available from late-January.

Xiaomi had in April 2018 pledged to "forever" limit the net profit margin on its hardware sales to a maximum of 5%.

Brokerage house China International Capital Corp., whose analysts attended Tuesday's launch event, wrote in a note they think of the Redmi K30 as a "milestone" product for Xiaomi and China's smartphone supplier chain, as it was priced 40% lower than the cheapest 5G smartphone model available so far.

Also, the price difference between the Redmi K30's 5G and 4G versions implied the additional component costs for 5G smartphones was lower than expected, they said.

"For Xiaomi, it should help it to regain market share in the 5G era" unless the company faces any sourcing issues from its supply-chain, CICC said. "For China's smartphone supplier chain, K30 should alleviate investors' concerns on its ability to achieve bullish 5G shipment targets."

Xiaomi's shares surged 8.5% to HK$9.99 ($1.28) in Hong Kong on Wednesday, its steepest single-day increase since Nov 2018, while the city's benchmark Hang Seng Index gained 0.8%. The stock is still well below its initial public offering of HK$17 per share.

Powered by Qualcomm's Snapdragon 765G processor chip, the Redmi K30 5G boasts cutting-edge hardware such as a four-camera set in the rear including a 64-megapixel main camera, and technical specifications implying a super-fast display and low-power consumption.

The Redmi K30's launch comes at a time when Xiaomi has been contending with a shrinking market share in China, where rival Huawei has been growing even as the overall market contracts.

The mainland's smartphone market, the largest in the world by volume, has been shrinking over the past few quarters amid macroeconomic headwinds, with customers also putting off new purchases as they awaited the launch of high-speed 5G services and handsets.

Xiaomi's smartphones shipments in China plunged 31% in the last quarter, according to data from International Data Corp., as Huawei rode a patriotic wave against the backdrop of the Sino-American trade war to leave competition by the wayside.

Xiaomi's market share stood at 9.8% at the end of September, down 3.8 percentage points from a year ago, while Huawei's share jumped to 42%.

Xiaomi has, however, maintained its rank as the world's fourth-largest smartphone maker by volume sales, thanks to leadership in the Indian market and a strong position in Europe.

Xiaomi officials have made no secret that they are hoping to claw back in the mainland with 5G products. Speaking on a quarterly earnings conference call last month, company officials said they were maintaining cash reserves in preparation for an upcoming 5G battle, and focusing on "stable growth, gross profit and profitability."

They also reiterated a commitment to launch 10 5G phones next year at various price points. Xiaomi introduced its first 5G-capable phone in the mainland, the Mi9 Pro, in September, having already launched its first 5G handset in Europe a few months earlier.

The company says it had set its sights on a 5G "solution" as far back as May 2016, when it established a team for a deep dive into 5G standards and begin exploratory research. It was also a major participant of 5G trials organized by telecommunication services giant China Mobile in September 2018.

To be sure, some others say that the 5G era could dawn later than the optimists would have them believe. Chinese telecom providers launched commercial 5G service plans only on Oct. 31.

Castor Pang, head of research at Core Pacific Yamaichi International, said mobile service subscribers were unlikely to upgrade their 4G plans to 5G during the initial phases of 5G's rollout.

Also, given that 5G plans are "substantially more expensive" than 4G offers, demand for 5G is "not very large" despite the higher speeds. Those high costs were likely to limit sales of 5G-capable smartphones "in the coming year or two," he said.

CICC analysts also said they were "relatively cautious" about some expectations that 5G smartphone adoption rate could reach about 40%-50% by the end of 2020.

However, the retail price of a smartphone that became available at 1,999 yuan right in the first quarter of 2020 was "faster than most investors' expectations," CICC said.

The Chinese brokerage reiterated its outperform rating on Xiaomi with a target price of HK$13.50 a share.

-- Suzannah Benjamin and Dhanya Ann Thoppil

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