TOKYO -- Low-price smartphones are big business in China, where more than 300 handset makers are fighting for a piece of the action. One such company, Xiaomi, is drawing particular attention for its stellar growth.
Its phones are winning a lot of domestic fans thanks to their reputation for offering considerable bang for the buck. The company has vaulted into the top 10 Chinese makers by market share in just four years since its establishment in April 2010.
The secret to Xiaomi's success lies in the use of board designs and components employed by big-name foreign rivals, such as Samsung Electronics of South Korea.
A teardown analysis of Xiaomi's popular Mi3 model, released in October last year, by Tokyo-based Fomalhaut Techno Solutions reveals that the device uses U.S. company Qualcomm's Snapdragon 800 as its main processor for handling communications and image processing. Qualcomm is the world's largest maker of semiconductors for smartphones. The processor was introduced in early 2013 and has been used in high-end models released by Samsung and Sony.
"Xiaomi has made big progress in its product design," said Minatake Kashio, director at Fomalhaut Techno Solutions. "Its exterior design is very similar to that of Sony's. The way it has mounted the inner components is just like Samsung does it."
The company sells the Mi3 for 1,999 yuan ($329), less than what Apple's iPhone sells for. Xiaomi is able to pull off this mix of high performance and low price thanks to so-called reference designs, or basic designs for smartphones that chipmakers provide to smartphone manufacturers. Reference designs provide such details as parts makers and model numbers. They enable manufacturers that lack technological prowess to develop smartphones, but they also promote a situation in which many companies are making virtually identical products.
From the beginning, Xiaomi has mainly used reference designs to manufacture its devices, allowing it to slash development times and minimize the size of its engineering staff, thereby holding down costs. The teardown shows that Xiaomi adopts parts described in Qualcomm's reference designs. Kashio said this was evident in part because of the many Japanese electronic components it uses.
For instance, the company uses Sharp's IPS (in-plane switching) liquid crystal panels for the display and Sony's CMOS (complementary metal-oxide semiconductor) image sensor for the camera. Similarly, it uses many connectors made by Hirose Electric and Japan Aviation Electronics Industry. These are all more or less the same components used in smartphones made by Apple and Samsung. Xiaomi also uses filters and other parts by Murata Manufacturing. and Taiyo Yuden, whose components are also listed in Qualcomm's reference designs.
Parts makers are shifting their focus to how to pitch their products to Qualcomm and Taiwanese "fabless" semiconductor maker MediaTek. This is because parts makers can expect a huge increase in sales if these chipmakers employ their products.
Parts makers have been finding in recent years that a heavy dependence on Apple and Samsung presents certain risks. Weak earnings or other setbacks at these phone giants could take a big toll on their suppliers. Japanese electronic parts makers therefore welcome the rise of China's smartphone makers, particularly Xiaomi, because it spreads out the risk.
The competition is relentless among China's smartphone makers, big and small. Such major players as Lenovo Group, Huawei Technologies and Yulong Computer Telecommunication Scientific -- maker of the Coolpad smartphones -- are going head-to-head with such small and mid-tier makers as Oppo and Gionee Communication Equipment. Survival means embracing the latest components in order to offer attractive new functions. That is why there is strong demand for Japanese components, which they regard as a way to significantly add value.
Now that these Chinese smartphone makers are moving into India, the Middle East and Africa, Japanese electronic parts makers are looking to ramp up their shipment volume.
As for Xiaomi, the company is scheduled to launch this year 4G (fourth generation) smartphones compatible with the TD-LTE (Time Division Long-Term Evolution) standard, which could impact the electronic parts market for LTE-compliant products as well.