According to global market research firm TrendForce, smartphone manufacturing costs are decreasing, which is changing the shipment proportion of handsets. In 2014, entry-level devices that cost less than
Taking a look at Red Rice's hardware, its MediaTek MT6589 chipset accounts for 20% of total manufacturing cost. The 4.7-inch, 312ppi IPS display by
Additionally, Xiaomi is not relying on traditional sales channels for its new device but turning to Internet retailers instead. The company hopes to garner revenues from software, advertising, etc., creating a new smartphone profit model. TrendForce believes Xiaomi is able to offer Red Rice at such a low price because the maker has a solid grasp on three important points of cost control. First, Xiaomi usually unveils new products very early, at least a quarter before the actual release date, which gives component costs time to decrease. Second, Xiaomi controls inventory better than its competitors. Using an Internet pre-order sales model, Xiaomi is able to get a more exact estimate for initial production, thereby avoiding risk if sales are not as strong as expected. Third, by marketing via social networks, Xiaomi cuts down on advertising costs, enabling the manufacturer to continue causing a stir on the market with each new device release.
Red Rice's price will inevitably have an influence on other smartphone vendors' pricing strategies, especially for entry-level to mid-range products. Currently, Xiaomi's main market is
TrendForce believes Xiaomi's long-term strategy includes continued expansion on the domestic market as well as breaking into foreign markets with high price-performance ratio devices. As social networking platform services and software are the company's main sources of profit, Xiaomi will need to develop new strategies to attract consumers in foreign markets. As the company's recently closed funding round has skyrocketed its valuation, Xiaomi is financially set to expand in foreign markets, potentially by acquiring local businesses. Otherwise, the funds could be used to improve manufacturing and ensure timely product delivery, a notable weakness of the growing company, noted TrendForce.
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