Things are not looking good for Chinese smartphone company Xiaomi, as market analysts have stated that the company’s $45 billion valuation of last year is unfeasible. It’s a sour turn of events for one of China’s most exciting startup companies.
This year, the company is most likely going to fall short of selling its expected 80 million smartphones. Suppliers have stated that they are planning to reduce their targets for Xiaomi as a result of this expected shortcoming. The suppliers have started to lessen their production while diverting their resources elsewhere.
The failures of Xiaomi demonstrate the challenge of trying to maintain momentum in the difficult technology industry of China. As the company’s rivals have adopted a similar sales strategy of marketing their sleek and fashionable designs, the revenue for Xiaomi has been neutralized. The company’s first-mover advantage which had originally allowed it to establish a high price point has since been washed away.
Hong Kong market analyst said, “All those expectations of growth aren’t being realized, which now makes that $45 billion valuation unfeasible. The argument was that their business is kind of like Apple and they’re growing very fast, but they’re no longer growing so fast and they’re not as good as Apple.”
By the end of the third quarter of this year, the number of domestic shipments of Xiaomi smartphones had declined by 8% over the course of the year. Additional statistics show that the company is currently barely maintaining the smartphone lead in China.
Previously, growth projections had suggested that Xiaomi was one of the most valuable technology startups in the world. In March of 2014, the company had said that it would sell 100 million smartphones in 2015. But during the first nine months of this year, Xiaomi only shipped about 53 million smartphones.
The bold predictions of the company allowed them to receive more than $1 billion from investors. The company was even drawing comparisons to Alibaba, which held the largest IPO ever just a few months prior. But ultimately, Xiaomi was just driven by the hype and the hope for potential rather than actual proven performance.
While growth for Xiaomi could be reignited with a strong fourth quarter performance, it’s looking like this is just another company that was overhyped. Although it doesn’t look like Xiaomi will entirely disappear anytime soon, the smartphone maker does represent another example of why investors should be wary of young startup companies that are graded on their potential rather than their performance. Most of the time, these promising companies just simply fail to deliver on the widespread expectations.