ELECTRONICS 

Oppo, Realme, OnePlus face inventory issues due to factory shutdown

In January 2016, Xu Bin was unimpressed by Xiaomi Corp’s smartphone – good for basic photo and video taking but nothing to write home about. Its design was long, its features were lacking, and it was just as expensive as other top-end rivals. Xu, then an investor in Xiaomi – alongside the Chinese government’s sovereign wealth fund – decided it was time to sell his shares and move on.

Xu had what might be called the Joan of Arc syndrome. When a company launched a consumer product – especially one as revolutionary as Xiaomi’s smartphones – it quickly had to face questions about its viability. How did consumers intend to use it? How would they get around the network limitations? Just how much of a threat would it be to the established mobile phone brands?

Xu quickly found an answer. By making very good smartphones at exceptionally low prices, he could build up demand, just as the famous “mannequins” in London department stores did during the early 1970s. Xiaomi’s ads illustrated with warm narratives the science fiction promise of inexpensive (and often elegant) devices that could take you anywhere. Unlike its competitors – Samsung, Apple, Sony – Xiaomi couldn’t wait to get going.

Xu made an example of Xiaomi at CES, the annual electronics show held in Las Vegas in January 2016. At his booth, Xu plied the audience with top-line phones from Samsung, Apple, and LG. But he pointedly omitted Xiaomi’s products. That was unusual: it suggested that Xiaomi didn’t want to trumpet the advances of the iPhone, or stand for the pleasant futuristic delight of high-end design.

That year, Xiaomi sold 60m smartphones. By the end of 2017, it had sold 310m.

But then Xiaomi’s ability to crank out phones ebbed. Its earnings rose somewhat last year, but still ranked below the likes of Oppo and Vivo. Xu appears to have realized that Xiaomi was losing the war with the smartphone giants in China and elsewhere. In March, he resigned from the board, and early this year Xiaomi scaled back its ambitious plans, selling a quarter of its factories to a Chinese consumer electronics maker. Xu plans to keep a small stake, at least initially.

Until 2018, Xiaomi had been able to ship 140m or so phones a year, but the resulting high inventory and the closure of some factories put a lot of pressure on China’s giant manufacturers. Other Chinese brands that run mobile supply chains in a vertically integrated fashion – OPPO, Vivo and Huawei – have felt similar pressure. It took Oppo, for example, some time to develop a solid inventory management tool. But after a series of missteps in 2018, it should be able to feel more confident going forward.

Xiaomi, too, has been surprisingly responsive. Whatever problems it had last year, it’s had little difficulty producing phones in the following year. In the meantime, though, it has cut prices sharply. Most of Xiaomi’s competitors have followed its lead: Vivo now has the cheapest smartphone in the world, thanks in part to Xiaomi’s relentless price cutting.

Xiaomi has also made mistakes. To an older generation, it still seems chintzy, or, at best, antique. Xu has been slow to introduce cloud services, which will let you back up and play back photos and video on computers or tablets and smartphones. One core difference between Xiaomi and many of its rivals is that the Chinese firm has never tried to push any kind of ecosystem, like Oculus VR, or Facebook’s heavily marketed “Messenger” service.

Whatever the reasons for recent pricing and inventory problems, Xu seems to have finally gotten his bearings. He’s making sure that, in the long run, his company’s success will lie in selling smartphones rather than in developing a greater appetite for consumer electronics.

Xiaomi could turn out to be the sole big Chinese force in mobile phones. But for all the progress made in the year or so since Xu shut down part of his factory, it’s not clear that Xiaomi is the only one seeing problems in their operations. OPPO and Vivo have recently cut back sales, too. So has Huawei.

Whether they can be the big players in smartphones will have a lot to do with whether they can accelerate new products. But they all face an uphill struggle – certainly less so than Xiaomi has in the past. And Xu’s decision to go out of the picture might make things worse.

Related posts

Leave a Comment