Xiaomi finds big success selling high-end smartphones for less

China's Xiaomi may be the most successful handset maker you've never heard of. The 3-year-old company sold more than 7 million smartphones last year with no ad budget and no retail sales. CEO Bin Lin spoke at All Things D to explain how.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
2 min read
Bin Lin, president and co-founder of Chinese smartphone maker Xiaomi, talks at the 2013 All Things D mobile conference in New York City. CNET/Marguerite Reardon

The high-end Chinese smartphone maker Xiaomi has no marketing budget and no flashy retail stores. And yet it is one of the most successful handset makers in the coveted Chinese mobile market.

Speaking here today at the All Things D conference, president and co-founder of the 3-year-old company, Bin Lin explained how the company has grown so rapidly from its first device sold in 2011 to now. He also offered advice to bigger multinational companies struggling to sell products in China.

"The way we sell online is to be transparent," he said. "We tell users everything about the phone. Telling them fully about the CPU, display, that it uses an LG battery. We give the good and the bad. And tell them how we'll fix the bad."

Xiaomi released its first smartphone in August of 2011, and it released its second in August of 2012. The company spends no money on advertising and when it puts a batch of 300,000 products online, it usually sells out within minutes.

Last year, the company sold more than seven million handsets and generated over $2 billion in revenue. This year it expects to sell 15 million devices.

But Lin noted that the company takes a financial hit when its phones are first introduced. The company only charges the cost of the components for the devices, which means they can sell devices for less than $400 a piece. So how does Xiaomi plan to make money? Selling accessories and services is where Xiaomi sees its future.

Lin said that the cell phone market is where the PC market was 20 years ago. At first the margins were high, but over time they declined. For this reason Lin said that his company has decided to focus on services rather than the devices for its revenue and profits.

Lin said the company plans to expand its sales to Taiwan and Hong Kong, markets that are similar to the U.S. because most phones are sold via a carrier and are subsidized. It's unclear whether the marketing and focus on providing a top-of-the-line device at cheap prices will do well in a market where device pricing is not as important.