The Chinese Company Apple and Samsung Can't Afford to Ignore

By Markets Fool.com

Apple can no longer ignore its copycat in China. The latest reportby industry watcher Gartner shows Xiaomi continuing to gain momentum, blending Google's industry-leading Android operating system with Apple's stylish panache to crank out a product that is considerably cheaper and apparently cooler than its larger rivals.

Continue Reading Below

Privately held Xiaomi has stormed out of nowhere to become the world's fourth largest seller of smartphones after releasing its first device just three years ago. Gartner's data shows it selling nearly 15.8 million handsets to vendors during the third quarter, up sharply from the mere 3.6 million smartphones it moved a year earlier.

It may not seem like much in terms of the overall market, going from a 1.5% share last year to 5.2% now. Can a smartphone maker really be considered disruptive when it's selling just one out of every 20 devices? With Samsung's share of the market sliding from 32.1% to 24.4% and Apple's iPhone reach growing from 12.1% to just 12.7% over the past year, it clearly makes a difference.

Put another way, Xiaomi sold 12.2 million more smartphones this past quarter than it did a year ago. Apple only sold 7.9 million more iPhones while Samsung experienced a 7.2 million decline. Xiaomi may be taking a bigger bite out of Samsung within the Android segment than Apple in the overall market, but it's still gnawing away at everybody.

Xiaomi the money
Apple fans have long argued that it doesn't matter that Android dominates in terms of global market share. Android may be the operating system of choice for smartphone buyers -- accounting for 83.1% of all vendor shipments this past quarter, up from 82% a year earlier -- but Apple's the one making the lion's share of the industry profits.

That is certainly true, and reports indicating that Xiaomi is working on razor-thin margins -- not a surprise given the critical acclaim of its latest Mi 3 smartphone relative to its accessible price point -- won't change that. However, it also wouldn't be a shock if the iPhone's high price in overseas markets where carriers don't subsidize handsets as aggressively as they do here explains why Apple's selling just one of every eight smartphones hitting the market.

Continue Reading Below

Some have been calling Xiaomi the "Apple of China," and the mobile speedster is unapologetic in living up to that name. Its product rollouts borrow liberally from Apple's presentation styles, apparel, and even the "one more thing" showstopper that Steve Jobs made famous.

This may seem harmless, but with consumers in China and other international markets needing reasons to justify paying a widening premium for the iPhone experience, imitation is more a form of battery than flattery.

App it up
The Chinese handset maker has also made aggressive international expansions this year. Apple won't lose developer support -- owners of iOS devices are an engaged lot. However, let's not dismiss Xiaomi users as unengaged.

Web traffic analytics specialist, Flurry, published an interesting study of app usage in China earlier this year. It was just a small sample size of 23,000 smartphone users in the world's most populous nation, but it suggests that Xiaomi fans are more active than traditional Android device owners.

Flurry's study showed that Samsung users spent 14% less time on apps than iPhone owners, but Xiaomi owners actually spent 7% more time on apps than iPhone users. It's the first time that Flurry has seen a non-iPhone device lead the pack in engagement. In other words, Xiaomi users are an enthusiastic bunch.

With Xiaomi clearly still on pace to move the 60 million smartphones it was targeting for 2014, this Chinese upstart is something the industry will want to keep an eye on.

Source: Xiaomi.

The article The Chinese Company Apple and Samsung Can't Afford to Ignore originally appeared on Fool.com.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.