TAIPEI, Taiwan -- (BUSINESS WIRE) -- According to the global market research firm TrendForce, smartphone manufacturing costs are decreasing. In 2014, low-end devices that cost less than $150 are expected to represent 14% of the total smartphone shipments worldwide, up from 11% forecasted for this year, while mid-end smartphones, which cost between $150 and $450, are projected to account for more than 50% of the shipments in 2014.
In terms of Red Rice’s hardware, its MediaTek MT6589 chipset accounts for 20% of the total manufacturing cost. The 4.7-inch, 312 ppi IPS display by AUO, a significant upgrade from the 220 ppi display commonly used in similarly priced devices, represents 22% of the cost. Based on its component cost, Red Rice’s total manufacturing cost is estimated at $85 (4Q”13). With a retail price of RMB 799, roughly equivalent to $130, Xiaomi is profiting at a rate hardly acceptable for other smartphone makers.
TrendForce believes that Red Rice’s low price is possible because of Xiaomi’s successful cost control. First, Xiaomi usually unveils new products at least a quarter before the actual launch, which gives time for the component cost to decrease. Second, Xiaomi controls inventory better than its competitors. Using an Internet-based pre-order sales model, Xiaomi is able to accurately estimate its initial production, thereby reducing the risk from worse-than-expected sales. Third, by marketing via social networks, Xiaomi cuts down on advertising costs while being able to cause a stir on the market with each new device launch.
TrendForce believes Xiaomi’s long-term strategy includes continued expansion in the domestic market as well as entering foreign markets with high price-performance ratio devices. As social network 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. The funds could be otherwise used to improve manufacturing and avoid untimely product delivery, a notable weakness of the growing company.
For more details, please visit: http://press.trendforce.com/en/node/5959