Is 'China's Apple' losing its appeal?

The mantra of Xiaomi is "always believe that something wonderful is about to happen," but it appears the Chinese smartphone maker has been a little too optimistic.

Lin Bin, the co-founder and president of Xiaomi, announced shipments on Friday of 70 million mobile phones for 2015. This might seem impressive for any firm but it was below its own target of 80 million, which had already been revised down from an original estimate of 100 million.

"There's a clear slowdown in the Chinese market...and China's the absolute core of (Xiaomi's) business," Dominic Sunnebo, a global consumer insight director at Kantar Worldpanel, told CNBC via telephone.


Xiaomi is often spoke of in the same breath as Apple and was even called singled out as one of the U.S. tech giant's most dangerous competitors by one technology blog last year. But Xiaomi has done little to shake off the image that Chinese manufacturers have of delivering lower-cost products.

It has branched off into Southeast Asia, India, and Brazil but that growth hasn't really accelerated, according to Sunnebo. The analyst also noted that Xiaomi has spread out into a number of different devices, inducing wearables, but spoke of a danger of it "spreading itself too thinly."

Another challenge for Xiaomi has come from within China and a fightback from its rival Huawei. Data in October showed Huawei's third-quarter smartphone shipments rose 63 percent year-on-year, compared to single-digit growth from Xiaomi.

Huawei, which hasn't seen any real pick-up in sales in the U.S., has focused on Europe, as well as China, and has targeted the premium smartphone market. In doing so it has become a more recognized brand across the world and has even launched a partnership with a German soccer club.

"Huawei has seriously upped its game...the quality of their marketing has increased greatly," Sunnebo said.

There might be fierce competition between the mobile makers but both are up against the same problem. Smartphone sales are slowing as more and more consumers, even in China, opt for replacement models rather than buying new.

Shipment growth in China was only forecast to be in the low single digits for 2015, according to research firm IDC. The same company predicted worldwide smartphone shipments hit 1.43 billion units last, which would have been its lowest ever year of growth.

Xiaomi - which released products like the Redmi Note 2, Redmi 2A Prime and the Mi 4c this year - is currently the second most valued technology start-up in the world. At the end of 2014, Bin said in a Facebook post that Xiaomi's valuation stood at $45 billion making it the most world's most valuable privately-owned tech company. Last year, analysts projected that to have risen to $46 billion. However, the unprecedented rise of Uber's car-hailing app means that it has been pushed off the top spot.

Kantar's Sunnebo told CNBC that it's difficult to read too much into its valuation. But, some investors will no doubt start to question the hype if they growth continues to slow.

"Next year is a really big year for Xiaomi in terms of international expansion," Sunnebo added.

For Daniel Gleeson, senior analyst at IHS Technology, the big challenge for Xiaomi will be if it's business model can translate well outside of China. IHS estimate Xiaomi mobile shipments will growing quite slowly over the next few years; reaching just 84 million units by 2019.