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Why Xiaomi's new handsets won't give it an edge in the smartphone market

Xiaomi launched two new handset successors to its flagship Mi 5 model: the Mi 5s (pictured) and the Mi 5s Plus.
Source: Xiaomi

Xiaomi's new handsets might provide good value for money for customers, but analysts reckon they might not be enough to help the company close in on the world's largest smartphone vendors.

The Chinese smartphone maker on Wednesday introduced two new successor handsets to its flagship Mi 5 smartphone model - Mi 5s and Mi 5s Plus. The handsets, which are going to be available in China starting September 29, cost relatively less than other high-end smartphones, but offer similar features.

The Mi 5s costs 1,999 yuan ($299.64), while the Mi 5s Plus is priced at 2,299 yuan. By comparison, the suggested starting price for Apple's new iPhone 7 is $649.

"The new phones look nice, but the problem that Xiaomi, and all of these vendors are facing, is that we're seeing a slowdown in major innovations," said Bob O'Donnell, founder and chief analyst at Technalysis Research, told CNBC's "The Rundown" on Wednesday.

"Everybody nowadays is bringing out slightly better cameras, slightly faster processors and other relatively minor improvements," O'Donnell said, adding incremental features are not going to drive dramatic upgrades at a time when users were sticking to the same smartphone for a longer duration of time.

Xiaomi packed more power into the new handsets, with a new Snapdragon 821 processor; it introduced a larger 5.7-inch screen and a dual camera system comprising two 13-megapixel sensors for the Mi 5s Plus, while putting a Sony CMOS image sensor, usually found in compact digital cameras, in the Mi 5s for better quality pictures.

The stand-out feature introduced was the ultrasonic fingerprint sensing technology, which Xiaomi said could read a user's fingerprint using ultrasonic waves when the user placed a finger on the sensor. This allowed Xiaomi to put their fingerprint sensor under the top glass of the phones, which eliminated the need for a ridge button or touch pad that is common in other handsets including the Samsung Galaxy S7.

"In theory, this would be more accurate since dirt will not affect the finger print being read here," IDC's senior market analyst, Xiaohan Tay, told CNBC by email.

"Xiaomi has never failed in its messaging of delivering phones with good specifications at a low-cost. My thoughts are that consumers will still see it as a low-cost alternative to Apple's newest iPhones," she said.

The new Mi 5s and 5s Plus handsets may not give Xiaomi the kind of boost in the smartphone market that it was hoping for, both O'Donnell and Tay agreed.

"I think smartphones peaked in fourth quarter 2015, and this year's going to be relatively flat, and perhaps even down," said O'Donnell, alluding to sales figures. "I'm not so sure if these new phones are going to make a dramatic difference for them."

The gap between Xiaomi and the world's largest smartphone makers has widened this year.

Data from research firm Gartner showed in the second quarter of 2016, Xiaomi held a 4.5 percent market share as the fifth largest vendor worldwide, compared to a 4.7 percent share a year earlier. In contrast, market leader Samsung increased their market share in the second quarter to 22.3 percent, from 21.8 percent a year earlier.

IDC numbers, on the other hand, showed the smartphone maker was pushed out of the global top five by Chinese rivals OPPO and vivo this year, while rival Huawei consolidated its third spot on the table.

Tay added that most of Xiaomi's shipments would continue to come from its low-end Redmi line. "I think that [Xiaomi] will see its mid-range shipments improve once it is able to improve on its branding."

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