Tech Transformers

Xiaomi CEO admits it grew ‘too fast’ after struggles and targets $14.5 billion revenue in 2017

Xiaomi has grown "too fast" in the past few years leading to challenges in the business, the chief executive of the start-up often dubbed "China's Apple" said on Thursday, as it targets 100 billion yuan ($14.5 billion) in revenue this year.

CNBC understands that the company has never hit the 100 billion yuan target before.

The technology firm – which is valued at around $45 billion, according to numerous reports – was once the darling of the smartphone world, showing triple-digit growth and challenging the likes of Samsung and Apple. But it has been struggling in the past two years and has since looked to branch into new areas.

Lei Jun, founder and CEO of Xiaomi Inc, delivers a speech at a launch event for the new smartphone Xiaomi Mi 5 on February 24, 2016 in Beijing, China.
VCG | VCG | Getty Images

"2016 was a year in which we took time to catch our breaths and slow our rapid pace to make essential adjustments to our business that will enable us to go further," Xiaomi CEO Lei Jun said in a letter to staff on Tuesday.

Still, Lei called 2016 an "exceptional" year and listed the achievements of the nearly seven-year old start-up:

  • Xiaomi has innovated with the hardware on its flagship Mi 5 smartphone and applied for over 16,000 patents globally, of which 3,612 have been granted
  • The company has opened 54 Mi Home retail stores to-date, three of which have passed 100 million yuan in gross merchandising volume, a key retail metric. Xiaomi said it aims to open 200 more Mi Home stores in 2017, and a total of 1,000 over the next three years
  • Xiaomi's India business surpassed $1 billion in annual revenue for the first time, as it looks to expand into markets beyond China
  • It's other products including smart TVs and smart routers crossed 15 billion yuan in sales in 2016
  • Xiaomi said its internet services business saw revenues double in 2016
  • The start-up also said that it had improved "organizational efficiency", including reorganizing the smartphone hardware team in May

Xiaomi ‘left behind’

Xiaomi's started as a smartphone business and quickly became a major player. But it very quickly lost ground to more nimble players. Xiaomi is estimated to have shipped around 62 million smartphone units in 2016, down from 72 million the year before, while its global market share fell to 4 percent from 5 percent, according to Counterpoint research.

In China, which accounts for about 90 percent of its smartphone sales, according to analysts, it was overtaken by players such as Oppo, Vivo and Huawei who favored selling through physical stores rather than online, like Xiaomi did.

Xiaomi has big plans for India
Xiaomi has big plans for India

"Until 2015, when Xioami reached its peak, they were doing well in China, but China was more than 90 percent of their total volume globally. So it was a one trick pony market for Xiaomi," Neil Shah, research director of devices and ecosystems at Counterpoint Research, told CNBC by phone.

"If Xiaomi's performance remained good in China, they would have still grown year-over-year. But that was not the case. Oppo, Vivo and Huawei in 2016 left Xiaomi behind. Their global growth was curtailed and they didn't expand in newer markets."

‘Extremely promising’ 2017

Xiaomi originally found strong growth by selling via online channels and creating hype via social media. But the company admitted that this no longer is the only effective method and therefore has pledged to open more bricks and mortar stores. Lei wrote that that online smartphone market only makes up 20 percent of overall sales.

"Xiaomi has great ambitions, and we are not satisfied with just being an e-commerce smartphone brand, so we have to upgrade our retail model, and incorporate offline retail for a new retail strategy," Lei said.

But the CEO ended the letter on a positive note suggesting that 2017 looks "extremely promising" with the company looking to focus on artificial intelligence, internet finance and the goal of hitting 100 million yuan in sales.

"It is a challenging road ahead, and we must overcome the difficulties as we work towards our dream," Lei said.

"In the first few years, we pushed ahead too fast. We created a miracle, but also drew on some long-term growth. So we have to slow down, further improve in some areas, and ensure sustainable growth for a long-term future," Lei said in the letter.