Xiaomi boss pegs net profit margins to less than 5 per cent
27 Apr 2018
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While business barons around the globe talk of maximising profits to the hilt, here’s one entrepreneur who asserts he would cap net profit margins of hardware sales to less than 5 per cent and pass on the benefits to consumers and employees.
“If the margin crosses 5 per cent then we will find a way to return the excess above 5 per cent to our users,” Xiaomi co-founder and CEO Lei Jun said in an email to employees. “If we sell our products at close to cost and return value to our users, then we can earn the long-term support of our users. Aiming for large volumes with small profit margins will still result in suitable hardware profits for us in the long term.”
He promised users that the hardware business would never have overall net profit margin exceeding five per cent. Xiaomi is behind a ‘triathlon’ business model that covers hardware, internet service and new retail.
Jun defended his business model, which had been challenged often over the past eight years. But Xiaomi is the only smartphone that rebounded despite decline in sales, he said.
“This miracle, coupled with the results we have achieved as of today, shows how relevant and advanced our model is,” added Jun. “Xiaomi is an engineering-led company. Engineers are constantly looking for the latest technologies to benefit the public and change the world.”
The company prides itself on selling its products at honest pricing. In the past, most of its products were sold at cost or with negligible profit margins of one or two per cent.
“Aiming for large volumes with small profit margins will still result in suitable hardware profits for us in the long term,” he explained. “In addition, we are different from traditional hardware companies. Xiaomi is an internet company with smartphones and smart hardware connected by an IoT platform at its core.”
Xiaomi launched its new product, the Mi6X in China on Wednesday. It features the high-end Qualcomm Snapdragon 660 processor and the latest AI technology.
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