Xiaomi’s wish­ful think­ing on dis­play in hopes for 5G to im­prove its for­tunes

Weekend Argus (Sunday Edition) - - ECONOMY -

IN­VESTORS wait­ing for 5G to boost Xiaomi’s for­tunes might as well take their money else­where.

Founder and chief ex­ec­u­tive Lei Jun said this week he ex­pected the ad­vent of next-gen­er­a­tion wire­less to en­er­gise de­mand for its smart­phones.

I think we are at the eve of 5G. I be­lieve when 5G phones start to get pop­u­lar, the over­all de­mand from China will re­cover.

Buy­ing into the 5G hype seems to be the fall-back re­sponse for a tech­nol­ogy-hard­ware in­dus­try other­wise bereft of ideas. As I noted ear­lier this week, 2019 is set to be a year of yawno­va­tion and gim­micks.

That Lei thinks 5G will boost de­mand says a few things about his com­pany’s strategy.

First, it’s a state­ment of the ob­vi­ous. Each gen­er­a­tion of mo­bilenet­work­ing tech­nol­ogy re­vives ex­cite­ment be­cause of the prospect of faster con­nec­tions.

How­ever, the step from 4G to 5G will be far less dra­matic than 3G to 4G be­cause it’s a tech­nol­ogy that will pri­mar­ily im­prove the con­nec­tions made not by hu­mans but things (aka IoT) – such as door bells and cars.

Sec­ond, it’ll be an­other year or so un­til the net­works will be truly ready and, with­out such a roll-out, 5G phones are point­less. Work­ing in Xiaomi’s favour is the fact that China is ahead of the curve.

On Thurs­day, Min­is­ter of In­dus­try and In­for­ma­tion Tech­nol­ogy Miao Wei said tem­po­rary li­cences would be is­sued in se­lected cities.

Yet, as Miao said, only 20 per­cent of fu­ture 5G net­works will be de­voted to com­mu­ni­ca­tion. The rest will ser­vice IoT de­vices. That’s not great news for smart­phone mak­ers bet­ting on a 5G fu­ture.

An­other rev­e­la­tion from

Lei’s com­ments is the way he views smart­phones. In a pre-IPO an­nounce­ment, the ex­ec­u­tive pledged to cap the profit mar­gin on hard­ware at 5 per­cent in or­der to pro­vide low-cost de­vices for the masses.

The real money would be made in in­ter­net ser­vices. But as I wrote at the time, this was mere spin: mar­gins on de­vices are well short of that ceil­ing.

Lei talks about smart­phones as if they’ll help Xiaomi climb out of a post-IPO slump, which has seen shares fall as much as 41 per­cent. That’s be­cause he needs this to hap­pen.

Xiaomi’s in­ter­net busi­ness, the key nar­ra­tive be­hind its

IPO road­show is built around sell­ing branded smart­phones.

Once those de­vices are in users’ hands, it can try to sell ads and other ser­vices.

This model makes it more like Face­book than Ap­ple and re­lies on a daisy chain of fac­tors fall­ing into line. If Xiaomi fails to keep its place in users’ hands then the whole in­ter­net busi­ness model falls apart.

That makes a 5G-led smart­phone boom cru­cial to Xiaomi, but also a mat­ter of wish­ful think­ing.

Reuters

A NEW iPhone X is sold at an Ap­ple Store in Beijing, China. |

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