Xiaomi Building Out Ecosystem of Consumer Products With Smartphones at the Core

Investors in Xiaomi will be hoping the company can leverage its proven ability to manufacture and market good value-for-money smartphone hardware into a sticky software ecosystem that will allow the company to increase its margins and returns. It will also try to use its "Internet of Things" products to help build this ecosystem. During its IPO in 2018 the company committed to limit its margins on hardware products (smartphones and Internet of Things) to 5% but it has seen a drastic increase in smartphone hardware margins since Huawei pulled out of the market and has been increasing its mix of higher-end products. We expect this pivot toward higher-end products to continue over the next four to five years.