China's mini Apple takes slice of smartphone pie

Technology

This small volume strategy creates pent-up demand that gives Xiaomi free marketing buzz. The first batch of 50,000 phones released on Oct. 30 sold out in less than two minutes. Subsequent larger batches have also sold out in minutes.

Lei, who has nearly 4 million followers on China's popular microblogging platform, Weibo, feeds the buzz by dangling teasers about new products and launch dates.

"We're not a company that chases sales volume. We chase customer satisfaction. We look for ways to give the customer a great surprise," Lei said.

His vision for an exclusive mid-tier brand that builds up incrementally, rather than swamping the market, has found financial backers. In June, Xiaomi raised $216 million from Singapore's sovereign wealth fund, the Government of Singapore Investment Corp, and a few of Lei's friends, local media reported, giving it a valuation of $4 billion.

"China is ripe for its own Apple , HTC or Samsung," said Hans Tung, managing partner at Qiming Venture Partners, a venture firm backing Xiaomi. "The country is big enough, there are enough mobile Internet users and mobile phone consumers.

Therefore having its own mobile ecosystem built up by a domestic brand makes sense."

Xiaomi, which was founded in April 2010 and only started selling smartphones in October 2011, is on track to sell 7 million units this year, exceeding its target of 2 million. Xiaomi is already profitable and is expected to rake in sales of up to 13 billion yuan ($2 billion) this year.

"Our product only sold for a year and hit sales of $2 billion. That is pretty impressive," Lei said, adding Xiaomi was not considering an initial public offering within the next five years.

Tung said Xiaomi's net margins were 10 percent. This suggests its net profit could hit $200 million this year.

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