Xiaomi Escalates The Ecosystem Battle: Negative Read-Through To Apple And Google

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Includes: AAPL, AMZN, GOOG, GOOGL
by: WestEnd511

Summary

Xiaomi further expanded its hardware/software ecosystem with the introduction of an air purifier.

The long-term goal is to embed Xiaomi hardware into Chinese consumers' everyday life through mobile devices and smart homes.

MIUI ecosystem expansion will be a long-term negative to iOS and Android, more so on iOS.

Event

Xiaomi further strengthened its ecosystem by introducing its new air purifier in China that will be priced at $150. This marks the ongoing process for Xiaomi to develop a close-knit ecosystem that expands beyond mobile devices, TV and set-top boxes. "Smart home" is likely to give Xiaomi another growth driver beyond mobile devices. Within this decade, I expect Xiaomi to have a full line-up of mobile devices and home appliances that are tightly connected by the MIUI ecosystem, which will likely pose a threat to Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android and Apple (NASDAQ:AAPL) iOS in China. That said, I am reiterating my bearish view on AAPL, as I believe its ecosystem continues to be in a structural decline in China. However, I am not ready to call a short on GOOG yet, given that the company has already penetrated into the smart home space with its acquisition of Nest, and other verticals such as robotics, drones and healthcare which could potentially hedge the downside on the decline of the Android ecosystem in China.

Highlights

Putting the pieces in place. The air purifier is another extension of Xiaomi's ecosystem that already includes mobile devices, wearables, TV, STB and wireless routers. For the smart home segment, the company has already beta-tested a webcam, light bulb and power plug. Xiaomi's strategy in both hardware and software should be evident to anyone in that the company does not want to just sell phones, but embed itself in consumers' lives with its MIUI ecosystem. The company's aggressive pricing, word-of-mouth marketing and quality make its products compelling to users, which is evident from its share gain in China and rapid expansion into ASEAN and India. With TV, STB, wireless router, light bulb and air purifier already in its smart home portfolio, we can expect to see Xiaomi venturing into other home appliances segments, such as AC, refrigerator, stereo and home monitoring. I note that Xiaom's Mi Remote, a pre-installed app in MIUI, can already control TV sets from 27 brands, including Samsung, Sony, Panasonic and Philips, and 17 brands of air conditions including LG, TCL and Hisense. The Mi Remote also works with DVD players and cable box from major Chinese providers. Refrigerators, ceiling fans, light bulbs and home stereos are all part of the plan and "Coming Soon". Clearly, Xiaomi wants to dominate home living.

Negative to the iOS and Android ecosystems. The proliferation of Xiaomi and its hardware offering heightens the competition within the ecosystem battle that is currently being raging between iOS, Android and Amazon (NASDAQ:AMZN). It is also important that despite the recent decline in Samsung (OTC:SSNLF), the company continues to push its own Tizen OS, which could challenge AAPL and GOOG in the smart home segment, given Samsung's broader product portfolio. For now, Xiaomi's strategy of pushing hardware and software, as well as the integration of the two, will likely to become a threat to AAPL and GOOG within this decade. (See: "Apple: The Party Is Over; Initiating With A Bearish View").

Conclusion

I remain a seller of AAPL. I am concerned about the near-term prospects of GOOG due to declining search ad revenue, but its pursuit of other projects in smart homes, robotics, healthcare and drones/balloons positions the company for better growth prospects than AAPL, in my view.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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