Hi-P to reap profits thru smartphones

It will supply Xiaomi’s steel frames.

Losses are expected to dwindle as industrial mabnufacturer Hi-P harps on a newfound opportunity to supply Xiaomi’s new flasghip Mi4’s premium stainless steel frame.

According to a report by RHB, this opportunity will be a major catalyst to drive a strong turnaround for the company together with its already existing partnership with Apple.

Xiaomi is the youngest top 5 smartphone player with sold out products, says RHB. Hi-P will be producing Mi4’s key selling feature, a premium stainless steel frame which is estimated to cost around CNY400.

Here’s more from RHB:

According to Strategy Analytics, Xiaomi captured 5.1% of total market share in 2Q14, up from 1.8% last year. This makes this four year old company the world’s 5th largest global smartphone player in terms of shipment units. In 1H14, Xiaomi reported shipment figures hitting 26.1m units (+271% y-o-y) and revenue of CNY33bn (+149% y-o-y) with debut batches sold out rapidly. Currently, Xiaomi projects 2014 shipments could hit 60m units.

In its latest July 14 annual conference, Xiaomi launched its new flagship smartphone, the Mi4. The Mi4 features top of the line hardware at only CNY1999. This is comparable to other premium devices such as the Samsung Galaxy S5, Sony Xperia Z2, but at a 50% cheaper price.

Xiaomi’s products are vastly popular and are usually sold out within minutes. Xiaomi’s previous flagship Mi3, saw 200k debut units being sold out in 3 minutes while the Mi4 similarly cleared out within 37 seconds in its first sale. 

Hi-P indicates that gross margins for 2H14 are likely to be better than 1H14 and we attribute this to likely better margins from Xiaomi. Our channel checks indicate that Xiaomi products typically carries higher margins (vis-à-vis Apple (AAPL US, NR)). This makes sense as Xiaomi typically sells its phones at slightly higher than the Bill of Materials (BOM), whereas companies like Apple have a tendency to extract more value from its suppliers. We believe this is merely the start of the relationship between the two companies.