Samsung smartphones are widely available in electronics stores throughout China, while Xiaomi mainly sells its Mi phones from its own web site, Mi.com. And yet the 4-year-old Xiaomi took the top spot in smartphone sales in China in the second quarter of this year, according to a report today from U.S.-based research company Canalys International, surpassing Samsung and other more established mobile phone makers.

“This is a phenomenal achievement for Xiaomi,” says Canalys analyst Wang Jingwen, who is based in Shanghai.

Beijing-based Xiaomi sold 15.0 million units in the second quarter, an increase of 240% from the same quarter last year. Samsung, which had been the market leader in units sold in China, sold 13.2 million units in Q2, a decrease of 14.8% from 15.5 million phones in the same quarter last year.

Xiaomi sells 97% of its phones in China, but is expanding this year into such other markets as Indonesia, Mexico, Russia, Thailand and Turkey, Canalys notes. “Its aggressive pricing model will certainly resonate beyond China, but the challenge it faces in scaling its model for success on a global stage should not be underestimated,” says Singapore-based Canalys analyst Jessica Kwee. She says Xiaomi must build its international brand and localize its products. “And it must tailor its marketing and largely online sales channel accordingly,” Kwee adds.

As a sign of its international ambitions, Xiaomi last year hired Hugo Barra, a top executive in Google Inc.’s Android business unit, to leads its international expansion program. The company sells in Hong Kong and Taiwan and this month launched sales on its Indian e-commerce site, www.mi.com/in and on Flipkart, an online marketplace in India. A 40-minute, flash-sale event in India prompted Indian consumers to order 10,000 Xiaomi Mi-3 phones, Xiaomi says.

The Q2 surge is part of the ongoing rapid growth of Xiaomi, whose online sales more than doubled last year to $4.76 billion from $2.03 billion in 2012, according to an Internet Retailer estimate. That made Xiaomi the No. 3 online retailer in China, according to Internet Retailer’s China 500.

Founder Lei Jun has often said he views Xiaomi as an Internet company, not a smartphone vendor. Lei was one of the founders of Chinese e-retail site Joyo.com, which Amazon.com Inc. acquired in 2004. Since founding Xiaomi in 2010, Lei says he has tried to apply what he has learned from the Internet industry, such as encouraging consumers to exchange ideas about the products and services on Xiaomi’s e-commerce site, Mi.com. 

Xiaomi has also competed aggressively on price, offering a phone with many of the feature of Apple Inc.’s iPhone for half the price. Xiaomi’s Mi-4 phone sells today in China for about $324, versus about $856 for an Apple iPhone 5S.

Chinese consumers purchased 108.5 million smartphones in the second quarter, 37% of global shipments, Canalys says. After Xiaomi and Samsung, the top three vendors were all Chinese companies: Lenovo Group Ltd., Yulong Computer Telecommunication Scientific (Shenzhen) Co. and Huawei Technologies Co., Canalys says.

Even though only 3% of its sales come from outside its home country, Xiaomi’s explosive growth in China made it the fifth-leading smartphone vendor worldwide in Q2, according to Canalys. Here are Canalys’ estimates of the top five smartphone vendors and their global market shares in Q2 2014: 

• Samsung              26%
• Apple                    12%
• Huawei                  7%
• Lenovo                   5%
• Xiaomi                    5%

 

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