BEIJING, Dec 15:

China’s Xiaomi Technology Ltd Co made a profit of 347.48 million yuan (RM198.6 million) on 26.58 billion yuan revenue in 2013, according to new Chinese securities filings, showing the razor-thin margins at one of the handset industry’s fastest growing companies.

The filings also revealed chairman and chief executive Lei Jun claims 77.8% ownership of the company he co-founded in 2010, while unnamed shareholders split the remaining shares.

The financial results were included in disclosures made to the Shenzhen Stock Exchange after Xiaomi purchased a 1.3% stake in Midea Group Co Ltd, a publicly-traded electrical appliance company, for 1.27 billion yuan.

The regulatory document provides for the first time an official snapshot of a company that became the most popular smartphone vendor in China and the third-largest vendor in the world this year, thanks to a lineup of handsets that are considered high-quality yet relatively inexpensive.

Xiaomi has long branded itself an “Internet company” that eschews traditional marketing and sells hardware at low prices as a distribution channel for its real moneymaker: software and services.

But the financial impact of its business model – and whether it can generate sustainable profits demanded by public markets – has been a subject of long-running speculation in the technology industry.

With operating profits of 485.77 million yuan in 2013, Xiaomi’s operating margins of less than 2% lagged far behind the two market leaders, Apple Inc and Samsung Electronics Co Ltd, the filing showed.

In 2013, Samsung’s mobile division reported 18.7% operating margins while Apple reported 28.7% for the fiscal year ended in September 2013. South Korea’s LG Electronics Inc’s mobile business posted 0.5% operating profit margin.

Xiaomi overtook LG to claim the No 3 spot during the third quarter with 5.6% of the global market share, according to Strategy Analytics.

All but leading smartphone makers Samsung and Apple will see profitability dwindle in the coming years due to pricing pressure from companies like Xiaomi, Fitch Ratings warned last month.

Bryan Wang, an analyst at Forrester Research, said Xiaomi’s thin margins did not come as a surprise.

“They’re growing so fast and so lean, I wouldn’t be surprised even if they were losing money. Every company is trying to match the Xiaomi price,” he added.

“The current market is so competitive that I don’t think it’s sustainable without consolidation.”

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