Xiaomi’s business is producing low-margin consumer electronics from smartphones to laptops to smart bikes and smart home appliances. While that mission may not always remain the same, CEO Lei Jun has just announced an incentive to keep it that way for as long as the company survives.
The company is now pledging to “forever” limit net profit margins after tax to 5 percent and that it would return any excess to customers “by reasonable means.”
Today our CEO Lei Jun announced a promise to all our fans…#Xiaomi will forever limit the net profit margin after tax for our entire hardware sales (including smartphones, IoT and lifestyle products) to a maximum of 5%.
Do you like the sound of that? pic.twitter.com/ZbEjaVeBLf
— Mi (@xiaomi) April 25, 2018
As TechCrunch points out, though, selling consumer items in and of themselves does not generate great profits (unless you’re Apple). Samsung, LG and other outfits take advantage of other divisions like in durable goods and components pads out the margins a bit and while Xiaomi has a burgeoning in-house chipmaking operation, it’s not known how far it will progress beyond providing silicon for the company’s own phones.
This new mission puts Xiaomi squarely against investors as it comes up for an initial public offering — Chinese media say that shares may be listed in Hong Kong and a mainland bourse, potentially limiting shareholder demands for profit padding, but there’s certainly a narrower range for balance that the company can achieve from this point.