Xiaomi misses handset shipment goal, hit by dependence on slowing Chinese market

The Chinese company had forecast last year that it would sell at least 80 million phones during the year. It had sold 34.7 million handsets during the first half of the year.

Growth in smartphone sales is slowing down in China because of saturation of the market, said Anshul Gupta, research director at Gartner. Xiaomi is also facing stiff competition from other players who have copied the company's strategy based on online sales, content and exclusive apps, he added.

Research firm Canalys said in October that Huawei had overtaken Xiaomi as China’s top smart phone vendor in the third quarter of last year. Xiaomi fell to second place after its shipments shrank year on year. Xiaomi is under tremendous pressure to keep growing as an international player as it slows down in its key home market, the research firm added.

About 90 percent of Xiaomi's sales have come from China, said Neil Shah, research director at Counterpoint Research. The company, which had acquired a star status because of its meteoric growth and aggressive publicity campaigns, has tried to reduce its dependence on the Chinese market, selling in other markets such as India, Indonesia and the Philippines.

But other than in China and India, its performance in markets it has entered has been lackluster, Shah said. Even in India, it is not among the top five as it faces competition from established local and foreign brands who have been quick to match Xiaomi's online sales strategy, he added.

Xiaomi offers an app ecosystem, which has proven to be attractive in China where the Google Play store is banned, but this has not helped the company in India and other markets where Google Play is available, Shah said.

The company has delayed its expansion in the U.S. and Europe largely because of concerns about intellectual property litigation and license fees in those countries, which will add to cost, Gupta said. In India, for example, the company ran into a patent dispute with Ericsson shortly after its entry into the market.

"China protects a lot of these companies and they know that once they step out of China, the lawyers of their rivals will be waiting," Shah said.

Hugo Barra, vice president of Xiaomi's global division, said early last year that the company was building up a patent war chest as well as taking licenses around the world ahead of a global launch. Xiaomi recently signed a licensing agreement with Qualcomm on 3G and 4G patents.