Xiaomi becomes China's third-largest smartphone vendor

China’s Xiaomi became the country’s third-largest smartphone vendor in the first quarter, beating Apple in the rankings despite that company’s recent partnership with China Mobile.

Once a niche player in the market, the four-year-old Chinese company saw record growth in the period as a result of surging demand for its low-price phones, research firm Canalys said Monday.

In the first quarter, Xiaomi had a 10 percent share of China’s smartphone market. Apple, meanwhile, went up a spot from last quarter to fourth place, with a 9 percent share. Samsung Electronics took first place with an 18 percent share, and Lenovo is in second place.

Both companies are expanding fast in China. But unlike Apple, which prices its flagship phones at US$800 or more, Xiaomi is focusing less on profit margins, and selling its products at just above cost.

Among those products is the company’s Hongmi phones which can start at 699 yuan ($113). The device has been fueling Xiaomi’s smartphone growth, helping the vendor to ship 11 million units in the first quarter, up from 7 million in the previous quarter, said Nicole Peng, an analyst with Canalys.

“The way Xiaomi has progressed so fast, most people in the industry didn’t expect it,” she said. The Hongmi phones are so popular that they’re projected to make up between 50 to 70 percent of the company’s total smartphone shipments this year, Peng added.

Xiaomi is still largely focused on China, but this year it plans to enter in ten foreign markets, including several countries in Southeast Asia, along with Brazil, Mexico and Russia. The company hopes to eventually sell software and other virtual goods over its phones, as a way to generate additional revenue.

As for Apple, the company also grew its market share in the quarter. After year of negotiations, Apple in January began finally selling iPhones for the first time through China Mobile, the country’s largest carrier with over 781 million customers.

The deal boosted shipments for the iPhone 5s to China, but demand also remains high for the company’s older and less pricier iPhone 4S model, Peng said.

Both Xiaomi and Apple made gains in the market, as other rival vendors are transitioning to offer phones made for China’s new 4G networks. Samsung still leads the market, but demand for its handsets slowed in the quarter, partly due to low-price products from Xiaomi and Lenovo, Peng said.

To keep up with its rivals, Samsung will have to move faster in the Chinese market, and release more lower-end products, she added.