Alongside the launch of its newest smartphone, the Mi 6X at Wuhan University in Beijing, Xiaomi CEO Lei Jun took center stage to make an unusual pledge in front of Mi fans. The Chinese giant proclaimed that it will now cap the profit margin for its hardware business at 5 percent, starting this year.
The astounding announcement means that Xiaomi will limit its profit margins after tax on sales of smartphones, smart home hardware, and other devices ahead of its rumored $100 billion IPO. Xiaomi says the limit will last as long as the company is alive.
What’s even more interesting is the that Lei Jun said that when Xiaomi’s margins exceed 5% in a calendar year, it will ‘distribute the excess amount’ to fans through reasonable means.
Xiaomi says the decision will ensure its products remain affordable for most buyers; it’s doubling down on the ‘honest pricing’ motto that it has championed so far. Lei Jun’s official statement said:
We hope that our products and services will help our users to achieve a better life. We have always viewed our hardware as the gateway to providing our users with internet services, and providing value to them over time.
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
If you’ve been keeping tabs, a report recently pointed out that Xiaomi only makes $2 per smartphone sold, which is relatively low compared to its competitors. And smartphones are the key driver for the company’s revenue, followed by smart home and Internet services.
Xiaomi made a name with this approach from the get-go, building a huge and loyal user base by selling devices at affordable prices. The Redmi lineup has been one of the best-selling for the company not just in India, but also across the globe.
Xiaomi is said to be planning a dual initial public offering (IPO) that could value them at a whopping $100 billion. The company wants to be listed on both the Chinese and Hong Kong stock markets, making it the most eye-grabbing tech stocks of the year.