Hugo Barra Reveals How Xiaomi Keeps Prices Low

Xiaomi sold over 60 million smartphones in 2014, coming third in overall global smartphone sales.

Even though these are tremendous feats, some analysts claim Xiaomi is making small profits from the smartphone division, due to the large price undercuts to win the Chinese audience.

Head of international Hugo Barra tried to give reasons as to how Xiaomi manages to maintain profitability, while still making smartphones much cheaper than the competition.

The first reason is life expectancy, Xiaomi updates its devices for 18 to 24 months, rather than refreshing the range every 6 to 12 months like most companies. The higher life expectancy allows them better deals with component manufacturers, who like the comfort of two guaranteed years of sales.

Xiaomi is also able to cut costs through digital sales and close Chinese manufacturing, meaning overseas the smartphone will cost more, unless Xiaomi plans on setting up factories in Brazil, India and Russia to avoid these cost factors.

The amount of service updates and software revenue also allows Xiaomi to make money back from the sale of the device, although it is still not clear how much profit per unit Xiaomi makes on a smartphone like the Redmi.

Xiaomi is still a private company, meaning it is able to maintain day-to-day activities through investment. The company is valued at $45 billion, and rumors say it might hit the stock market in 2015 or 2016.

Once it hits the stock market, Xiaomi will have to be more open about revenue, profit and how it intends to become a profitable entity. For now, it is guesswork and occasional executives talks keeping us informed on the state of Xiaomi.