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Xiaomi's Declining Phone Business Hurts Qualcomm

Summary

Like Apple, Xiaomi is also suffering notable decline in its Android phone business in China.

Xiaomi's emerging trouble in smartphones should concern QCOM investors.

Aside from being an early investor in Xiaomi, Qualcomm is the top supplier of processors/modems for Xiaomi Android phones.

Xiaomi is also a license-paying partner of Qualcomm’s 3G/4G patents business.

Qualcomm needs to help Xiaomi to grow beyond its Android phone business model. It's time Xiaomi makes Snapdragon-powered Windows phones.

It is not only Apple (NASDAQ:AAPL) that's having a bad ride in China this year. Xiaomi (Private:XI), the company who makes affordable iPhone-looking Android phones is also crashing in the Middle Kingdom. Recent report from IDC revealed Xiaomi's Q2 2016 phone shipments took a whopping -38.4% year-over-year decline. Xiaomi's declining Android phone business is trouble for its processor/modem supplier, Qualcomm (NASDAQ:QCOM).

Qualcomm's long-term strategy in China is in semi-jeopardy if its major partner, Xiaomi, suffers negative sales growth in (many are Snapdragon-powered) phones. Current investors of Xiaomi like Qualcomm should now admit that Xiaomi's old valuation of$45 billion. Xiaomi is a unicorn company that is looking more like it is losing its horn/mojo.

The recent decline in China of Xiaomi is in big contrast to the huge growth of Oppo (+124.1%) and Vivo's (+74.7%) shipments. Oppo and Vivo are Chinese companies demonstrated it can easily beat the low-margin pricing strategy of Xiaomi.

Why Xiaomi's Phone Problem Should Bother Qualcomm Investors

China, the biggest market for smartphones, is home turf of Xiaomi. IDC's report of Xiaomi's big fall in Q2 phone shipments worsens the already declining global phone sales of Xiaomi.

I repeat, Xiaomi is a major buyer of high-end and mid-range Snapdragon processors of Qualcomm. The possibility that Xiaomi will buy less Snapdragon processors (to reduce the...


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