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China's Answer to the iPhone

TAIPEI (TheStreet) -- Smartphones by Chinese developer Xiaomi are forecast to triple shipments this year to as many as 60 million units and could see 100 million in 2015. It's a sign of support for the upstart firm's cheap-yet-solid devices and a threat to more established rivals.

Xiaomi means "small rice" -- and big business.

The projections by Xiaomi's CEO Lei Jun and industry analysts would rank the brand as China's No. 1 smartphone maker by market share next year. Growth forecasts also come as the Beijing-based developer expands offshore with followings in Hong Kong, Singapore and Taiwan on its way toward more markets in Southeast Asia.

But Xiaomi's pushback against big names such as Apple (AAPL - Get Report), Samsung (SSNLF) and major Chinese peers eventually will run up against its biggest flaw: software that makes it hard or impossible to switch languages from the default Chinese.

The Chinese-language-only phones have no problems in Chinese-literate markets, mainly China itself, where the phones are sold now. On those grounds, Xiaomi can confidently forecast revenues of 70 million yuan ($11.27 million) this year and 100 million yuan next year, per forecasts in the local media. It sold 18.5 million phones last year.

"As for overseas markets, Xiaomi has expanded its reach into Taiwan and Singapore, and received much consumer acceptance in both markets, thanks to the high quality and specifications that Xiaomi's products offer at only half the price of similar products," says Sophia Chen, analyst with the Taiwan-based tech research group Market Intelligence & Consulting Institute.

Xiaomi handsets are shaped like iPhones, pre-loaded with apps that run on Google's (GOOG - Get Report) free Android system and easily connected to the Internet. Xiaomi Phone 2 models sell for $320, an unusually low price that lifted sales in China last year.

The unlisted developer founded in 2010 had already sold seven million units, worth $1.9 million, in 2012 to rank its brand as China's fifth most popular. Xiaomi's MI3 and Hongmi models became two of the world's 10 best-selling smartphones for the first time this year, according to Hong Kong-based Counterpoint Technology Market Research.

The brand has already softened the smartphone sales of more established Chinese rivals Lenovo (LNVGY), ZTE and to a lesser extent Huawei (002502:Shenzhen). Foreign handset designers Nokia (NOK), Samsung and notoriously high-priced Apple are also bracing for impact.

Competitors will wait to see whether Xiaomi can adapt to foreign language markets. The handsets that most recently began selling in India, part of an expected trajectory across South and Southeast Asia, will need local language apps and after-sales support to grow sales in the region.

"That's a barrier," says Avril Wu, smartphone analyst with Taipei-based market-research firm TrendForce. She estimates 41.6 million units will sell this year. "To sell outside will be difficult, so most of the projected sales will be in Chinese-speaking markets."

But Chinese smartphone brands face few sales barriers in Southeast Asia, unlike in parts of the West, after localizing. "Xiaomi has to develop localized software and Internet services to complement its expansion strategy in overseas markets," says Chen from Market Intelligence.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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