The company that is supposed to kill Apple just hit a wall

Chinese smartphone company Xiaomi announced that it sold 34.7 million smartphones in the first half of 2015, a 33% gain.

While it tried to frame the news as a positive, the truth is that it’s worrisome for the company.

As you can see in this chart above from Quartz, Xiaomi sales have flatlined on a sequential basis. This is surprising since Xiaomi has entered a number of new markets in the past year, including India and Brazil.

Xiaomi wanted to sell 100 million phones this year. It’s possible that happens if it releases a strong slate of phones in the back half of the year, but it seems unlikely.

Xiaomi’s slowdown makes Apple’s year seem even more impressive by comparison.

In the first three months of the year, Apple sold 61.2 million iPhones, posting a 40% growth rate. Analysts are estimating Apple sells 48 million iphones in June quarter, which would mean Apple sells ~109 million phones in the first half of the year, good for a 40% jump in sales.

If Apple meets expectations, its first half will be better than Xiaomi’s.

This is astounding since Xiaomi sells low-cost, but high-quality phones. Its phones go for ~$US100-$US300, while iPhones go for ~$US650-$US1,000.

Arguably, the two companies aren’t perfect comparisons since Apple sells everywhere, and Xiaomi has been pretty much confined to China. But, even in China, Apple is outperforming Xiaomi. Apple had the lead in the first quarter of 2015 in China with 14.5% of the smartphone shipments, according to IDC. Xiaomi had 13.5% of the smartphone shipments. In the first three months of 2015, iPhone sales were up 70% in the China region, according to Apple CEO Tim Cook.

For a while there was a narrative forming that Xiaomi would flatten Apple in China. Clearly, that’s not happening.

More broadly, this should have Xiaomi’s investors concerned.

Late last year Xiaomi raised $US1.1 billion in funding at a $US46 billion valuation. That makes it the most valuable startup in the world. When investors value a company at $US46 billion, they tend to think it has significant room to grow.

This could just be a small bump on the road for Xiaomi. Or, it could be the end of the road. Selling smartphones is a crazy hard business right now. Basically only Apple and Samsung are making money.

Bii sai cotd smartphone profitsBI IntelligenceApple is the only smartphone maker growing profit share

Apple is doing well because it has the best software with iOS, the best hardware with the iPhone, and the strongest global brand of any company.

All other major smartphone makers rely on Android, which gives them little room to differentiate. Xiaomi has carved out a strong brand for itself in China, but thus far it seems to be struggling to cultivate the same level of fanatical devotion elsewhere in the world.

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