Apple's Growing Problem in China

No, this isn't Apple's new iPad. It's the $240 Xiaomi Mi Pad. Source: Xiaomi.

Apple's made a lot of gains in China over the past few years. The country has become one of the company's most profitable regions, it just launched the iPhone on China Mobile, and it continues to build new retail stores in the country.

But a few years ago, a small problem started with Apple in China and it's since grown much bigger. Xiaomi, the private tech company that sells smartphones and now tablets, has its sights set on Apple -- and it's paying off. 

The Xiaomi Mi 3 smartphone. Source: Xiaomi.

The real iPhone killer
Just three years ago, Xiaomi began selling Android-powered smartphones after focusing primarily on software when the company started in 2010. Xiaomi's phones run a modified version of Android, which looks more like iOS 7 than any version of the green droid.

In Q1 2014, Xiaomi had 10% smartphone market share in China, putting it in the No. 3 spot behind Samsung and Lenovo. Meanwhile, Apple took the No. 4 spot with 9%. This comes after Apple recently launched the iPhone on China Mobile's massive network with 781 million subscribers. Obviously, that partnership may take a while for all the benefits to pan out, but so far, it hasn't helped Apple outsell Xiaomi in China.

But the problem for Apple isn't just that Xiaomi is doing so well in China's smartphone market, but that the company isn't satisfied with stopping there.

The Xiaomi Mi Pad has the same high-resolution screen specs as the iPad Mini with Retina display. Source: Xiaomi.

Striking a familiar pose
Just last week Xiaomi debuted its first tablet, a 7.9-inch device that's the spitting image of Apple's iPad Mini and with all the colors of the iPhone 5c. Xiaomi's Mi Pad has the same 2,048x1,536 high-resolution screen as the iPad Mini with Retina display and very-capable NVIDIA Tegra K1 processor.

The high-end specs, hardware, and software designs are more than just a nod to Apple; they're a way of tapping Apple's fan base by offering a very similar device with a price tag of just $240 -- $160 less than Apple's lowest-priced iPad Mini.

It's hard to say exactly how many tablets Xiaomi will sell in China, considering it's the company's first attempt at a tablet. Though the iPad is a dominant device in China's tablet market, the lower-priced Xiaomi device could persuade buyers who want the look and feel of Apple's tablet but can't afford the high-end prices.

Foolish thoughts
Xiaomi's influence in the smartphone and tablet market is limited to China right now, which prohibits the company from fully taking on Apple. But Chinese consumers have already shown that they'll buy large quantities of the company's devices, and the new tablet likely won't be any different. As Apple continues to make China a priority, Xiaomi's growing presence in the country (and blatant copying of Apple's iPad Mini) should make Apple investors a little nervous.

But aside from just increased competition in China, I think the Mi Pad proves yet again that Apple needs to update its devices -- or create completely new ones -- that truly set itself apart from the competition. When a four-year-old company like Xiaomi creates a tablet that looks nearly identical to a high-end device like the iPad Mini and runs software that looks just as sleek, it should be a clear sign to Apple that it's time to up its game.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. It also recommends NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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