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Xiaomi Grabbed the Long Tail in Quest for Revival

BEIJING—Chinese smartphone maker Xiaomi endured “two painful years” after low-cost rivals jumped into the phone market, eroding its market share, Xiaomi’s finance chief said in an interview on Tuesday. The downturn forced Xiaomi to rethink its online-only sales model and open brick-and-mortar stores.

The prospect of high fundraising “drove a lot of aggressive competition. Once they rushed in, the economics got destroyed,” said Xiaomi CFO Shou Zi Chew at a discussion hosted by The Information in Beijing, adding that many companies’ business models were “unsustainable.” That competition ended what had been explosive growth for Xiaomi, which in late 2014 helped it raise more than $1 billion from investors at a valuation of about $46 billion. That made Xiaomi the world’s most valuable startup at the time.

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CLARIFICATION: Xiaomi CFO Shou Zi Chew's comments about what attracted rivals into the smartphone business has been updated. 

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“There is the long tail of offline sales we had not touched.”