Xiaomi has capped how much money it makes from hardware, forever

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Xiaomi has announced that it will permanently limit the net profit margin earned from hardware sales to a maximum of 5 percent after tax.

Xiaomi CEO Lei Jun made the announcement earlier today, and it will affect Xiaomi's entire hardware range — from smartphones to lifestyle products.

Xiaomi has made a name for itself in part due to its aggressive pricing strategy — releasing hardware that often dramatically undercuts the competition. The company has traditionally avoided expensive marketing campaigns and relied little on third-party resellers to ship its products.

Its business model has been said to rely heavily on after-sale purchases like accessories or content from its digital store, rather than direct sales of major products like its smartphones.

Xiaomi's hardware profit margins were always thought to be low — and few smartphone manufacturers are likely to make much more than 5 percent net profit after tax from hardware anyway — so the 5 percent maximum net profit figure itself won't come as a surprise to many people.

What's more of a shock is the company's promise itself: no matter how much it may potentially make by increasing prices in the future, it will be restricted to that same net profit margin. More interesting still,

rel="noopener">TechCrunch notes that, if Xiaomi exceeds the 5 percent amount, it will give some of the profits back to customers " by reasonable means."

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Xiaomi's pledge doesn't necessarily mean that consumers are always guaranteed cheap products, however. The company could decide to release a $250,000 dollar USB stick and still keep its promise of a 5 percent net profit cap.

That being said, Xiaomi simply won't have the same incentive as other hardware manufacturers when it comes to increasing retail costs. Why would it sell a phone for $500 when it could potentially make the same per unit selling it for $400 — and get its brand into more users' hands?

What do you think of Xiaomi's announcement? Let us know in the comments.

Up next: The best Xiaomi phones

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