Let the next smartphone battle begin

But figures within a statement ahead of Xiaomi's 1.27 billion yuan investment in home appliance company Midea Group Co Ltd, showed its 2013 profit margin was less than 2 percent.

Although the company－now valued at $45 billion, the highest among all technology startups－later acknowledged the investment was made by a Xiaomi subsidiary and the profit disclosed does not represent the company's total, analysts believe the Chinese company will not enjoy double-digit, or even high-single-digit margins over the next few years.

Investors favor Xiaomi mainly based on its ambitions in the smart home and entertainment sectors rather than its impressive smartphone sales, analysts say.

"Xiaomi is currently the only company in China trying to build an entire ecosystem around consumers' content needs. It has launched multiple products over the past 18 months including home media gateway Xiaomi TV, tablets, as well as investments in smart home ventures," according to Wang from Forrester Research.

"The company certainly has first-mover advantage, as Google and Apple are unable to offer their entire portfolio in China."

China's mid-end market will be a fierce battleground for Chinese smartphones makers in 2015, anxious to lift their profit margins, said James Yan, a researcher at Beijing-based consultancy IDC China.

Devices priced at around 2,000 yuan will be everyone's focus because that level can bring in larger profits and overseas companies have relatively weaker presence, according to IDC.

Forrester Research is predicting there will be 621 million smartphone subscribers in China by 2017 with fourth-generation devices continuing to dominate.