Following the recent announcement that Chinese smartphone maker Xiaomi has filed for an initial public offering (IPO) to raise at least $10 billion on the Hong Kong stock exchange,
Avi Greengart, Consumer Technology Analyst at GlobalData a leading data and analytics company, offers his assessment of the company’s current plans,
‘‘The IPO, which is expected to value the Beijing-based smartphone and connected device maker between $80bn and $100bn, will be the world’s largest IPO since Chinese Internet giant Alibaba raised $25bn in 2014.
“A successful listing should undoubtedly give Xiaomi a sweet infusion of the capital it needs to expand in the West. Xiaomi has long planned to enter the U.S. For now it is targeting Europe, starting with Spain, and we will be closely monitoring how the brand and its business model translates well outside of China. Xiaomi has said it plans to enter the US market ‘next year’ for the past three years. The US is famously unfriendly to Chinese brands right now. The more significant challenge is that carriers are the gatekeepers, the market is skewed heavily towards premium smartphones, and US consumers have expectations around brand and software that Xiaomi may have difficulty meeting.
‘‘Xiaomi’s business model is fascinating, it sells phones in high volumes and at low margins, starting out as an online-only model and grew rapidly. However competitors such as Huawei eventually countered with online-only brands of their own, and Xiaomi was unprepared. The company was able to successfully regroup and move into retail outlets as well as online. Xiaomi’s also thinks of itself as an incubator and IoT ecosystem vendor, investing in dozens of start-ups selling everything from air cleaners to fitness bands to Segways. Xiaomi has also been able to sell its phones outside China with India becoming one of the company’s most successful markets.
‘‘The company reported a 67.5% jump in revenue to RMB114.62bn ($18bn) in 2017. Operating profit tripled from RMB3.79bn to RMB12.22bn last year. However, it incurred a loss of RMB43.89bn compared to a gain of RMB491.6m in 2016.
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‘‘In an open letter included in the filing, co-founder, chairman and CEO Lei Jun admitted that because Xiaomi grew so quickly in early years, they did not have an adequately strong foundation to face all the challenges. Reportedly, proceeds from the IPPO will be equally spent on R&D, IoT, and other areas to ramp up its software platform, and global expansion.’’
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