Hong Kong-based Xiaomi, the fast-rising Chinese smartphone maker, has distinguished itself as the world’s most valuable tech startup after it netted $1.1 billion in its latest round of fundraising, the company’s founder and CEO Lei Jun said Monday.
The round swelled Xiaomi’s value to $45 billion, Lei said on Weibo, China’s Twitter-like messaging service. Last year, Xiaomi claimed the top position in China’s smartphone market, the world’s largest. Now it is worth much more than household technology names like Sony or Nokia, and nearly as much as Yahoo.
After taking hold of the Chinese smartphone market with low-cost phones based on the Android mobile operating system, Xiaomi is now the world’s third-largest smartphone manufacturer. According to a recent report from Gartner, Xiaomi sold 16 million units in the third quarter of 2014, up from 3.6 million in the same quarter last year.
Making Up Ground
Four-year-old Xiaomi has overtaken both Samsung and Apple in China by offering cheap, high-quality phones through online marketing campaigns that appeal to China’s young and affluent consumers. Around 500 million smartphones are expected to be sold in China in 2015, more than three times as many as will be sold in the United States, according to IDC.
Xiaomi’s latest round of fund-raising includes investments from All-Stars Investment, an investment fund run by Richard Weidong Ji, a former Morgan Stanley analyst. Other investors include GIC, Singapore’s sovereign investment corporation; Hopu Investment Management, one of China’s biggest private equity groups; DST Global, a fund run by the Russian billionaire Yuri Milner and an early investor in Facebook; and Yunfeng Capital, another Chinese private equity company set up by Jack Ma, who founded e-commerce company the Alibaba Group.
Earlier this month, a regulatory filing from Xiaomi showed that it earned the equivalent of $56 million in 2013. That figure reflected only a fraction of the earnings reported in November by The Wall Street Journal, suggesting that the company is operating on thin profit margins.
Xiaomi’s fast growth, competitive pricing and innovative marketing connected with Chinese consumers, to the point that the company hopes will translate into success in overseas markets. Lei and his co-founders are considering expansion into large developing markets like India and Brazil.
There could be roadblocks to such a strategy. Xiaomi doesn’t have a large patent portfolio of its own and was kept out of India recently because of a patent complaint filed by Swedish telecom Ericsson.
Competition at Home
The company is also facing competition on its home turf from companies such as Huawei and ZTE, which are employing a strategy similar to Xiaomi’s by selling some models primarily online. There are other Chinese startups that are trying to undercut Xiaomi by selling high-quality phones at low prices.
Will the rising valuation of Xiaomi raise expectations among investors for an initial public offering? Some investment bankers are already trying to help manage an IPO, although those familiar with the company have maintained that Xiaomi is years away from such a move.