Xiaomi Aims To Crack US Market Where Other Chinese Giants Failed

Xiaomi, the Chinese handset maker that is planning to list its shares in Hong Kong on Monday, said it is pushing ahead with efforts to sell its smartphones in the United States next year in spite of hostility shown to other Chinese firms.

The company has said it is building versions of its phones that can run on US mobile networks and that it believes its contacts in the US can help it evade the resistance faced by the likes of Huawei and ZTE.

Huawei, the second-largest smartphone maker after Samsung, has as yet been unable to sign carrier deals in the US, and has faced government calls to ban its telecoms equipment on national security grounds.

Meanwhile, ZTE has struggled to emerge from punitive measures that prohibited it from buying parts from the US, effectively a death sentence for the firm.

Trade friction

The company this week named a new team of top executives in one of the steps in a deal reached with the US government to lift the ban and resume business, but analysts have said the damage already done will be difficult to reverse.

And this week politicians also began targeting China Mobile for a ban on national security grounds.

But Xiaomi said it is optimistic about its chances in the US market, noting that unlike other major Chinese smartphone makers, the start-up is entirely consumer-focused.

The firm’s senior vice president Wang Xiang said Xiaomi’s ties with the likes of Alphabet and Qualcomm could also help it to seal carrier agreements, although none are yet in place, Reuters reported. Wang was head of Qualcomm’s China operations before joining Xiaomi in 2015.

When Xiaomi lists on Monday, it will be with a valuation of $54 billion (£41bn), only about half of an initial target that as of six months ago reportedly extended from $100bn as high as $150bn.

Bankers pitched the firm on its unusual business model, which includes low-priced, high-performance smartphones as well as high-margin consumer goods such as fitness trackers and online services.

Xiaomi had also planned to be the first company list on the Chinese mainland with Chinese depositary receipts (CDRs), a new instrument billed as a way of bringing Chinese tech companies back to their home country. Nearly all such firms have to date listed overseas.

But Xiaomi was unable to come to an agreement with China’s market regulator, which had sought to cap the stock price and impose strict rules, and as a result the CDR plan was dropped.

Talk of tariffs on China’s trade with the US has intensified in recent months, as well, and some investors were less than impressed with the start-up’s prospects.

Xiaomi’s IPO had been expected to be the world’s biggest since Alibaba’s US listing in 2014, but because of the lower valuation will only be the Hong Kong exchange’s biggest offering since 2016.

Turbulence

Nevertheless, the company sold 28 million smartphones in the final quarter of 2017 and expects to ship 100 million this year. It is already the largest smartphone vendor in India and is pushing into new markets including Spain and Russia.

In regulatory filings ahead of its IPO, the Beijing-based company said its low-margin smartphone business declined to 67.5 percent of its business from more than 70 percent last year. Xiaomi said it made a profit of RMB 1.038bn (£120m) in the first quarter excluding one-time items such as staff compensation.

More lucrative smart home devices and internet services, including scooters and mobile app sales, grew to 31.8 percent of revenues for the first quarter, the filing said.

Xiaomi’s operating profit was RMB 12.2bn in 2017, triple the previous year.

The firm was once the world’s most valuable start-up, but was hit by disruptions before returning to growth last year.