Mi mi mi: Fans of China’s Xiaomi stoke IPO am­bi­tions

Jerusalem Post - - BUSINESS & FINANCE - • By CATE CADELL and ADAM JOURDAN

BEI­JING/SHANG­HAI (Reuters) – Wang Bin, 29, is a se­ri­ous “mi fan,” one of the ar­dent fol­low­ers of Xiaomi Tech­nol­ogy Co. Ltd., the maker of smart­phones and other elec­tronic prod­ucts that looks headed for a big ini­tial pub­lic of­fer­ing, per­haps as early as this year.

Wang’s house is a Xiaomi tem­ple. He has a Xiaomi tele­vi­sion and wears a Xiaomi watch. He has Xiaomi ther­mostats, air pu­ri­fiers and smoke de­tec­tors. Xiaomi prod­ucts help con­trol the win­dows, doors and lights from an app on his Xiaomi smart­phone.

The com­pany, which started with smart­phones but has since branched out into a plethora of smart de­vices, first gained a fol­low­ing in China by re­leas­ing lim­ited batches of slick-look­ing phones to on­line shop­pers at lower prices than the likes of Ap­ple Inc.

“Or­di­nary peo­ple can now ex­pe­ri­ence things that were out of reach be­fore, and this value has helped get these prod­ucts into mil­lions of fam­ily homes,” Wang said. “Since the first Xiaomi smart­phone came out, I knew Xiaomi would change the world.”

Wang needs no win­ning over. Still, Xiaomi, which is led by en­tre­pre­neur Lei Jun, will need many more loyal fans to live up to sky­high in­vestor ex­pec­ta­tions.

There are con­cerns over thin mar­gins, a stalling Chi­nese smart­phone mar­ket, costs of open­ing phys­i­cal stores and ob­sta­cles fac­ing the brand to re­tain its fol­low­ers and win new ones over­seas, an­a­lysts who cover the com­pany told Reuters.

HIT A WALL

Reuters re­ported last month that Xiaomi had tapped CLSA, Goldman Sachs and Mor­gan Stan­ley as spon­sors for its pro­posed IPO, which could value the com­pany at up to $100 bil­lion and be the world’s big­gest tech float this year.

“Look­ing from the out­side in, that $100 bil­lion num­ber sounds fea­si­ble,” said GGV Cap­i­tal man­ag­ing part­ner Hans Tung, who was an early in­vestor in Xiaomi and is a for­mer board mem­ber. “You can do the math and say it’s pos­si­ble.”

A lot will de­pend on the ma­jor strat­egy shift Xiaomi is driv­ing with its “In­ter­net of things” smart prod­ucts and ser­vices as well as its open­ing of phys­i­cal stores. It is also push­ing hard in key mar­kets such as In­dia and South­east Asia.

Xiaomi was founded in 2010 and started with an on­line-only strat­egy that helped it be­come, if briefly, the world’s most valu­able start-up. Lei de­vel­oped a cult sta­tus as the CEO akin to late Ap­ple founder Steve Jobs.

But its on­line model even­tu­ally hit a wall. Xiaomi’s phones dropped out of the top five in China in 2016 be­cause of ris­ing com­pe­ti­tion from lo­cal ri­vals Huawei, Oppo and Vivo.

The slump forced the com­pany to pull back from sev­eral over­seas mar­kets in 2016 and to shift to­ward phys­i­cal stores and de­vel­op­ing ar­ti­fi­cial in­tel­li­gence and In­ter­net ser­vices as new ar­eas of growth.

Last year, Lei said the “worst was over,” and the firm blew past its sales tar­get of 100 bil­lion yuan for 2017 with a cou­ple of months to spare.

Xiaomi snatched fifth spot in the global smart­phone mar­ket in 2017 and, in an im­por­tant step, over­took Sam­sung Elec­tron­ics as the largest ven­dor in In­dia.

“Peo­ple started to go to Xiaomi stores be­cause there are so many dif­fer­ent prod­ucts to buy and browse and look at,” Tung said.

IN­TER­NET SER­VICES

Xiaomi’s big­gest im­me­di­ate chal­lenge could be an ex­pected de­cline this year in the Chi­nese smart­phone mar­ket af­ter it suf­fered its first ever drop in ship­ments last year, said Mo Jia, a Shang­hai-based an­a­lyst at tech­nol­ogy re­search firm Canalys. An­a­lysts es­ti­mate the do­mes­tic smart­phone mar­ket pro­vides about 80% of Xiaomi’s rev­enue.

Still, Xiaomi is pro­jected to have made a net profit of at least $1b. last year, ac­cord­ing to bankers who have an­a­lyzed the com­pany’s rev­enue es­ti­mates. Prof­its are es­ti­mated to roughly dou­ble to around $2b. this year.

Wang Xiang, a Bei­jing-based se­nior vice pres­i­dent at Xiaomi and the ex­ec­u­tive who heads the firm’s in­ter­na­tional busi­ness, told Reuters the com­pany aims to make its prof­its mainly on ser­vices.

“We have a lot of In­ter­net ser­vices in China, so we are very, very healthy fi­nan­cially,” he said. “The model is we sell the hard­ware at al­most cost.”

The com­pany is now “adding re­sources and hir­ing more peo­ple to get into new mar­kets,” Wang added.

Xiaomi runs on­line “com­mu­ni­ties” in its var­i­ous mar­kets and has a “MIUI fo­rum” for its su­per fans, re­fer­ring to its open-source op­er­at­ing sys­tem, with whom the firm shares test ver­sions of its new soft­ware once a week on Fri­day.

The firm also looks at its fan base when de­cid­ing which new mar­kets to tar­get.

“We cre­ated the first in­ner cir­cle of hard-core fans through MIUI,” Wang said, adding that the firm holds an an­nual ban­quet for sev­eral hun­dred core fans, where Lei cooks. “The key is the sense of en­gage­ment.”

It works with tech start-ups as an in­cu­ba­tor to de­velop their gad­gets, which might then be sold as Xiaomi-branded prod­ucts.

The com­pany still faces chal­lenges in win­ning over con­sumers un­fa­mil­iar with the brand, Wang said, and build­ing the fan cul­ture will help break down bar­ri­ers.

Some­times though, even the most loyal fans some­times won­der if things have gone too far.

Pan Weida, 31, an on­line ven­dor in Shang­hai, has 78 Xiaomi prod­ucts in his apart­ment, in­clud­ing a ro­bot vac­uum cleaner and a rice cooker. He spends about 1,000 yuan per month and buys al­most all new Xiaomi prod­ucts.

“There’s a lot of Xiaomi stuff now, so it’s get­ting a bit com­pli­cated,” he said. “Pil­lows, bed quilts, un­der­pants – it’s a lit­tle nuts.”

‘Since the first Xiaomi smart­phone came out, I knew Xiaomi would change the world’

(Aly Song/Reuters)

PAN WEIDA poses for a pic­ture at his house in Shang­hai last week as he dis­plays some of his 78 Xiaomi de­vices. The com­pany, which started with smart­phones but has since branched out into a plethora of smart de­vices, first gained a fol­low­ing in China by re­leas­ing lim­ited batches of slick-look­ing phones to on­line shop­pers at lower prices than the likes of Ap­ple Inc.

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