(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)
By John Foley
BEIJING, Aug 30 (Reuters Breakingviews) - Xiaomi has poached
one of Google’s (GOOG.O) top executives – but can it steal
Silicon Valley’s tech crown? The Chinese smartphone maker
already outsold Apple’s (AAPL.O) iPhone in the Chinese market in
the second quarter of 2013. Its valuation has ballooned from $4
billion to $10 billion in a year, based on a recent capital
increase. Hiring former Googler Hugo Barra will fuel the hype;
Xiaomi shouldn’t waste it.
Xiaomi’s business model is part hardware, part software and
part social networking. Xiaomi’s Android-based operating system
is updated every week, making it a hit with tech nerds. Service
and clubbiness are its other strengths. Users can ask for help
via microblog Weibo and get a reply in minutes. A dose of
scarcity marketing adds secret sauce: the low-cost Hongmi model
sold out within 90 seconds of its recent launch.
The company, whose name means “small rice”, hasn’t released
details of its latest funding round, but the $10 billion
valuation isn’t too demanding. Xiaomi aims to sell 20 million
handsets in 2013, almost three times as many as last year.
Assuming an average price of $250, that’s $5 billion of revenue.
After applying the company’s net margin of roughly ten percent,
the new valuation is a pretty un-racy 20 times earnings.
What’s missing is a “moat” to protect Xiaomi’s share of the
viciously competitive smartphone market. Its operating system
has won over around 20 million near-fanatical users, but
companies with bigger budgets, from Baidu (BIDU.O) and Alibaba
to Huawei, are also targeting users’ small screens. Xiaomi has
so far relied more on charming customers than locking them in,
as Apple did with its closed ecosystem, or as Blackberry did by
targeting large-scale corporate email users.
Hot tech upstarts have waxed and waned in other markets. For
Xiaomi, the biggest challenge may be expanding its user base
while retaining the core fans. So far the focus on service and
schmoozing consumers, rather than relying on hardware, suggests
the hype is deserved. Raiding Google is a coup. But it will take
something stickier to turn Xiaomi into China’s Apple rather than
its Palm Inc.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Xiaomi, a privately owned Chinese smartphone and software
maker, hired former Google executive Hugo Barra as vice
president of its international division. Barra had worked for
three years on Google’s Android operating system, and joined the
U.S. search engine operator in 2008. He is Xiaomi’s first
non-Chinese executive, according to a person familiar with the
- Xiaomi recently completed a capital raising that valued
the three-year-old company at $10 billion, its chief executive
Lei Jun confirmed via his Sina Weibo microblog account on Aug.
22. In June 2012, the company’s estimated valuation was $4
billion, Lei had previously said. Investors include venture
capital funds Qiming and Digital Sky Technologies, and
Singaporean state wealth fund Temasek.
- Xiaomi recently raised its sales target to 20 million
handsets for 2013, an increase on its previous target of 15
million. In the second quarter of the year it sold 4.4 million
handsets, beating Apple in China, according to data provider
Canalys. An initial launch of a new low-cost model called
Hongmi, retailing at 799 yuan ($130) per unit, sold out in 90
- Reuters: China's Xiaomi poaches Google's Barra to power
global drive [ID:nL2N0GU11E]
- For previous columns by the author, Reuters customers can
click on [FOLEY/]
(Editing by Peter Thal Larsen and Katrina Hamlin)
Keywords: BREAKINGVIEWS CHINA XIAOMI
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