Xiaomi secures new funding but doubts remain over valuation – Mobile World Live

Xiaomi secures new funding but doubts remain over valuation

02 JAN 2015

Chinese smartphone maker Xiaomi has raised $1.1 billion in a round of funding from new investors as well as existing shareholders, which it claims values the firm at $45 billion.

But this news follows Xiaomi being hit by an injunction in India that banned the sale of its smartphones for infringing on essential patents (it has since been given a reprieve by the Delhi High Court) and reports that it isn’t nearly as profitable as previously estimated.

A regulatory filing last month in China showed the privately-held company had a net profit in 2013 of just CNY347 million ($56 million) – ten times less than media expectations. The four-year-old firm reported CNY26.6 billion in revenue in 2013 (in line with previous reports) and an operating margin of just 1.3 per cent.

Based on the lower profit reported and higher costs it will face once it starts paying royalties on standard essential patents on all products it exports out of China, the $45 billion valuation is likely to be highly inflated.

Richard Windsor wrote in his Radio Free Mobile blog last month that based on the lower profit expected for the next two years, and assuming it hasn’t skimped on R&D, he calculates a valuation of $16.7 billion. He uses a similar formula as he used for Apple, but applied a 300 per cent premium to account for Xiaomi’s much faster growth.

But, he warned, if the firm has under-invested in R&D then the premium would be far too optimistic.

He estimated the company’s margins outside its home market would be 2-4 per cent in the best case.

The company shipped 17.3 million smartphones in Q3 – that’s a 211 per cent increase from Q3 2013. Its global market share jumped from 2.1 per cent to 5.6 per cent during that period, according to IDC.

The firm also said it plans to sell 100 million phones next year as it expands outside of China. But those plans have been slowed as it struggles to keep pace with growth in the new markets it has already entered.

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Joseph Waring

Joseph Waring joins Mobile World Live as the Asia editor for its new Asia channel. Before joining the GSMA, Joseph was group editor for Telecom Asia for more than ten years. In addition to writing features, news and blogs, he...

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