Report: China's Xiaomi valued at $40-$50B as it vaults up smartphone ranks

Chinese smartphone maker Xiaomi is holding talks on a funding round that would value the company at around $40 billion to $50 billion, according to a Bloomberg report, the latest sign of the firm's rapid ascendance in the smartphone market.

The report, citing unnamed sources, said the discussions are at an early stage and nothing is finalized. Xiaomi had a financing round in August 2013 that valued the company at $10 billion. Xiaomi declined to comment, according to the report.

Xiaomi, which only started selling its smartphones in 2011, sells its phones in batches online, and the devices often sell out in minutes. The company's model relies on inexpensive phones and services like apps and games that it makes revenues on. Indeed, Xiaomi sells its flagship Mi 4 starting from 1,999 yuan ($327) in China--that's about a third of the price of Apple's new iPhone 6. The company's model has proven successful in China, where Xiaomi surpassed Samsung Electronics in the second quarter of this year as the country's top smartphone maker, according to research firm Canalys.

Xiaomi has been accused of copying the designs of Apple (NASDAQ: AAPL) for its smartphones, a charge that Xiaomi has disputed. Last week Hugo Barra, a former Google (NASDAQ: GOOG) executive who is Xiaomi's global vice president, said all smartphone makers borrow design language from each other, and that Apple's iPhone 6 uses some elements of HTC's phones. "This idea of building upon great ideas and putting a twist on it is what we do," he said.

Xiaomi started in China but has expanded to India, Indonesia, Singapore and other Asian countries. Barra said the company is looking at Brazil, Mexico and other markets where its low-cost business model can thrive. 

In the third quarter, Xiaomi became the No. 3 smartphone maker worldwide in market share, according to research firm Strategy Analytics, after Samsung and Apple. However, now that Lenovo has acquired Motorola Mobility from Google, it has a larger combined market share than Xiaomi (8 percent compared to Xiaomi's 5.6 percent).

Xiaomi sold 18 million smartphones in the third quarter, according to Strategy Analytics. Founder and CEO Lei Jun has said the company wants to sell 100 million smartphones in 2015.

"They have a cost advantage over many of the larger vendors because of their online sales model," James Roy, a Shanghai-based analyst at China Market Research Group, told Bloomberg. "It's been a really dramatic rise for Xiaomi in the past four years from nothing."

Some analysts said Xiaomi's growth could justify such a high valuation. "If Xiaomi can replicate its success in China in other markets, as well as its success in mobile phones to other product categories, then it may justify the valuation," Gartner analyst Sandy Shen told Bloomberg.

Others were not so sure. "It's not out of the question that Xiaomi could become China's Apple. But there are two things it lacks," Ethan Bilby wrote for Reuters Breakingviews. "The Californian group is innovative--it helped introduce consumers to the PC and touch-controlled smartphone. Many of Xiaomi's products essentially follow in Apple's footsteps, but at lower prices. Apple is also dominant in its niche, with a 42 percent U.S. market share according to ComScore. Xiaomi's local market share is just 14 percent."

Meanwhile, Xiaomi said it will invest $1 billion to acquire Internet TV content to support its smart TV ecosystem. "Xiaomi TV's content must become even more rich and colorful, and become the weather vane leading the industry," the company wrote on its television division's official Weibo microblog.

Xiaomi said it had hired Chen Tong, a former executive at Chinese web portal Sina Corp, to revamp its TV business. "We want to repeat the success of Xiaomi's hardware integration model in the television industry," Chen said at a press conference, according to Xiaomi's microblog. The company did not provide further details.

For more:
- see these two separate Bloomberg articles
- see these two separate Reuters articles
- see this WSJ article (sub. req.)
- see this TechCrunch article

Related Articles:
Samsung's mobile profit plunges 74% in Q3 as competition intensifies
Xiaomi becomes world's No. 3 smartphone vendor by market share
Gartner, CCS Insight: Smartphone growth in 2014 will be fueled by low-cost models
Samsung loses top spot in China to Xiaomi

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