CELLPHONES: Xiaomi Calls on Brazil, Hires from DST

Bottom line: Xiaomi’s hiring of a new CFO and entry to Brazil are its latest steps in a gradual transformation to a more western-style global company, in preparation for an IPO that is at least 2 years away.

Xiaomi to launch next week in Brazil

Stumbling smartphone sensation Xiaomi is back to doing what it knows best, namely making headlines with the latest moves in its global expansion and by hiring executives from other high-profile companies. In this case the smartphone high-flyer has just announced its formal plan to enter Brazil, putting it squarely in 3 of the 5 BRICS countries after India and China. The other move looks a bit scripted, and will see a top China executive from Russian high-tech investor Digital Sky Technologies (DST) join Xiaomi as CFO.

The latter piece of news looks slightly strange because DST is one of Xiaomi’s investors, and it would be unusual to do something hostile like stealing a top executive from one of your big backers. Instead, this looks more like a planned move that is relatively common in this kind of situation, which sees big investors supply executives to the companies they back in preparation for eventual IPOs.

Let’s begin with the news that Xiaomi has announced it will formally enter Brazil next week with the launch there of Redmi 2, its first phone made outside of China. (English article; Chinese article) The company had been privately telling people for the last few months about its plans to enter Brazil in July, so this new announcement represents final confirmation and also a more specific launch date. (previous post)

The latest announcement also contains the Redmi 2 sale price of 499 reais, which is a decidedly low-end $160. Phones for sale in Brazil will be manufactured locally, as Xiaomi tries to diversify its production base beyond its home China market and curry favor with local governments in the major new markets it is entering. The company also said it is likely to enter Russia, Thailand and Vietnam in the next 12 months, extending its current global footprint from Southeast Asia and India.

High Profile Hire

Next there’s the high-profile news that Xiaomi has hired away former DST China partner Shou Zi Chew as CFO. (English article; Chinese article) Shou has quite a pedigree in the western world of high finance, including his graduation from Harvard Business School and previous work at investment banking giant Goldman Sachs.

As I’ve said above, this move looks aimed at starting to pretty up Xiaomi’s finances, and also at starting to establish relationships with the kinds of big institutional investors that the company would also like to court when it makes its eventual IPO. Xiaomi’s charismatic CEO Lei Jun has repeatedly denied any near-term plans for such a listing, and in these latest reports he again denies any such plan for the near future.

In this case I actually do believe Lei, as Xiaomi is currently in a growth mode where it is probably losing big money as it expands into a wide range of new business areas and new global markets. I would expect that Shou will have lots of work to do after his arrival at Xiaomi, and that the company really won’t be ready for a proper IPO for 2 years at the very least, and more likely will need at least 3 or 4 years.

These latest news bits represent a refreshing change from the more bitter and awkward tones that were coming from Xiaomi over the last few months. Those included several technology-related hiccups, and also a recent high-profile shouting match between Lei Jun and Jia Yueting, the charismatic CEO of fast-rising online video superstar LeTV (Shenzhen: 300104) Xiaomi’s troubles certainly aren’t over and I do think it is entering a new phase of its development that could see many growing pains. But it’s also nice to see the company returning to its more typical upbeat ways after a stormy few months.

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