SMARTPHONES: Xiaomi Eyes IPO, Gets Setback in Europe

Bottom line: Xiaomi’s growing comeback is giving it confidence to launch an IPO plan, as its loss of a trademark case in Europe highlights renewed obstacles it will face in its global expansion.

Xiaomi eyes Hong Kong IPO

Comeback kid smartphone maker Xiaomi is in a couple of headlines as we reach the middle of the week, including one that highlights its return to growth and another that shows the obstacles it will face as it continues with its global expansion. The first headline has media reporting that Xiaomi is planning an IPO as early as next year, as its sagging valuation finally returns to a growth track. The second has the company suffering a setback in Europe related to a trademark dispute with industry colossus Apple (Nasdaq: AAPL), highlighting the perils it is likely to face as its global expansion moves into more developed western markets.

It’s still a bit early to say whether Xiaomi’s comeback story has legs, though growing signals are certainly pointing in that direction. I know at least one person who is a Xiaomi fan and goes out of his way to buy their phones, which means that at least some people are coming back to the brand. That’s a shift from a couple of years ago, when the company’s legions of early fans abandoned the brand after it lost its early trendy image and became more known for product problems and other glitches.

All that said, let’s jump into the latest headlines that say the company has hired investment banks to explore the possibility of an IPO as early as the second half of next year. (English article) The story is coming from a highly reputable source, US-based publication The Information, which means it’s probably true. What’s more, Xiaomi is taking the unusual step of simply saying “no comment”, rather than issuing the knee-jerk denial we often see from Chinese firms in such instances, even when the news is true.

There’s not much detail in the report beyond word that Xiaomi is exploring the IPO, which would most likely come in Hong Kong. The timetable is significantly expedited over what CEO Lei Jun said just last year, when he remarked that the company’s complexity would require lengthy communication with investors that might delay an IPO until around 2025.

The key change since Lei’s remarks last year appears to be Xiaomi’s comeback, which has seen the company post strong growth in the last two or three quarters, reversing a couple of very weak years. That return to growth apparently has investors getting more excited, and some reports are saying that recent transactions have valued Xiaomi at $50 billion.

That figure, if true, would mark an important shift, since Xiaomi was valued at around $45 billion just before it started into its slide around two years ago. So a return to growth in valuation would mark a major milestone that might make the company confident about more fund-raising. I personally suspect the $50 billion valuation was probably achieved through a bit of manipulation, since it was probably based on a small trade of the company’s unlisted shares. But still, the story of Xiaomi’s comeback does appear to be gaining steam.

Tussling with Apple

Some might argue that the second piece of news also highlights Xiaomi’s growing prowess on the world stage, since Apple might not take notice of a such a small fry otherwise. That news has the EU General Court in Luxembourg ruling that the name of Xiaomi’s Mi Pad tablet PC sounds too similar to Apple’s iPad, and thus Xiaomi will need to find another name if it wants to sell the product in the EU. (English article)

This particular development comes just a month after Xiaomi made its official Western Europe debut with a launch in Spain, where it rolled out some of its smartphone models. (English article) This particular ruling means that Mi Pads won’t be coming to Spain anytime soon, at least not under that name, nor will they come to other EU markets.

This isn’t a huge setback, as Xiaomi can easily find another name, though it may run into branding issues if it continues to sell them under the current Mi Pad name in other markets. All in all, I would chalk this up as a learning experience, and suspect Xiaomi will do more trademark research for its future global launches to avoid this kind of conflict. The bigger danger could come from patent lawsuits, especially from Apple. Though here it’s also worth pointing out that Xiaomi has found a potent partner that could help it fight off such challenges in software titan Microsoft (Nasdaq: MSFT). (previous post)

 

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