WSJ: Xiaomi worth more than $45 billion after most recent funding campaign

These days, seemingly everyone outside North America is all-aflutter with Xiaomi, the relatively new Chinese OEM startup that has taken (part of) the world by storm. Last year it even managed to acquire former Googler, Hugo Barra, which came as a surprise to many and arguably put the name Xiaomi in a much more revered spotlight in the West. Xiaomi, with an assortment of high-end products and low profit margins, managed to become the #3 smartphone seller in Q3 2014, and the non-stop news is only expanding. The Wall Street Journal is now reporting that Xiaomi has been valued at over $45 billion.

Xiaomi Corporation, the Caiman Islands-based holding company of Xiaomi (the OEM) is currently collecting capital for business operations, and is expected to have raised more than $1 billion when all is said and done; the investment period can end as early as this Monday. All-Stars Investment has been the largest supporter in the most recent round, itself a tech funding company started by Richard Ji, of Morgan Stanley fame. In addition to a pair of Russian and Singaporean firms backing Xiaomi (both of which are shareholders), Yunfeng Capital (related to Alibaba’s Jack Ma) has also pledged financial figures.

According to the WSJ, “The $45 billion-plus valuation puts Xiaomi above most other Silicon Valley and Asian technology startups. Earlier this month… Uber Technologies Inc. said a new round of funding valued it at $41 billion. The surge in Xiaomi’s valuation over the past year indicates just how high expectations are as the company expands its business outside China, mainly in emerging markets where there is robust demand for inexpensive smartphones. In its previous round of funding in August 2013, Xiaomi was valued at $10 billion.” That the company’s market value has gone up 350% in 16 months is just staggering, especially when one considers it’s not even selling its wares in some of the world’s biggest  markets.

While the financial figure may seem staggering, as the WSJ correctly points out, Xiaomi has its work cut out for it. The company recently suffered an injunction in India, a market it had previously expressed a strong interest in pursuing, because Ericsson has accused it of failing to pay licensing fees on eight patents pertaining to AMR, EDGE, and 3G technologies. The ban was immediately put into effect, and includes both domestic (Indian) sales and the importation of devices. Although India has since partially lifted the sales stop, the issue is actively unfolding and thus anything could happen in the coming weeks.

Ericsson’s legal limbo has inadvertently created a potentially larger liability for Xiaomi as a whole: many smaller Chinese companies can and do get away with patent infringement — larger companies will ignore them, because it’s simply not a worthwhile venture to seek legal damages. On the other hand, Xiaomi has seen such explosive growth in the past year that it’s safe to assume every major patent holder in the mobile communication industry is going to be looking over its products with a fine-tooth comb to sift out potentially infringing content. Put differently, a company valued at $45 billion is simply no longer a small fry that can just dart off the radar.

Additionally, as Xiaomi comes from China, it is subject to the same scrutiny from the US government (if not the non-Chinese population at large) that HUAWEI has suffered: the question of malware/spying hard coded into its devices. As the US is currently dealing with the fallout from what the Obama Administration has called an act of cyber terrorism, there is going to be even more scrutiny that could affect China, in addition to North Korea.

Finally, it’s also worth pointing out that despite Xiaomi’s big bucks, the WSJ has indicated that Xiaomi Corp. has yet to publicly reveal its earnings and therefore the actual performance is unknown.