Privately held Chinese device-maker Xiaomi raised $1.1B USD in a venture capital round, according to a post by company cofounder and CEO Lei Jun on Weibo. According to Mr. Lei, Xiaomi was valued at a whopping $45B USD by investors, making it China's most valuable tech company.
In global sales Xiaomi is in third place in the global smartphone market with roughly 5.3 percent of total sales, behind only to Samsung and Apple.
It recently passed South Korea's LG and China's Lenovo to climb into the top three, according to data from the IDC Group. Perhaps most crucially Xiaomi is the top seller in the world's largest smartphone market, China.
The new valuation indicates that Xiaomi is considered more valuable than many older device industry veterans, including household names such as Nokia (market cap: $30.5B USD) and Sony. It's also more valuable than rival Chinese OEMs, including Lenovo (market cap: $18.1B USD) and ZTE (market cap: $9.6B USD).
Part of the valuation is due to the explosive growth of the Chinese smartphone market, where Xiaomi remains dominant. According to the IDC Group Chinese smartphone shipments will reach 500 million by 2015, three times the shipments (roughly) of the U.S. market.
Xiaomi has drawn comparisons -- both complementary and criticial -- to U.S. smartphone maker Apple. Indeed, some Chinese critics claimed that the Xiaomi's Mi 4 smartphone (launched in July) was more in line with past iPhone designs than the actual iPhone 5S.
CEO Lei Jun was a major admirer of Apple CEO Steve Jobs, so much so that he copied the iconic Apple CEO's presentation style, dress, and philosophies. Much like his late idol, Mr. Lei suffered health problems in recent years, although he survived his ordeal. The health issues forced him to resign in 2007 from the post of president and CEO of Kingsoft Corp., a top Chinese software company.
Watching Steve Jobs decline in health and first departure from Apple in 2009, Mr. Lei became convinced that he could do a better job building the next Apple-like firm than Mr. Jobs' heir apparent, Apple CEO Timothy Cook. Indeed, Mr. Jun appears to envision his disruptive firm as the true successor to Apple's legacy.
That said, Xiaomi's strategy is certainly different from Apple's. While the company shares a certain uncompromising approach to spec and design that Apple has built its iPhone brand on, Xiaomi sells its devices nearly at-cost, in a bid to sink rivals (including Apple) who sell their phones at higher margins. Xiaomi also eschews the retail presence of Apple, prefering an online-heavy sales footprint.
Xiaomi uses a branched version of Google Android OS. Among its cofounders is Lin Bin, a former Google executive.
Past rounds have slowly crept up Xiaomi's valuation alongside its meteoric sales rise. A June 2012 round valued it at $4B USD, and a summer 2013 round estimated its value at around $10B USD.
While Xiaomi appears to be on top of the world, it faces very real challenges. One challenge is of an esoteric nature. Company cofounders believe the company should wait several years before filing an initial public offering of stock. Sources close to the company's investors, though, indicate that the shareholders want an offering sooner, to allow investors to cash in on their hot commodity.
There's also domestic threats. Chinese OEMs like Huawei, ZTE, and Lenovo are copying Xiaomi's online sales strategy, its low prices, and other factors that led to its success. While they now trail Xiaomi in sales, they could in time come to cannibalize some of its large sales stake.
Lastly, there's the threat of intellectual property litigation -- one that Samsung suffered through. While Xiaomi lacks a major presence in the U.S. (and hence has avoided scrutiny from Apple), the company lacks a large patent portfolio leaving it vulnerable to international competitors. It recently had a produt launch in India blocked due to an infringement complaint by Swedish telecommunications firm Ericsson AB. Looking ahead, it will have to try to strengthen its intellectual property position, while maintaining its discipline on the cost and sales front.
All that said, there's a good reason why investors are willing to pour over a billion dollars into the Chinese OEM. It's clear that Xiaomi has captured sales lightning in a bottle and is on a meteoric growth path. The only question at this point, really, appears to be how high it can reach.