Xiaomi: the Chinese leader of smartphones

Xiaomi is coming down to earth: the Chinese smartphone giant had a disappointing IPO on Monday, July 9 in Hong Kong. The mobile phone manufacturer's share price first dropped to 6%, before recovering the price offered by the company, then recovering on Tuesday. This is the worst IPO in Hong Kong since 2015.
The group, which raised $4.7 billion (€4 billion) through this transaction, is valued at just over $58 billion. This is almost half the 100 billion expected in 2017. The 21% decline in the smartphone market in China in the first quarter, or the commercial tensions with the United States, which weigh on Chinese stock market indices, partly explain this relative underperformance. But investors also doubt the company's ability to establish itself in the long term and make profits.

Highly competitive sector
Because Xiaomi, which means "small rice" in Chinese, promised at the summits four years ago, experienced an air gap in 2015-2016, seeing its market share fall in a very competitive sector.

Since then, the 4th largest telephone salesman in the world has revised his model. A fan of events created on the Internet by online sales and low-cost communication thanks to word-of-mouth, the group has changed gears: it now opens stores, where all generations can take control of its products, and opts for classic advertising campaigns where Chinese stars are displayed, smartphone in hand.

Thanks to this strategic shift and the resolution of structural problems, particularly in component supply, Xiaomi regained the fourth place among smartphone salespeople in China in the first quarter of 2018, ahead of Apple.

First smartphone salesman in India
Faced with the slowdown in its domestic market, the firm continues to expand internationally. The Chinese company became the leading smartphone salesman in India, thanks to its mid-range positioning and opened its first store in France in Paris on May 22. But the brand makes very little profit on its devices: $2 per phone, compared to $150 for Apple, according to an estimate by Counterpoint Research. And the company's owner does not expect to generate more than 5% margin in the future. Because to earn money, the management bets mainly on the sale of various products, services, software, applications... A bet.

Another drawback for Xiaomi was the failure of a parallel IPO on the Shanghai Stock Exchange, which would have allowed him to raise additional funds. Thanks to a new system of China depositary receipts based on American Depositary Receipts (ADRs), Chinese technology companies listed abroad can consider secondary listing in China. But the system, developed in the spring to allow Chinese investors to bet on their national technology champions like Alibaba or Tencent, has not yet found its first customer.

According to Bloomberg, the Chinese stock market regulator, initially enthusiastic about the idea of a simultaneous IPO in Hong Kong and Shanghai for Xiaomi, did not want to change his rules too deeply to accommodate the company. The sale of the shares in China could take place later in the year, once the introduction in Hong Kong has been digested.