May 27, 2018

Xiaomi files for IPO in Hong Kong

03 May 2018, 02:14 | Lorenzo Hawkins

Hong Kong: Stocks end week with sharp losses

Asia Mixed on Trade Talk

Electronics company Xiaomi, best known for their affordable smartphone business, filed for an IPO on the Hong Kong Stock Exchange Thursday morning following the release of financial figures for 2017.

Xiaomi could be the biggest IPO since Alibaba's $25 billion debut in 2014.

Asia Mixed on Trade Talk

Xiaomi's IPO, which will be one of the first in Hong Kong under new rules to attract tech firm listings, is a major win for the bourse as competition heats up between Hong Kong, New York and the Chinese mainland. Armed with the new rules allowing the listing of companies with dual-class structures, Hong Kong is eyeing several tech listings that are expected in the coming two years from Chinese firms with a combined market cap of United States dollars 500 billion. Operating profit rose sharply from 3.79 billion yuan in 2016 to 12.22 billion yuan previous year.

The company said 28 percent of its revenue came from worldwide operations in 2017, compared to 13.4 percent in 2016 and 6.1 percent in 2015. "A bigger hardware user base will translate to stronger profitability from services and at the ecosystem end". The move comes as the Chinese smartphone maker has expanded quickly to become the fourth-largest seller in the world. It sold investors on a promise that it was not just a smartphone maker, but that it would use phones as a mechanism to sell services and ads to customers. Xiaomi, for the first time, has revealed its fiscal details to the public.

Lei scaled back worldwide operations and instead focused on India, where it's now the top seller alongside Samsung.

"The U.S. market is very important to us but we are very, very carefully building our resources to serve the U.S. consumer", Xiaomi's head of global business, Wang Xiang, told CNBC in February.

Apart from smartphones, Xiaomi has backed dozens of startups producing a wide spectrum of products from wearables to rice cookers. Lei has pledged to reclaim the top spot in China in the next 10 quarters, but it won't be easy in a declining smartphone market.

"If you think of China's tech companies, only a few have a real strategy to expand into the overseas market, and even less have the capability to scale up" globally, said Richard Liu, chief executive of early Xiaomi-backer Morningside Venture Capital.

Xiaomi said its gross profit margin for smartphones was 8.8 percent a year ago, which is much lower than the estimated profit margin of around 60 percent that Apple has for its flagship iPhone devices.

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