Xiaomi At Low Selling Rate

China’s smartphone sensation Xiaomi may be at risk of living out the saying that the bigger they are, the harder they fall, at least when it comes to valuations. This time last year, billionaire Lei Jun’s company raised a remarkable $1.1 billion from from a group of five Asia-based investors that valued Xiaomi at $45 billion. Given where Xiaomi’s business is now, just 12 months later, that number looks too high.


Lei had predicted last year that Xiaomi would sell 100 million smartphones in 2015. Earlier this year, as smartphone sales growth in China and for Xiaomi began to slow, he tempered his forecast to 80 million to 100 million. Now it might not hit 80 million before the year is out. Xiaomi’s once blistering, domestic growth recently declined for the first time, according to market research firm Canalys, and some of Xiaomi’s suppliers have begun scaling back production in anticipation of a shipment slowdown at the electronics maker, according to Bloomberg.

“Unless Xiaomi can re-start real growth or substantially lift its margins, there is no way anything close to $45 billion can be justified,” says Edison Research’s senior analyst Richard Windsor. “I can see hefty write downs coming.”

Xiaomi’s advantage of selling phones close to cost price to keep them as affordable as possible, also puts it at a disadvantage next to other bigger rivals like Samsung and Huawei who have a greater source of internal cash flow. Razor thin margins mean Xiaomi is “barely profitable,” says Windsor, meaning that when it needs more money it’ll have to go back to investors to raise funds again.

The trouble is Xiaomi’s current investors, who include early Facebook backer DST Global, Singaporean sovereign wealth fund GIC and Hong Kong’s Morningside Group, would have to re-assess and likely write-down the values of their current stakes if Xiaomi were to do so.