Xiaomi doubles down on smartphone business with Meitu deal

Photo by Xiaomi

Sometimes you just have to play to your strengths.

While Xiaomi Inc. proclaims its status as an internet player, the Chinese company has been unable to shed its reputation for being basically a smartphone maker.

Its inability to convince investors has been a major reason the stock has fallen 20 percent since Xiaomi’s July IPO.

So it makes sense for the Beijing-based company to double down by acquiring the branded smartphone business of compatriot Meitu Inc.

Xiaomi was savvy enough to leverage Meitu’s financial troubles to buy the brand without spending a dime. We shouldn’t be surprised — its CFO is a Goldman Sachs Inc. alum.

Instead, Xiaomi will hand just 10 percent of the gross profit from each Meitu smartphone to its counterpart for up to five years — with various minimum thresholds — in return for it taking over R&D, production and sales of the brand, according to a Meitu statement on Monday. Thereafter, Xiaomi will pay $10 million per year.

Meitu’s website gives the details, and includes a warning that its net loss this year will widen approximately fivefold. Xiaomi declined to make any executives immediately available for comment beyond a media call on its earnings Monday night.

Meitu’s downfall was predictable. Like Xiaomi, it tried to sell the world on the story that it’s an app and software company, when really it’s another smartphone maker.

Investors didn’t buy it: neither the marketing ploy, nor the shares.

Xiaomi is far more successful at smartphones than Meitu, because it had billions of dollars of VC capital to keep it going for a decade, and it used that cushion to build an international name with a unique business model.

As recently as three months ago, I suggested Xiaomi embrace its smartphone moniker, given that other areas weren’t so hot.

That pattern played out again in the third quarter. Handset revenue climbed 14.4 percent from the prior quarter, outpacing corporate-level growth of 12.4 percent. So it seems Xiaomi has taken note of Meitu’s self-destruction and realized that it needs to call a spade a spade.

Not only does Xiaomi remove a competitor (albeit a not very threatening one) for next to nothing, it gets to roll out a multibrand smartphone strategy just as it’s seeking broader international appeal.

And while it hasn’t given up on the internet and services model, Xiaomi at least recognizes what it does best. Perhaps investors will reward the company accordingly.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.