Is Xiaomi A Threat To GoPro, Apple, Sony, Everyone?

Xiaomi, the world's most valuable tech startup, has been valued at more than $46 billion. According to Bloomberg, its valuation could rise to $100 billion. Why all the fuss? Xiaomi develops a wide range of consumer electronics, including smartphones and GoPro Inc GPRO clones, that threaten industry stalwarts in China. Xiaomi could eventually take its low-cost alternatives to the United States and other markets. "The world has been littered with Chinese companies who have come into the US to try to establish brands and they haven't done very well," Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, told Benzinga. "Typically these are some of the house brands for [retailers] like Best Buy." Dan Miller, senior analyst and founder of Opus Research, expects Xiaomi to force Apple Inc. AAPL, Sony Corp (ADR) SNE and other manufacturers to "slug it out over price." "And that never does anybody any good, including the people in the supply chain," Miller told Benzinga. "That may be the area to look at and see what sort of inroads they're making."

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New Products, Rising Star

Xiaomi's latest product is a 40-inch smart TV that will sell for roughly $320. "I think that Xiaomi's star is definitely rising," said Moorhead. "They've done really well on smartphones. If they stick to what they know, which is [bringing] incredibly high-quality products to market at an insanely low price, then I think there's a potential for them to be relatively successful in this space in China." With regard to Xiaomi's potential in other territories, Moorhead said it is "still questionable." "It's questionable because Xiaomi has not been able to penetrate Western Europe and the US yet," he said. "Their product quality is as important [to the company] as their marketing. They have what I consider a festival environment to be able to sell most of their stuff, where they literally say, 'On this date, we've got this many phones.' They literally have people line up for miles around the block in multiple cities. It's this festival-type environment. Also, they take advantage of this element of, 'Out of stock, we're going fast!'" Xiaomi might not be able to repeat that success in other markets. "I think they're gonna have to adapt," said Moorhead. "I haven't seen that technique work well here. I know that Huawei tried that with some online stuff. You need to create that product lust first. It's also the reason Lenovo bought Motorola to use for their Western European, US and South American brands."

Patent Attack

If Xiaomi makes any progress outside of China, Miller expects its competitors to cry foul over patents. "It's a company like Huawei, where it's kind of unclear if the core intellectual property violates some of the existing patents," said Miller. "Xiaomi is a company you have to take seriously in terms of disrupting the price structure and then how the entrenched companies counter that may be in court. That's the thing to watch for. The drag with all the electronics and manufacturing companies is, they all operate on a shoestring margin anyway." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.