Apple Vs. Xiaomi: Chinese Firm Will Have A 'Hard Time' Competing Outside Of Homeland

Xiaomi, the company frequently cited as the world's most valuable startup, wants to expand outside of China. According to the Financial Times, Xiaomi plans to start selling its Redmi 2 handset in Brazil next week. "I still think they're gonna have a hard time competing outside of China," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga. "I think the more business they do outside of China opens them to more lawsuits." Udall thinks Xiaomi will continue to do well in China because Apple Inc. AAPL and other smartphone manufacturers cannot sue the company for patent infringement. Global Equities Research analyst Trip Chowdhry shares this view. He told Benzinga that Xiaomi can only work in countries where intellectual property is "grossly violated." "Xiaomi will only be successful in China," said Chowdhry. "Xiaomi has zero patents. It is a classic case of C2C - copy to China. There is zero chance of Xiaomi to be successful [in a country] which appreciates intellectual property, patents or innovations, and countries that have disdain for blatant copying."

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Lawsuits Await

Udall said that if Xiaomi goes global, it could be sued by Google Inc GOOG, SAMSUNG ELECT LTD(F) SSNLF and other Android manufacturers. "I think Xiaomi is somewhat protected as long as they're selling phones inside of China," said Udall. "I think the more phones they try to sell outside of China [will lead to lawsuits]." Xiaomi's legal troubles aren't likely to come immediately, however. Smartphone manufacturers may not think a lawsuit is worthwhile if Xiaomi is only selling a million units. "If they start selling 10, 20, 30 million phones outside of China, I'd be surprised if everybody didn't come after them," said Udall. Chowdhry said Xiaomi's entire business model is to hire employees from other smartphone manufacturers, watch what Apple is doing and copy that product. "That strategy is not going to fly in any country where patent law is strong," said Chowdhry. "I would be surprised if Xiaomi can legally sell even one phone in America or Europe without violating patents." Lawsuits aside, Xiaomi must also deal with a tremendous amount of global competitors. "There are a number of dominant brands here already," Tigress Financial Partners analyst Ivan Feinseth told Benzinga. "It would take a long time [for Xiaomi] to gain traction and brand recognition." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.