Xiaomi said to be raising over $1b

Funding expected for use in R&D, especially patents

Beijing Xiaomi Technology Co is expected to become one of the world's most valuable technology start-ups, with the Chinese smartphone vendor reportedly seeking more than $1 billion from another round of fundraising over the weekend.

An unnamed source familiar with the matter was quoted by Wall Street Journal on Saturday as saying that the latest funding round, led by tech investment fund All-Stars Investment, may close on Monday. Yunfeng Capital, a Shanghai-based private equity firm founded by China's e-commerce giant Alibaba Group Holding's chairman Jack Ma Yun, is also participating in the round, said the report.

A Xiaomi PR representative refused to comment on this question when contacted by the Global Times on Sunday. Yunfeng Capital could not be reached for comment either.

Upon the completion of this possible funding, Xiaomi is expected to be valued at $45 billion, putting it above most other Asian technology start-ups, which analysts think will help the company attract more financial support and tech talents for R&D and business expansion.

"The money will be partly used to invest in patents, which is a big hurdle that Xiaomi needs to clear as soon as possible while fast-tracking its overseas presence," Zhang Yi, CEO of Guangzhou-based market consultancy iiMedia Research, told the Global Times Sunday.

Xiaomi holds very few authorized patents of its own, making it vulnerable to being dragged into patent lawsuits by its foreign rivals such as Apple and Nokia over competition concerns, said Zhang.

With its scrappy overseas push, Xiaomi has jumped into the world's top-five largest smartphone makers by shipment, ranking third after only Samsung and Apple in the third quarter of the year, according to US-based market research firm IDC.

The company has already gotten involved in its first patent spat, with allegations of infringement from Ericsson resulting in a temporary court injunction ban on the sale of Xiaomi products in the Indian market on December 11.

The High Court of Delhi on Tuesday allowed Xiaomi to resume its sales in the Indian market on the condition that Xiaomi deposit 100 rupees ($1.58) for every device sold, according to media reports.

Lei Jun, Xiaomi's CEO, also believes that patents will be his company's major challenge apart from privacy protection, saying in a statement posted on Xiaomi's Sina Weibo account Thursday that the time is too short for the firm to turn inventions into authorized patents ahead of an expected patent war in the following five to 10 years.

According to Lei, the company plans to apply for 1,300 patents in 2015.

Wang Yanhui, head of Shanghai-based Mobile China Alliances, told the Global Times Sunday that the investment in patents is very necessary, but will raise the costs of Xiaomi's smartphones, which will cause it to lose its appeal for consumers sooner or later amid heated competition.

Xiaomi has made itself an easy target with its controversial hunger marketing and sales of low-priced smartphones. CEO of Huawei's Consumer Business Group Yu Chengdong remarked during the 2014 Dark Horse Start-up Trade Fair in Beijing on Sunday that its Honor series can be used to compete with Xiaomi.

Wang said that Huawei's recently released smartphone flagship Honor 6 Plus being sold at a low price of 1,999 yuan ($321.40) is a signal that the company is trying to erode Xiaomi's edge in low prices.

Apart from neck-and-neck rivalry from traditional telecommunications companies, Xiaomi may also face a big threat from some new rising firms such as Coolpad Group Ltd, said Zhang.

Coolpad was recently praised as the next Xiaomi or even a handset maker that can surpass Xiaomi in a report by a US online news publication International Business Times, following the establishment of a joint venture with Qihoo 360 Technology on Tuesday.

With 495 million active monthly users in September, NYSE-listed Qihoo 360 is China's largest antivirus software operator and the second-largest search engine by market share. Qihoo's large user base can help Coolpad raise its sales, Zhang noted.

A report from Analysys International showed in August that Xiaomi was China's second-largest smartphone vendor in the second quarter with 13.5 percent, while Lenovo was in third place with 10.8 percent and Coolpad ranked fourth with 10.7 percent.

Xiaomi has already begun to try to reduce its reliance on smartphones, gearing up efforts to develop other products and services.

Apart from the current core business - smartphone, Lei Jun said that his company is also tapping the intelligent home sector, focusing on smart devices such as televisions, routers and set-top boxes.

In addition, the company is also actively dipping a toe into online content and cloud service via investments in online video providers Youku Tudou and iQiyi in November and Beijing-based cloud infrastructure service company 21Vianet Group Inc in early December respectively.