Xiaomi will buy a 3 percent stake in Chinese video game company Kingsoft, making it the first investment in content by China's No. 1 smartphone maker since raising $1.1 billion in a round of funding in December.
The world's third-biggest and fastest growing smartphone maker in terms of shipments will buy more than 35 million Kingsoft shares from Tencent Holdings for 14.93 Hong Kong dollars or $1.93 each, for a total of 527 million Hong Kong dollars, or approximately $68 million. The deal, which is expected to close by the end of January, will give Xiaomi a 2.98 percent stake in Kingsoft. Tencent will still hold 9.6 percent of the company.
Kingsoft, which is listed at the Hong Kong Stock Exchange, is valued at $2 billion. The company started out developing games for Microsoft Windows and has expanded to work on security software and cloud-based products, including Kuaipan, a storage application for multiple platforms, and Kingsoft Office, a suite of productivity tools that are similar to Microsoft's Office 365 and Google Docs, Sheets, and Slides.
This is not the first time Xiaomi made investments in other technology companies. Last year, Xiaomi participated in a round of funding that raised $40 million for wearable startup Misfit and made a $200 million investment in Chinese appliance maker Midea. However, Kingsoft marks Xiaomi's first foray into software and services, which could mean that the company is looking to consolidate a range of services that will allow it to monetize its growing user base.
In an interview last week, Xiaomi vice president of its global division Hugo Barra said the company has reserved $1 billion toward the acquisition of media and content. Also particular in Xiaomi's sites are investments in Indian startups with a focus on mobile services and e-commerce.
Xiaomi already holds strong relations with Kingsoft. Its founder and CEO, Lei Jun, is also one of the co-founders and a former CEO of Kingsoft. Lei, who is also chairman of Kingsoft and the biggest shareholder, will hold a 29.9 percent stake in the company once the stock acquisition is complete.
Xiaomi has yet to expand to American and European markets, but its strategy of shipping high-end smartphones for less than half the price of their Western counterparts has quickly made it a handset maker to watch out for. In 2014, the company shipped more than 60 million smartphones, more than doubling its figures from 2013 and making it the biggest seller of smartphones in China, the world's largest market.
"My goal is to turn Xiaomi into a national brand in China, influence all of China's industry and benefit everyone in the world," Lei said in an interview last month with Forbes Asia.
With a $45 billion valuation, Xiaomi is now the world's largest startup, but Lei has a goal of reaching a valuation of $100 billion and becoming the world leader in smartphones in five to 10 years. Still, the Xiaomi chief, who was named Asia's businessman of 2014 by Forbes, says he has no plans of going public in the next five years.
"The most important thing is to focus, focus, focus," Lei said. "If I have an IPO today, everyone will be rich, sell their shares, buy a house, buy a car, and emigrate. How can you manage the company?"
