Lei Jun is making unusual preparations for what may be the biggest initial public offering of the year. Xiaomi Corp., the smartphone maker led by Lei, is promising to “forever limit” the profit margin in its hardware business to no more than 5 percent, according to an emailed statement. The policy will apply to smartphones — its biggest revenue source — as well as other gadgets it makes. It pledged to distribute the excess amount to its users if the margin exceeds the cap in coming years.
The unlikely proposal comes as Xiaomi is planning an IPO that could value the company at as much as $100 billion. More appealing for potential investors, Xiaomi also hinted at strong profitability from a wide spectrum of services it provides to customers — from video streaming to online financing.
“We have always viewed our hardware as the gateway to providing our users with internet services, and providing value to them over time,” Lei, Xiaomi’s co-founder and chief executive officer, said in the statement.
The world’s fifth-largest smartphone vendor is aiming to take on Apple Inc. and Samsung Electronics Co. with devices packed with top-tier components at lower prices than its competitors. Apart from selling smartphones, Xiaomi also profits from advertising via its own apps and providing paid subscriptions for premium entertainment content such as online videos and literature.
Xiaomi is close to filing for its IPO in Hong Kong and is also plans to issue Chinese depositary receipts for mainland investors. Xiaomi could be the biggest IPO since Alibaba Group Holding Ltd.’s $25 billion debut in 2014.
The smartphone maker, valued at about $45 billion during a 2014 fundraising, suffered through a challenging 2016 and then bounced back by revamping its sales model and expanding in India, where it rivals Samsung as the biggest vendor. Xiaomi has chosen Morgan Stanley, Goldman Sachs Group Inc., Credit Suisse Group AG and Deutsche Bank AG for its IPO, people familiar with the matter have said.
Lei said that the strategy of restricting hardware profits is aimed at Xiaomi realizing the vision of “innovation for everyone.”