With five days left before the inauguration of President-elect Joe Biden, the Trump administration has delivered a parting blow to China's tech industry by designating Xiaomi as a "Communist Chinese military company" and placing it on a financial ban list.
Xiaomi now finds itself in the same boat as China's three largest telecoms giants. Namely, it cannot list on a US exchange, and US investors are legally prohibited from dealing in securities issued by the business.
In reality, the sanctions shouldn't cause too much immediate hassle to the smartphone maker, which is solely listed on the Hong Kong Stock Exchange (SEHK). Nonetheless, word of the boycott sent the company's share price tumbling by more than 10 per cent to HK$29.30, compared to the previous day's close of HK$32.65.
The main impact will likely be felt later down the line, should Xiaomi attempt to raise capital by issuing new shares or notes. Since Xiaomi's debut in 2010, it has broadened its device portfolio from affordable, decent spec phones to include IoT devices, online services, and computers. Parallel to this, Xiaomi has attempted to crack the European market, inking deals with carriers and launching online and retail storefronts.
This expansion strategy has been built upon a vast moat of debt and equity funding, and Xiaomi has raised $7.4bn across 15 rounds since its inception, according to CrunchBase. The most recent was in early December, when it raised $3.955bn in a mixed debt/equity round. Future rounds may prove harder should it remain cut off from US investors.
Still, Xiaomi will thank its lucky stars it didn't receive the full Entity List treatment meted out to Huawei in 2019, which devastated the firm's supply chain and transformed a once-mighty mobile giant into a shadow of its former self. Analysts expect Huawei will drop out of the top-six mobile vendors this year, with Xiaomi taking its third place position in the leader board.
The Register has asked Xiaomi for comment. At the time of writing, we have not heard back but a statement published by the company on its official Twitter page denies any affiliation to the Chinese military, and says it complies with the law in all jurisdictions it operates.
Ironically, Trump's Department of Commerce helped facilitate a deal between Qualcomm and Xiaomi in 2017 as part of Sino-American trade, which saw the mobile giant agree to buy an unspecified number of semiconductors over the following three years. The deal was hailed in both a press release and official documents [PDF] issued by the department.
Ben Wood, mobile analyst at CCS Insight, was not surprised by today's embargo. "Last year we predicted that the US administration would play 'whack-a-mole' with Chinese tech companies once it had neutered Huawei's global ambitions," he said.
As the world's third largest mobile vendor by volume, Xiaomi presents a tempting target for a US government eager to constrain China's tech sector.
Wood doesn't expect the Biden administration to reverse Trump's antagonistic approach. "The big question now is whether the new administration will continue with the same strategy. At present, our current view is that the US versus China 'technological cold war' is a bi-partisan issue, so sanctions will continue, but may be slightly more measured," he told El Reg. ®