Beijing-based Kingsoft Corp. (03888.HK) is forging yet another tie with handset upstart Xiaomi.
Not only is the phone firm’s boss, Lei Jun, non-executive chairman of the software company, Kingsoft announced on Valentine’s Day that Xiaomi will pay US$20 million for a 4.7 percent stake in Kingsoft online game developer Westhouse, translating into a valuation of US$425 million for the company. After the transaction, Kingsoft will still hold a 76 percent or so stake in Westhouse.
Westhouse may be small but its profits rose 29 percent year on year to more than 107 million yuan (US$17.5 million) in 2013 from 250 million yuan in revenue, which was up 24 percent.
According to Kingsoft, Westhouse and Xiaomi will explore other chances for cross-pollination, including making Xiaomi a strategic distribution partner for Westhouse Group’s mobile games.
Kingsoft has focused much of its attention on PC-based online games and has little exposure to mobile gaming. The alliance with Xiaomi indicates that Kingsoft wants to use Xiaomi’s rapidly growing smartphone sales as a springboard into the games on the go and other phone apps.
Kingsoft also has ties to Tencent (00700.HK), which holds a 12.6 percent stake in the software firm.
The alliance between Kingsoft, Tencent and Xiaomi has good potential to create an Apple-style mobile ecosystem in China, with Kingsoft focusing on software development for mobile devices, Tencent providing tech support to distribute mobile apps and Xiaomi designing low-cost smartphones and an easy-to-use mobile operating system. The dream team of software, hardware and distribution stands a good chance of grabbing market share from Apple and other rivals.
The united front has been a boon to Kingsoft’s share price. Its stock has soared more than 400 percent from about HK$4.79 in December 2012, when Kingsoft first joined up with Xiaomi in cloud computing, to trade at around HK$26 now.
Kingsoft announced last month that its internet security software business, in which Tencent is a stakeholder, aims to debut on the US stock market.
Strong backing from Tencent and growing cooperation with Xiaomi could generate more buzz for the upcoming IPO. And Lei’s reputation for getting things done will be a big plus for Kingsoft when it pitches its shares to investors.
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