Why Xiaomi and TCL forged an alliance

January 08, 2019 13:02
Xiaomi and TCL agreed to cooperate in the development of smart products and electronic devices. Photo: Bloomberg/AFP

Xiaomi Corp. (01810.HK) continues to explore new business partnerships to boost its business.

After Xiaomi announced that its Redmi smartphone brand will start operating independently, it was revealed that the Chinese technology firm had bought a stake in TCL Corp. (000100.CN).

According to a stock exchange filing by TCL, Xiaomi had acquired 65.2 million shares, or 0.48 percent, of the appliance maker from the secondary market as of last Friday.

The two companies agreed to cooperate in the development of smart products and electronic devices.

TCL also said the purchase is a recognition of its valuation, operational strategy and core competence, and that Xiaomi is willing to establish strategic cooperation with it on a capital level.

In a social media post, Xiaomi founder Lei Jun said the company will put additional focus on the home appliance business this year, although he did not elaborate.

The smartphone business has seen slowing growth over the past couple of years as consumers are reluctant to upgrade their handsets. 

Xiaomi sees the need to reduce its reliance on smartphones and diversify to other fields. Smart TV is emerging as a possible alternative business.

According to Xiaomi's financial report for the third quarter of last year, the Internet of Things and lifestyle products are among the company's fastest-growing segments during the period. Xiaomi, in fact, sold more than 5 million smart TVs in the first nine months of 2018.

Last month, Xiaomi and TCL agreed on a strategic partnership, which is mainly about combining their research and development efforts in the hardware department.

The deal will allow TCL products to become a part of Xiaomi's ecosystem, which already includes nearly 100 brands.

The partnership came after the two companies implemented their respective corporate restructuring late last year. Xiaomi has formed a new operating department to oversee its TV and other IoT-related businesses in the China market. 

TCL, for its part, has decided to overhaul its structure into three segments – display business, materials business and emerging business. Its traditional home appliance manufacturing business will be sold to TCL’s parent company.

The new partnership has raised speculation that Xiaomi might be seeking to acquire TCL’s home appliance business.

Regardless of such a possibility, the two companies have shown great complementarity in their businesses. Xiaomi has strong product definition, R&D and design capabilities, as well as advanced Internet thinking.

On the other hand, TCL has a very rich supply chain and production experience and is highly competitive in the semiconductor display business.

Xiaomi aims to become a leading player in the smart home and IoT businesses through its reasonably-priced connected home appliances.

Its IoT platform has connected more than 132 million smart devices (excluding mobile phones and laptops), and has more than 20 million daily active devices in more than 200 countries and regions around the world, as of Sept. 30 last year.

Its self-developed Xiao AI voice assistant has been cumulatively activated in about 100 million devices with more than 34 million monthly active users.

Such a huge user base gives Xiaomi an edge in this field and enables it to attract traditional home appliance makers to join its IoT platform and become "smart manufacturers".

In December, Swedish home furniture retailer IKEA partnered with Xiaomi to connect its whole range of smart lighting products to the Chinese company's IoT platform.

It is clear that Xiaomi is planning to expand the business potential of its IoT segment and thus help in reducing its reliance on its smartphone business. T

The Xiaomi-TCL partnership will pave the way for tech company to become a key player in the market.

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EJ Insight writer