Xiaomi Eyes Emerging Markets, Qihoo Targets U.S.

Apr.24.14 | About: QIHOO 360 (QIHU)

Two of China's fastest-growing tech firms are stepping up their overseas expansion, with word that smartphone sensation Xiaomi is planning a major acceleration of its drive into emerging markets, as security software maker Qihoo 360 (NYSE: QIHU) eyes the U.S. The Xiaomi move looks like a smart one by avoiding developed markets for now, though the rapid speed of the expansion could strain the company's resources. Meantime, the Qihoo move looks mostly like hype, in a bid to prop up its rapidly deflating share price. I also seriously question Qihoo's decision to target such a competitive market like the U.S. for its first move outside China.

These latest 2 announcements highlight the pressure that China's privately owned tech firms are feeling to move beyond their home market, which is both highly protected and has also become quite crowded lately. China's only tech firm to do well abroad so far has been PC giant Lenovo (OTCPK:LNVGY, HKEx: 992), and that company has only succeeded by selling low-cost hardware into developing markets. Internet products and services are much more lucrative, but they are also far more competitive as the Chinese companies have to face global giants like Google (Nasdaq: GOOG, GOOGL), Apple (Nasdaq: AAPL) and Symantec (Nasdaq: SYMC).

Let's start our global round-up with Xiaomi, the marketing savvy company which has been relatively low-key since launching its signature smartphones last month in Singapore, the first stop on a global expansion planned for this year. The company broke its weeks of recent silence with a news conference this week where it detailed its roadmap onto the global stage for the rest of the year (English article).

That map looks very focused on the developing world, with the company announcing 10 new markets it plans to enter. Those include BRICS countries India, Brazil and Russia, along with Southeast Asian nations Malaysia, Thailand, the Philippines and Vietnam. Rounding out the list is Turkey, whose consumers should also appreciate Xiaomi's high-performance models that carry relatively affordable price tags.

In addition to its smartphones, Xiaomi also revealed some other products at the event, including routers and set-top boxes that it hopes will become lucrative new growth areas. One slightly interesting note was the absence of Hugo Barra, who defected from a high-level position at Google last year to head Xiaomi's global expansion. I wouldn't read too much into his absence in the news stories from this latest event, and it's quite possible he was present and just didn't do interviews.

Next let's look quickly at a newly announced partnership that will see Qihoo sell its security software and other mobile apps through a partnership with recently-listed mobile game developer Sungy Mobile (Nasdaq: GOMO) (company announcement). The partnership will see Qihoo offer the products over Sungy's mobile app distribution platform, and is targeting key markets including the U.S.

I'm not familiar with the reach of Sungy's distribution platform, though the company says in its latest results that a big proportion of its users are from outside its home market. Still, I question whether gamers who are Sungy's main customers will be interested in buying Qihoo's security products, many of which are free and are famous for loading manipulative software onto users' computers.

I suspect this latest partnership isn't all that substantive, and is probably more designed to boost Qihoo's stumbling stock. Qihoo's shares tripled last year on big hopes for its fast-growing online search service. But progress in monetizing that business hasn't come so quickly, and the company's shares have recently lost nearly a quarter of their value from a peak last month. Investors didn't seem too excited about this latest announcement, and I expect we could see Qihoo's shares continue their downward track for the next few months.

Bottom line: Xiaomi's move into 10 new countries looks smartly targeted at emerging markets, while Qihoo's move into the U.S. looks mostly like hype to support its sagging shares.

Disclosure: No positions.