Xiaomi faces three challenges: exit from Russia, probe by India regulators, falling sales in China

Asian Tech Press (May 9) -- Chinese smartphone maker Xiaomi Corp. is facing unprecedented challenges in its three major markets, amid a quiet exit from Russia, an investigation by Indian regulators and plummeting sales in its home country.

Facing pressure from the three major markets, Xiaomi's American Depositary Receipts (ADRs) have fallen nearly 6% in the last five days and are currently trading at $6.91.

Xiaomi ADRs in the last five days.

Xiaomi Among Chinese Tech Companies Exiting Russia

Several large Chinese technology companies are quietly cutting shipments in Russia, including personal computer giant Lenovo Group Ltd. and smartphone maker Xiaomi Corp., which have dominated the market for many products in Russia.

Xiaomi has cut shipments to Russia, and one distributor operating in the region said it had not received shipments from the Chinese smartphone maker in recent weeks. Last year, Xiaomi was the second-largest seller of smartphones in Russia after Samsung Electronics.

Unlike many Western companies, these Chinese companies have avoided making public statements about the Russia-Ukraine conflict or their operations in Russia.

China-based consumer drone giant SZ DJI Technology Co Ltd. made an unusual move, announcing last month that it has suspended its operations in Russia and Ukraine pending a compliance review.

The U.S. and its allies imposed a wide range of financial sanctions and export controls on Russia after the Russia-Ukraine conflict erupted in late February.

Major U.S. chip companies that supply Chinese companies are urging customers to comply with those rules and ensure their semiconductors don't appear in third-party shipments to Russia that violate the rules, according to sources.

One supplier sent a letter to all of its customers in March urging them to comply, and sales staff have reached out to customers to ensure compliance, one of the sources said.

India Probes Xiaomi for Alleged FEMA Violations

Earlier, India's Enforcement Directorate (ED) accused Xiaomi's Indian subsidiary of violating the country's Foreign Exchange Management Act (FEMA), freezing about 55.5 billion rupees ($725 million) in assets, as the agency found the company had illegally remitted funds to three foreign entities "in the guise of royalty" payments.

An Indian court last Thursday suspended ED's decision to seize $725 million from Xiaomi's local bank accounts.

According to the High Court of Karnataka in southern India, Xiaomi India can use its local bank accounts to pay for its day-to-day operations while the asset freeze is on hold, but if the company wants to make payments to companies outside India, a decision on whether that's feasible will have to be made after a May 12 hearing.

In an exclusive update from Reuters, Xiaomi claimed that its top executives faced threats of "physical violence" and coercion during questioning by ED.

In a May 4 court filing, Xiaomi India said that its executives suffered intimidation from the Indian financial crime fighting agency when they appeared for repeated questioning in April.

ED warned Manu Kumar Jain, Xiaomi's former managing director in India,and Sameer B.S. Rao, the current chief financial officer of the Indian subsidiary, during the investigation that they and their families would face "dire consequences", including arrest, damage to career prospects, criminal liability and physical violence, if they did not make statements as desired by the agency.

Xiaomi said that during the investigation, ED officials "dictated and forced" Xiaomi India CFO Rao to include a sentence as part of his statement on April 26 "under extreme duress".

The sentence read: "I admit the royalty payments have been made by XTIPL as per the directions from certain persons in the Xiaomi group."

To compete for the Indian market, Xiaomi established Xiaomi Technology India Pvt. Ltd (XTIPL) in 2014.

However, a day later, on April 27, Rao withdrew the statement, saying it was "not voluntary and made under coercion."

Two days later, on April 30, ED issued an order freezing Xiaomi's assets in local bank accounts.

The Enforcement Directorate on Saturday denied allegations by Xiaomi India that statement of its executives were made under coercion, calling it "untrue and baseless."

The agency said Xiaomi India's executives voluntarily submitted their statements to ED under FEMA in the most conducive environment on various occasions.

Sales Plunge in Xiaomi's Home Market

Xiaomi shipped 10.6 million units in mainland China in the first quarter of 2022, down 22% year-on-year, and slipped to fifth in market share from third in 2021, according to market research firm Canalys.

At the end of 2021, Xiaomi founder Lei Jun declared at the launch of Xiaomi 12 series that the company would fully benchmark and learn from Apple in the future, even vowing to "take the top share of domestic high-end smartphones within three years".

However, according to Counterpoint Research, Apple reached 60% of the premium smartphone market in 2021, while Xiaomi only accounted for 5%.

It is clear that the high-end smartphone market share once belonged to Huawei, who withdrew from the market due to the U.S. sanctions, was mainly grabbed by Apple.

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