The U.S. Department of Defense added electronics company Xiaomi to its blacklist because of its alleged ties to the Chinese military. In response, the firm refuted Washington’s assessment and affirmed it makes products for the commercial and consumer sectors. However, American investors will be required to divest their holdings in the provider by November 11, 2021.
The handset maker has not been barred from purchasing semiconductors, raw materials, or software from U.S.-based providers a la Huawei.
Details of Xiaomi’s Blacklisting
The Pentagon recently put Xiaomi and nine other companies on a list of entities it asserts provide support to the Chinese Armed Forces. But that declaration alone did not mean the firm’s American stockholders had to divest their shares.
Washington issued a directive banning American citizens and companies from financially backing businesses on the Defense Department’s blacklist last year. Earlier this month, the U.S. government amended the order to require U.S. investors to sell their holdings in the affected companies by November.
In 2018, Xiaomi went public via a listing on the Hong Kong Stock Exchange. Fortune reported the firm’s total market capitalization took a $17 billion hit following the Defense Department’s decision. That development follows a recent triumph in its core business.
Counterpoint Research, a market intelligence firm, named the Beijing-based company the world’s third-largest smartphone maker in Q3 2020. The group estimated it shipped 46.2 million handsets in that period, up 74.3 percent from the previous quarter. The organization noted its results in the September quarter marks the first time it outpaced Apple in the global marketplace.
Semiconductor Sourcing Ability Unaffected
Navkender Singh, an IDC analyst, said the Defense Department’s action would not impact Xiaomi’s supply chain. As opposed to its competitor Huawei, the firm has not been placed on the U.S. Department of Commerce’s Entity’s List. That specific designation led to the telecom’s partners ending their business relationships with it to avoid U.S. fines.
Xiaomi’s new status will not change its ability to source semiconductors, but it might have to change its international business plans due to the blacklisting.
Abishur Prakash, a geopolitical expert with the Center for Innovating the Future, said its new classification could affect its recruitment efforts. He further theorized that the Pentagon’s determination could undermine its efforts to expand its presence in India and launch new products in Africa.
However, other market watchers believe the company’s current headwinds are temporary.
Vanessa Martinez, a Lerner Group partner, believes the incoming U.S. presidential administration will undo the divestment order. Similarly, China Merchants Securities Co. analyst, Kevin Chen, believes Xiaomi’s losses will be reserved due to its strong recent performance. Jeffrey Halley, a senior market strategist with Oanda, expects the imminent transfer of power to prompt less antagonism between the U.S. and China.
If Xiaomi manages to resolve its issues with Washington soon, it might even see a near-term jump in market capitalization. The manufacturer has significantly increased its market share in the European and Chinese handset sectors in recent months. Right now, there is no reason to expect its growth trend will slow down any time soon.