China's mini Apple takes slice of smartphone pie

BEIJING (Reuters) - China's Xiaomi Technology is a fairy tale for nerdy entrepreneurs. Less than three years after its founding, the smartphone maker is valued at $4 billion and evokes Apple-like adoration from its fans, some of whom are desperate enough to skip work for a shot at buying the latest product the day it goes on sale. Founder Lei Jun dresses like the late Steve Jobs, in jeans and a black top. He has created a fervent fan base for Xiaomi's moderately priced high-end smartphones by mimicking Apple Inc's marketing tactic of attaching an aura of exclusivity around its products. Before Xiaomi, the 42-year-old Lei was a key investor in China's early Internet scene, co-founding startups including Joyo.cn, which was eventually sold to Amazon.com Inc, and the recently listed YY Inc. Born in Xiantao, a small city in China's central Hubei province better known for breeding Olympic gymnasts than billionaire technocrats, Lei brushes off comparisons to Jobs but concedes that the Apple visionary was an inspiration. "China's media say I am China's Steve Jobs," Lei told Reuters in an interview. "I will take this as a compliment but such kind of comparison brings us huge pressure," said Lei, who grew up assembling radios as a hobby. "Xiaomi and Apple are two totally different companies. Xiaomi's based on the Internet. We are not doing the same thing as Apple." HOT SALES AND FANS Xiaomi has already sold 300,000 of its latest phone model, launched in October. The Xiaomi phone 2 has specifications similar to those of Samsung Electronics' Galaxy S3 and Apple's iPhone5 but a top-of-the-line model sells for about $370, half the price of an iPhone5. Unlike the big domestic smartphone players, such as Lenovo Group, ZTE Corp and Huawei Technologies, which work with telecom carriers to sell a large volume of smartphones, Xiaomi sells most of its phones online and in small batches. This small volume strategy creates pent-up demand that gives Xiaomi free marketing buzz. The first batch of 50,000 phones released on October 30 sold out in less than two minutes. Subsequent larger batches have also sold out in minutes. Lei, who has nearly 4 million followers on China's popular microblogging platform, Weibo, feeds the buzz by dangling teasers about new products and launch dates. "We're not a company that chases sales volume. We chase customer satisfaction. We look for ways to give the customer a great surprise," Lei said. His vision for an exclusive mid-tier brand that builds up incrementally, rather than swamping the market, has found financial backers. In June, Xiaomi raised $216 million from Singapore's sovereign wealth fund, the Government of Singapore Investment Corp, and a few of Lei's friends, local media reported, giving it a valuation of $4 billion. "China is ripe for its own Apple, HTC or Samsung," said Hans Tung, managing partner at Qiming Venture Partners, a venture firm backing Xiaomi. "The country is big enough, there are enough mobile Internet users and mobile phone consumers. Therefore having its own mobile ecosystem built up by a domestic brand makes sense." Xiaomi, which was founded in April 2010 and only started selling smartphones in October 2011, is on track to sell 7 million units this year, exceeding its target of 2 million. Xiaomi is already profitable and is expected to rake in sales of up to 13 billion yuan ($2 billion) this year. "Our product only sold for a year and hit sales of $2 billion. That is pretty impressive," Lei said, adding Xiaomi was not considering an initial public offering within the next five years. Tung said Xiaomi's net margins were 10 percent. This suggests its net profit could hit $200 million this year. Mo Xiaohua, a 24-year-old accountant, is a proud Xiaomi fan who only recently bought her first Xiaomi phone. For many who use Xiaomi phones, the customizable themes and the weekly updates are a big draw. "I like Xiaomi because among China's brand smartphones, its value is the best," Mo said. "Now that we have such a good China branded phone, we need to support it." 'BLACK BACK FLATS' Xiaomi has its fair share of detractors who doubt it will have a happy ending. They say the smartphone game in China can only be won with wide distribution and high volume or a big brand with distinctive designs. Xiaomi, whose attraction is its price and high technical specifications, does not win points for cutting-edge design. "This is a world where people are now cranking out 'black back flats', that's what all these phones are when you put 10 on the table... Xiaomi is not going to stick out," said Michael Clendenin, managing director at RedTech Advisors. "In this world, the market is driven by two things: one is massive volume and two huge brands." ZTE and Huawei have set smartphone sales targets for this year at about 30 million and 60 million respectively. The firms have traditionally dominated the cheap low-end smartphone segment but have been pushing into the mid-price range. ZTE said it launched 11 types of smartphones in the mid-price range of 1,500-2,500 yuan this year, up from six last year. Apple released its mid-range tablet, the iPad Mini, in China on Friday. "Xiaomi had great headline appeal a year ago... but the problem is now you have got guys like ZTE and Huawei and Meizu with phones that are priced in a similar range," Clendenin said. China is expected to surpass the United States as the world's largest smartphone market this year with 165-170 million unit sales, up from 78 million last year, Gartner said. Analysts said Xiaomi had to ramp up volume and address technical problems and a shortage of customer service centers if it wanted a shot at the big league. "One of the challenges of being in the middle is that you can get squeezed," said Duncan Clark, chairman of Beijing-based consultancy BDA. Lei is resolute that he will prove the naysayers wrong. "In this industry, I think the most important thing is to get love from your customers," he said. "If you are popular with your customers, you succeed." ($1 = 6.2253 yuan)

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Italian tax police visit Facebook's Milan offices

MILAN (Reuters) - Italian police have been carrying out checks at the Milan offices of Facebook to assess whether it regularly declared its income in Italy, an investigative source and the U.S. company said on Friday. Italian officials have stepped up their efforts to collect taxes in recent months and have already targeted other big corporate names such as Google to check whether they are paying their dues. The investigative source said tax officials first went to the offices of Facebook in Milan nearly a month ago to collect documents. "Facebook pays taxes in Italy as part of its business activity in the country and strictly complies with Italy's fiscal rules," Facebook said in an emailed statement. "Facebook has fully cooperated with tax police during the investigation and intends to continue to do that." Italian police opened a new tax probe into Google Italy last week, five years after an earlier investigation into transfer pricing. Google has said it complies with the tax laws in every country in which it operates. ($1=0.7700 euros)

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Best E-Reader for Under $100

Top Contenders The basic model Kindle, the Nook Simple Touch, and the Kobo Touch all share a few traits other than a reasonable price. They all feature 6-inch screens, 2 GB of storage, Wi-Fi for downloading books, and good readability. But a few differentiating factors may tip the balance. Kindle ($89) The Kindle line offers a range of devices priced from $89 (or $69 if you don't mind the ad-supported version) to the $499, 8.9-inch, 4G Kindle Fire HD, which is an Android-based tablet computer rather than a straight e-reader. But for the under-$100 e-reader market, Amazon really only offers one option, simply called "Kindle." It's physical dimensions are sleek, it's thin and fits nicely in your hand; it's the smallest of the three top contenders. Another defining factor: it has a very high contrast screen; text stands out more clearly on the Kindle than on any other of the competitors. But this reader has some serious drawbacks: All Amazon Kindles have limited access to open e-book formats. You can still borrow books from the library if they support Kindle lending, but both Nook and Kobo support EPUB formats, which are more widely available for free. Another important issue: this Kindle model does NOT have a touch screen. That's not a big deal if you download all your books over one secure Wi-Fi network, but if you consistently need to enter passwords or search terms, toggling the cursor around to select letters instead of typing is a P-A-I-N. Kobo Touch ($99) You may not have heard much about the Kobo Touch, but it's been around for a few years and is actually the most popular e-reader in Canada. Their bookstore is well stocked; like the Amazon and Barnes & Noble online stores, they offer millions of titles. Kobo is also compatible with the open ebook formats like EPUB, so you can borrow a wide range of titles from your library. Kobo isn't the zippiest of the e-readers, but I like this device. It's thin and light, just like the others, and its textured back feels quilted, like you're holding an expensive purse. Also, as the name implies, the Kobo Touch has a touch screen, which makes me rank this device ahead of the Kindle. Nook Simple Touch ($99) As you might have guessed, it too has a touch screen. It's the biggest of all the devices, with physical buttons along the edges to turn the pages, yet I like the feel of this device best. And while you can get it for $99, an extra $20 upgrades you to the Glow Touch, which adds backlighting to the screen for night reading. Sure, this pushes it out of the "under $100" category, but for me, it's an extra worth having. The Nook is responsive and zippy as you move between menus, it has lots of extra features, and the screen looks good (not as good as the Kindle, but very readable). I liked the Nook a lot. [Related: Is iPad Mini Worth Buying?] Also-Rans There are some other sub-$100 options. The Aluratek Libre has a smaller, darker screen, and it's painfully slow. But it's discounted to about $79 dollars and comes preloaded with 100 of the classics. There's also rumor of a new ereader, the TXTR Beagle, which the company claims will be introduced to the US soon for just $13. Wow. I'll believe it when I see it. And remember, you may already have an e-reader — your smartphone. The Kindle, Nook, and Kobo apps are free. And while the screen isn't as big as a true e-reader, the price is right, and it's always with you. Final Verdict You can't really go wrong with any of the top contenders, but since touchscreen is such a handy feature, I have to rule out the low-end Kindle. Kobo is easy to use, but it's not the most polished or zippiest. So that makes the Nook Simple Touch my pick for Best E-reader for Under $100.

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