Here is why Lie Jun's Xiaomi may be twice as expensive as Steve's Apple

Chinese serial entrepreneur Lei Jun has been compared with Steve Jobs. Now, analysts are saying the smartphone giant he built could be twice as expensive as Apple. Xiaomi deserves to trade at a premium to global phone brands due to its market-share gains and faster growth trajectory, according to research from Morgan Stanley, one of the banks leading its Hong Kong IPO. The Beijing-based company has a fair value of about $65 billion to $85 billion, translating into around 27 times to 34 times forecasts for its 2019 adjusted earnings, Morgan Stanley wrote in a report this week. 

That’s roughly double Apple’s valuation of 14.5 times estimated 2019 adjusted earnings, data compiled by Bloomberg show. Xiaomi should also fetch richer multiples than rival smart hardware makers like Fitbit and GoPro, as well as some major Chinese internet firms including Alibaba Group Holding and Baidu, according to Morgan Stanley. While such pre-deal research is prepared by a bank’s equity analysts, not their investment bankers, it may provide a clue into how Xiaomi plans to sell its growth story. Xiaomi, which has been planning to seek about $10 billion, is considering raising about half that from its Hong Kong IPO and the other half from an offering in mainland China, people with knowledge of the matter have said.

iPhone X: Apple makes a $999 gamble on its aspirational brand

Apple is taking a calculated risk with the pricing of its new phone. The $999 iPhone X is a bet on users’ loyalty and wealth and is on the surface consistent with the company’s longstanding strategy of differentiation and exclusivity. The danger lies in how the phone sells in the world’s huge and growing emerging markets; Apple clearly thinks it is a risk worth taking.

And it’s not without reason. Apple has always targeted the higher end of the market worldwide rather than just aiming for a larger base of users. In fact, if anything, Apple tends to price phones higher outside the US. The UK has to stomach an inflated price for the iPhone X even when tax differences are allowed for.

To be clear, the top end phone is not the only option. British customers will be able to pick up an iPhone 8 for £699 and an iPhone 8 Plus for £799. This is still more expensive than its direct competitors, but the demand curve for the iPhone is relatively inelastic. This means that for a given percentage increase in price, the percentage reduction in demand is smaller, giving an overall increase in revenues. No wonder the iPhone accounts for the majority of Apple’s revenues and profits.
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The big debate: Can Uber's Kalanick do a Steve Jobs and make a comeback?

At thirty, Steve Jobs had already revolutionized personal computing, and was a global celebrity. But in 1985, thanks to a power struggle in the boardroom, he got fired from the very company he had created. Fast forward to 2017, and Travis Kalanick has just faced the exact same fate after fundamentally disrupting the taxi industry. The point here is not that history is repeating itself in Silicon Valley, because many an icon have fallen in disgrace in the business world, and will probably continue to do so. The key questions are: How do these two exits compare, and will 40-year-old Kalanick be able to make the spectacular comeback that Jobs managed in 1997?

Jobs was passionate about Apple’s products, and had a burning desire to change the world. So great was his passion for perfection that he could not tolerate anything but the very best. As a result, he was impatient, impolite, and downright rude with people until in his mind he got the product just right. Once he did, he believed in it so much that he was willing to defy all odds to make it succeed, ignoring any feedback to the contrary.  This strategy worked until 1985 when the market did not well receive the new Macintosh Office. Jobs then went head on against CEO John Sculley, whom he had lured away from PepsiCo just two years earlier - demanding a drop-in pricing, and increasing advertising spend.  Sculley finally won the boardroom battle and removed Jobs as the head of the Mac division.

Kalanick too wants to change the world and has already done so.  But the main reason for his ouster was not his impatience to bring the best products to market. Sexual harassment, and creating an overall toxic corporate culture that is particularly harsh on women are among the charges against him.  Under Kalanick, the company is also accused of unethical and opportunistic business practices like the way-over-the-top surge pricing during a terror attack in Sydney.
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