Xiaomi Buys 3% Of Chinese Games And Software Giant Kingsoft For $68M

Xiaomi became the world’s third largest smartphone company based on sales last year, but it also invested in a number of companies in 2014. Its early deals have largely been in hardware, but today it announced[PDF] plans to put money into games and software by buying 2.98 percent of Kingsoft for HK$527 million (~$68 million).

Kingsoft started out developing PC games, but today the company — which is listed in Hong Kong and valued at over $2 billion — produces security, entertainment and enterprise products too. It already has strong links to Xiaomi, whose CEO and co-founder Lei Jun is also founder and chairman of Kingsoft.

The investment is notable because it is a sign of Xiaomi’s intention to increase its focus on software and services. Its deals to date have circled around hardware — including a $200 million investment in appliance maker Midea, and a funding round for wearables startup Misfit — but with the Kingsoft deal, Xiaomi may well be laying the ground for a dedicated games service, security features and other mobile services for its customers.

Xiaomi sold more than 60 million devices last year, a feat that saw it overtake Samsung as China’s top smartphone company and become the third biggest seller of smartphones worldwide in Q3 2014. With a burgeoning family of hardware and smart home products — including an air purifier, blood test device, smart TV and streaming box — Xiaomi could look to construct a network of services to further monetize its user base in the future.

Xiaomi hasn’t revealed its hand as yet, but Hugo Barra — the company’s VP of international — did tell TechCrunch last week that it is in the market for investments and acquisitions in India, with a particular focus on startups that offer mobile services and e-commerce.

The Xiaomi investment in Kingsoft is expected to be completed at the end of January. The company bought its shares from internet giant Tencent, which reduced its stake in Kingsoft to 9.6 percent. Lei Jun himself owns 15 percent of the company.