Xiaomi fell into the "giant trap"?

A series of problems such as the departure of core members, the tension in the mobile supply chain and the lack of new revenue growth points have put Xiaomi into the suspicion of the giant trap.

Wen 丨 BT Finance MikiKai

Today Russia officially started the war in Ukraine, but also in today's Xiaomi has a conference in Ukraine, which can only be finally canceled.

In January 2022, Xiaomi announced internally that Chang Cheng, the former vice president of the group and general manager of Xiaomi's mobile phone product department, left his job.

In February 2022, there was market news that Xiaomi planned to lay off 10% of its employees, and HR may have begun to interview. But the follow-up Xiaomi denied and emphasized that Xiaomi currently has more than 4,000 hot positions being hired.

In February 2022, there was market news that Li Weixing, a member of Xiaomi's founding team, former vice chairman and secretary general of Xiaomi's technical committee, and Xiaomi's No. 12 employee, left his job.

While xiaomi's territory continues to expand, a series of problems such as the departure of core members, the tension of the mobile phone supply chain and the lack of new revenue growth points have put Xiaomi into the suspicion of the giant trap. Can the high-end strategy and next-hand car manufacturing of smart phones from benchmarking Huawei to benchmarking Apple achieve the re-emergence of Xiaomi? This article attempts to explore the dilemma of Xiaomi's breakthrough through three aspects: Xiaomi's growth path, Xiaomi's business situation analysis and Xiaomi's future.

Xiaomi's growth path

On April 6, 2010, Xiaomi was founded. In August of the following year, the "Xiaomi 1" mobile phone was officially born, and the xiaomi mobile phone with super high cost performance swept the mobile phone market, and "fan marketing" and "hunger marketing" sent the xiaomi mobile phone to the altar. According to market data, Xiaomi mobile phone sales exceeded 7 million in 2012, and the following year, Redmi mobile phone was born. By 2014, Xiaomi had become the largest smartphone manufacturer in China. In 2022, Xiaomi has become the second largest smartphone manufacturer in the world. In the second quarter of 2021, the share of Xiaomi mobile phone global market shipments reached 17%.

In 2013, Xiaomi began to lay out the Internet of Things business, the products extended to the field of intelligent hardware and life consumption, and successively launched smart devices such as Xiaomi boxes, Xiaomi piston headphones, Xiaomi TVs, routers, and mobile power supplies, and began to expand the product matrix. In 2014, Xiaomi smart bracelets, Xiaomi air purifiers, table lamps and other products were successively launched. Since 2018, the company has launched home appliances such as Internet air conditioners and washing machines, and gradually expanded from black electricity to white electricity. According to market data, as of the second quarter of 2021, the number of Connected IoT devices (excluding smartphones and laptops) on the Xiaomi AIoT platform reached 375 million. In 2021, Lei Jun personally led the team, and Xiaomi officially announced that he would enter the field of car manufacturing.

In August 2020, Xiaomi adjusted its company strategy, and in the future, Xiaomi will implement the "mobile phone × AIoT" strategy.

In March 2021, Xiaomi announced that it would invest $10 billion in Xiaomi cars over the next 10 years. It is expected that the mass production of Xiaomi cars will roll off the production line in the first half of 2024.

A breakthrough in the mobile phone market

Xiaomi early rely on the MIUI operating system based, since the establishment of Xiaomi in 2010, MIUI operating system with the public, through the openness of the system and the user's high experience of the user by electronic enthusiasts of the user. After Xiaomi successfully released its first mobile phone in 2011, the market quickly formed a target customer group and stickiness through its large number of enthusiast user groups and cost-effective characteristics, and as of now Xiaomi has built a rich mobile phone product system, including models such as MIX, Xiaomi and Redmi from high to low. In the first three quarters of 2021, Xiaomi's smartphone shipments reached 146 million, with a market share of 14.7%.

In the early days, Xiaomi's mobile phone business quickly occupied the Chinese mobile phone market with cost-effective advantages, especially the release of the Redmi mobile phone, which quickly occupied the market share of the thousand yuan machine. According to market data, in 2014, Xiaomi became the smartphone brand with the highest shipment volume in the Chinese mainland market. With the strong rise of domestic smartphone brands such as Huawei and Vivo, the cost-effective characteristics cannot support Xiaomi's further step, the market share is gradually shrinking, and the decline in mobile phone shipments has forced Xiaomi to carry out strategy and transformation in 2017. On the one hand, Xiaomi has accelerated its expansion into overseas markets and opened up overseas blue oceans such as India and Europe. On the other hand, we will increase research and development efforts to further improve the cost performance of its products, and begin to lay out the high-end machine market. According to Xiaomi's financial report, under the downturn in the global mobile phone market, Xiaomi's overseas market shipments increased from 92.72 million units in 2017 to 146 million units, hitting a record high year by year. From 2018 to 2020, Xiaomi mobile phones ranked fourth in global shipments.

From the perspective of regional markets, India and China are still the main markets of Xiaomi, and the market sales of the top five countries account for 64%. By the end of 2020, Xiaomi's products will be sold to more than 100 markets around the world, with China, Asia-Pacific, Europe, the Middle East and Africa, and Latin America as important sales markets. In 2020, Xiaomi mobile phone shipments were 146 million, of which India and China shipped 41.05 million and 39.01 million respectively, accounting for 54% of Xiaomi mobile phone shipments; Indonesia, Russia and Spain ranked in the top five, with 602, 558 and 3.83 million respectively, accounting for about 10% of Xiaomi mobile phone shipments.

However, according to the latest market data, in the fourth quarter of 2021, Xiaomi ranked fifth in china's smartphone market sales, and Xiaomi's shipment performance was only 14%.

Construction of A-loT

In 2013, Xiaomi began to get involved in the field of smart hardware. In 2015, Xiaomi officially opened the Internet of Things layout. In August 2020, Xiaomi adjusted its company strategy and implemented the strategy of "mobile phone × AIoT". With the application of AI and The concept of Internet of Things in Internet technology, smart phones have accelerated the pace of innovation, and the concept of connecting everything through smart phones has become the next outlet for the mobile phone market. According to Xiaomi's 2021 third quarter financial report, xiaomi's IoT business revenue in the first three quarters of 2021 was 59.91 billion yuan, accounting for 25% of revenue.

Xiaomi IoT and life consumer products include two categories: its own products and ecological chain products. Among them, its own products mainly refer to products with Xiaomi genes, including Xiaomi TVs, Xiaomi computers, and Xiaomi routers, which are controlled by Xiaomi itself and fully participate in the design, production and sales. The ecological chain products are mainly other types of smart home and consumer products designed and produced by Xiaomi through contact with the ecological chain enterprises in which it participates.

Market research believes that Xiaomi's current own products are located in the key links of smart homes. Including in addition to office entertainment - laptops, networks - routers, home entertainment - smart TVs, voice interaction - smart speakers, white goods - smart air conditioning.

According to market data, Xiaomi's smart speaker shipments in 2020 were 10.97 million units, with a global market share of 8.4%. As a leader in the field of Xiaomi personal health management, Xiaomi Bracelet has become the number one brand in shipments since 2016. Since 2018, shipments have far exceeded those of the second-place competitor, and the market share has remained above 40%. In 2020, 33.77 million units were shipped, with a market share of 48.6%.

Xiaomi TV shipped more than 10 million units in 2019 and 2020, maintaining its position as the first in China and the fifth in the world. In 2013, Xiaomi announced the official sale of Xiaomi TV, according to the data released by Xiaomi, in the second quarter of 2018, Xiaomi became the first TV brand in Chinese mainland, with nearly 10 million Xiaomi TV shipments in 2018; in April 2019, the market share has increased to 5.9%, advancing into the global Top5 camp. In terms of regional markets, according to AVC data, as of 2021Q3, Xiaomi TV has ranked first in Chinese mainland for 11 consecutive quarters, and Xiaomi Smart TV has ranked first in the Indian market for 13 consecutive quarters. In addition to ranking the forefront of shipments in the world, Xiaomi has also achieved success in innovations such as TV interconnection, wallpaper TV, and giant screen TV, and Xiaomi OLED TV shipments have ranked first in Chinese mainland shipments for two consecutive months since its release in August 2021.

However, it should be emphasized that the development of Xiaomi ecological chain enterprises has been greatly affected by the millet model, and when Xiaomi increases the competition of similar ecological chain enterprises, it may be accompanied by difficulties in the operation of ecological chain enterprises. Under the basic positioning of Xiaomi's cost-effectiveness, what ecological chain enterprises may lose is the control of gross profit margin. What choice can the cost-effective ecological chain enterprise products make in the future in the face of the contradiction between profit margin and competitiveness?

Analysis of Xiaomi's business situation

Smartphone aspect

According to Xiaomi's third quarter 2021 financial report, Xiaomi's smartphone business in the third quarter of 2021 increased by 0.5% year-on-year to 47.8 billion yuan. Smartphone shipments decreased 5.8% y/y to 43.9 million units, mainly due to a shortage of core components worldwide. In the third quarter of 2021, Xiaomi's global market share of smartphones reached 13.5%, ranking third in market share. In the third quarter of 2021, Xiaomi shipped nearly 18 million units of products in the Chinese mainland of 3,000-4,000 yuan, accounting for more than 12% of the total shipments. Smartphone ASP increased by 6.7% to RMB1,090.5 in the third quarter of 2021 from RMB1,022.3 per unit in the same period of 2020.

Internet services

According to Xiaomi's financial report for the third quarter of 2021, the company's Internet service revenue in the third quarter of 2021 was 7.3 billion yuan, an increase of 27.1% year-on-year, and the gross profit margin reached 73.6%. Among them, the advertising business revenue was 4.8 billion yuan, an increase of 44.7% year-on-year, mainly due to pre-installation, the expansion of global user scale and the increase in the proportion of high-end mobile phone users. Game revenue reached 1 billion yuan, an increase of 25.0% year-on-year. The share of Internet services in revenue rose to 9.4%, up 1.4 percentage points month-on-month and year-on-year. At the same time, the proportion of overseas Internet revenue continues to increase.

In the third quarter of 2021, the number of monthly active users of MIUI reached 485.9 million, an increase of 32.0% year-on-year. As of November 22, 2021, MIUI's global monthly active users exceeded 500 million for the first time, which is one of the important milestones in the company's global business development. With the growth of high-end and gaming mobile phone users, the year-on-year decline in ARPU value narrowed to 3.7%, reaching 15.1 yuan.

IoT and consumer products

According to Xiaomi's third quarter 2021 financial report, in the third quarter of 2021, the revenue of IoT and consumer products business was RMB20.9 billion, an increase of 15.5% year-on-year, mainly due to the popularity of the Xiaomi Tablet 5 series launched in August of the same year and the increase in sales of smart TVs and air conditioners. The number of IoT connected devices exceeded 400 million for the first time, an increase of 33.1% year-on-year. At the same time, the number of users with more than 5 IoT devices exceeded 8 million, the monthly activity of the smart home control center Mijia APP also increased by 39.0% year-on-year to 59.9 million, and the monthly active life of AI voice control terminal Xiaoai Classmate reached 105.1 million, an increase of 34.1% year-on-year. Smart TV and laptop revenue, which accounted for the largest share of IoT revenue, increased by 18.3% year-on-year to RMB7.1 billion, accounting for 33.9% of IoT business revenue. Smart TV shipments worldwide in Q3 2021 were 3 million units, with revenue up 19.5% year-on-year. Ranked first in Chinese mainland shipments and the top five in global TV shipments. The company's smart TVs and Xiaomi box MAU are highly correlated with TV stocks, and MAU increased by more than 30% year-on-year.

The future of Xiaomi

A breakthrough in smartphones

Offline channels

At present, in China's mobile phone industry, online/offline sales account for 30%/70% respectively. Xiaomi's offline ratio is just the opposite, accounting for 70% of the online, while the offline account for 30%. As a competitor of Glory and OPPO, the pace of its offline layout has accelerated. There is market news that in the future, Honor will open 30,000 offline service stores offline, while OPPO and vivo have established more than 20 sales points. At the end of 2020, Xiaomi began to carry out retail channel reform, and in the future, Xiaomi will rename all stores at this stage to Xiaomi Home, and carry out different models of management according to different levels. By the middle of 2021, Chinese mainland has opened more than 7,600 Xiaomi's offline stores, and the market share of Xiaomi mobile phones in China's offline shipments has increased by 0.8% month-on-month. On October 28, 2021, Xiaomi announced that the county coverage rate of offline stores has exceeded 80%, and in October of the same year, Lei Jun announced the opening of the 10,000th store of Xiaomi Home on social media platforms.

High-end mobile phones

Since 2020, driven by Xiaomi's high-end strategy, Xiaomi's various series of products have accelerated the pace of high-end product release. In February 2020, Xiaomi 11 officially began to sell as Xiaomi's first high-end smartphone priced at 3999 yuan. In December of the same year, Xiaomi launched the official release of Xiaomi Mi 11, followed by high-end models such as Xiaomi Mi 11 Pro, Xiaomi 11Ultra, Xiaomi MIXFOLD and Xiaomi MIX4. In September 2021, Xiaomi successfully launched a new trendy CiVi series of products.

At the same time, the Redmi series, which was once a low-end product, has also begun to adjust its price. The 1999 yuan RedmiK40 series was released in 2021. Among the low-end products, the RedmiNote series has also released 3 products.

According to market data, Xiaomi's high-end models priced at more than 3,000 yuan or overseas priced at more than 300 euros sold more than 10 million units in 2020 and more than 12 million units in the first quarter of 2021, accounting for nearly double the proportion of Xiaomi's mobile phone shipments.

But it cannot be denied that Xiaomi's main high-end model, Xiaomi 11, seems to have encountered waterloo of quality. There are market reactions to Xiaomi 11 has a variety of quality problems, including, black screen, camera failure, inexplicable Caton, etc., market data shows that as of January 2022, Sina Black Cat complaints about Xiaomi 11 content as high as 11647.

Xiaomi makes cars

In November 2021, Xiaomi Automobile Technology Co., Ltd., Xiaomi Automobile Technology Co., Ltd., Xiaomi Automobile Technology Co., Ltd., was established with a registered capital of 1 billion yuan and the company's registered place was Beijing.

The company revealed in its third quarter earnings report that as of the end of the third quarter of 2021, the team members have exceeded 500 people, and reiterated that the mass production time of Xiaomi cars will be in the first half of 2024.

Compared with new car-making forces such as Weilai, Ideal, Xiaopeng, and Huawei, Xiaomi's car-making experience value is zero. At the same time, more importantly, compared with smartphones, the requirements for car manufacturing are more stringent, especially a large and long-term capital investment, which requires long-term blood transfusions of other revenues, and there is a possibility of a negative impact on Xiaomi's profit data.

brief summary

Xiaomi's share price closed at HK$15.62 as of February 22, 2022, compared with its highest share of 35.9 yuan, and the market value has evaporated by nearly half. The disapproval of the capital market and the negative news of Xiaomi make people have to carefully speculate on the future of Xiaomi. At the same time, what is more important is whether Xiaomi itself can accept the cost of its own trial and error, whether the high-end of smart phones, the upgrading of A-loT and the troika of car manufacturing can drive the re-emergence of Xiaomi, and the future will tell us the answer.

【BT Finance Tips】This article is for reference only and does not constitute investment advice. Investors should not use this report as the sole reference factor in making investment decisions, nor should they believe that this report can replace their own judgment.