Zhi DongXi (public number: zhidxcom)
Author | Cheng Qian
Edit | Heart edge
Since its listing four years ago, Huami's market value has shrunk by more than 70%.
This domestic smart wearable device leader once had unlimited scenery, produced a phenomenon-level explosive millet bracelet for Xiaomi, and was the first xiaomi ecological chain enterprise to successfully land on the New York Stock Exchange in the United States.
However, with the passage of time, as Huami Technology gradually fades its dependence on Xiaomi, performance and capital have both changed their faces, pushing this typical independent smart wearable brand to the cusp of the storm.
In the past year, Huami Technology has achieved good results, with its own brand shipments increasing by nearly 60% year-on-year, ranking among the top 5 adult watches in the world. But the voices celebrating these developments are not enough to hide the outside world's doubts about its internal and external troubles.
According to the financial report, in 2021, Huami's annual shipments decreased by about 21% year-on-year, revenue decreased by about 2.8% year-on-year, and net profit fell by about 39.7% compared with the same period last year.
Its stock market performance is also shrouded in gloom. Huami's stock price rushed to a peak of $20.25 last February and has since slipped all the way to $2.68. At present, Huami's latest market capitalization is only $169 million, far below its first day of listing of $656 million.
▲Huami Technology's stock price changed from February 2018 to April 20, 2022
Looking at the world, Apple, Samsung, Huawei and other mobile phone manufacturers rely on the ecological linkage advantage of "mobile phone + IoT" to attack the city in the smart watch track, resulting in the risk of independent wearable manufacturers such as Huami facing the risk of being squeezed into the market space. Whether it is competing for funds or supply chain resources, Huami's own brand is not dominant.
But this is not only the crisis of Huami, it reflects the change in the wind direction of the era of intelligent hardware: the glorious era of IoT entrepreneurship has passed, and the leaders of the subdivision track represented by Huami are suffering from the "painful period" that must go through to independence.
First, the aura and shackles of "explosive products" with hundreds of billions of sales
If the Xiaomi ecological chain is compared to the super fleet around the "aircraft carrier" Xiaomi, then Huami is a highly effective ship that rushes to the front row of the smart wearable track.
In 2013, Lei Jun, founder, chairman and CEO of Xiaomi Group, realized that the Outlet of IoT (Internet of Things) was not far away, and decided to incubate a group of good entrepreneurial teams with Xiaomi's values through investment. Huami is one of the most representative "good seedlings".
At the beginning of the establishment of Huami, the domestic smart wearable market has just set sail, and the millet bracelet it cooperated with Xiaomi was a great success as soon as it came out, sweeping the smart wearable market with a people-friendly price of 79 yuan, selling more than 10 million units after listing for one year, helping Huami's sales to break through the 1 billion mark, becoming the crown of Xiaomi's ecological chain.
The hot sales of Xiaomi bracelets quickly pushed Huami Technology to the top spot in global wearable device shipments in the first quarter of 2017.
This is the success of the typical Xiaomi ecological chain model, which is not only the powerful product methodology, values and resources of the Xiaomi ecological chain, but also the assistance of resources such as brand, channel, marketing, and supply chain, and it is also inseparable from the blessing of the intelligent hardware era.
From the growth trajectory of Huami, we abstract the development history of a successful "rice chain" enterprise:
In the early stage, rely on the dividends of the millet platform to survive, complete the original accumulation, wait for the fists and feet to unfold, and then continue to expand its own brand, build its own channels, and grow into a more independent and sound enterprise.
An ambitious company will not only be satisfied with being a "foundry" of Xiaomi. Taking advantage of Xiaomi's fame and fortune is only the first stage of success, to go further, Huami must create more value of its own brand and accumulate new potential energy.
In February 2018, Huami successfully went public in the United States. Huang Wang wrote in an article: "Don't trap yourself in the cage of success, the last successful experience was this time to draw the ground as a prison." ”
For Huami, the heyday of xiaomi bracelet creation is a halo and a shackle. If you tear off the label of Xiaomi, how many consumers really recognize, trust and chase the Huami brand? Can Huami's own brand support the ambition of conquering smart watches and make its own reputation and performance?
Second, the progress of "de-milletization": the proportion of private brands is gradually rising, but the total revenue and shipments have not kept up
After winning the first bucket of gold with the Xiaomi bracelet, Huami, which is gradually becoming richer, has gradually tilted towards its own brand in strategy.
The results are reflected in the changes in performance over the years: since the release of its own brand Amazfit in September 2015, the proportion of revenue of Huami Technology's private label products has gradually increased from less than 3% in 2015 to 46.50% in 2021. In addition, private labels also contributed more than half of Huami's gross profit in 2021.
▲From 2015 to 2021, Huami Technology's own brand and Xiaomi ecological chain product revenue accounted for
In 2021, Huami's private label shipments increased by 59.6%, while Xiaomi's wearable product shipments fell by 30.5%. Huami's marketing expenses last year were 438 million yuan, an increase of 22% year-on-year, which can also be seen in its efforts to promote the expansion of its own brands.
Huami has two major types of business, one is the Millet ecological chain business based on xiaomi bracelets, scales and body fat scales, and the other is its own brand business based on amazfit and Zepp brands, including wearable devices such as smart bracelets, smart watches, and sports headphones.
According to the report of the municipal research agency IDC, in 2021, Huami Technology's own brand adult watch shipments have ranked among the top five in the world, ranking in the top three in Brazil, Russia, Indonesia and other countries; the cumulative shipment volume of the whole year ranks among the top five in the world, exceeding the overall growth rate of the market.
▲2019-2021 Huami Technology's private brand shipment growth and global smart watch shipment growth changes (data source is Huami financial report, data research agency Counterpoint Research)
Huami's progress in "de-milletization" has paid off. However, from the perspective of annual shipments, Huami's previous shipments that have risen year after year have shown an inflection point in 2021, reducing shipments by nearly 10 million units compared with 2020.
▲Changes in the total shipment volume of Huami Technology products from 2016 to 2021 (unit: 10,000 units)
Objectively speaking, in the fourth quarter of 2021, many European countries were suddenly blocked due to the impact of the epidemic, resulting in a heavy setback to Huami's overseas offline sales channels. Most of Huami's own brand products are sold overseas, and it is inevitable that its performance will be impacted.
But Huami didn't suddenly hit Waterloo last year. After a period of rapid development, Huami went to the platform period, and the revenue growth rate continued to slow down. From 2018 to 2021, Huami's annual revenue growth rate was 77.9%, 59.4%, 10.7% and -2.8%, respectively. In 2021, Huami's annual revenue was 6.25 billion yuan.
▲Changes in Huami Technology's revenue and net profit from 2016 to 2021
In the same period, Huami's own brand shipments increased by nearly 60%, and the proportion of revenue contributed also increased significantly, which still did not offset the loss caused by the decrease in Xiaomi's ecological chain product shipments.
At the same time, Huami's gross profit margin has maintained around 25% from 2017 to 2019, but it has fallen to less than 21% in the past two years.
▲The gross profit margin of Huami Technology changes from 2016 to 2021
Huami CFO Deng Cheng once said in its third quarter 2020 earnings meeting that Xiaomi's goal is to provide users with cost-effective products, so the gross profit margin of Xiaomi Bracelet 5 is lower than that of the previous generation of products, coupled with its shipments are much larger than Huami's own brand, so the gross profit margin has declined.
Due to the characteristics of Xiaomi products and the majority of their shipments, these factors are restricting the improvement of Huami's gross profit margin, which is a common problem faced by Xiaomi ecological chain enterprises.
According to the financial report, at the end of 2019, the end of 2020 and the end of 2021, the inventory amount of Huami was 894 million yuan, 1.218 billion yuan and 1.249 billion yuan, respectively. Since Xiaomi's orders for Huami are to be produced on order, there will be no large-scale inventory, so these inventories should mainly be Huami's own brand. The annual inventory increased by only 0.3 billion yuan, which can confirm the rapid development of its own brand.
However, considering the problem of inventory impairment, if these inventories contain a large number of products with a long backlog, then the value of consumer electronic products may depreciate sharply in terms of the iteration cycle of one or two years.
From the perspective of financial data, "de-milletization" means independent growth, and it also brings inevitable pain.
Third, meet with the mobile phone giant narrow road, independent growth is difficult
Since the launch of its own brand, in the past seven years, huami's own brand has made new progress, which will be interpreted as a signal of "de-milletization".
But in the short term, it is difficult for Huami to really remove the "brand" of millet.
After the early years of experience, Huami has mastered the ability of insight into users, research and development of products, supply chain management, iterative innovation, etc., and has the basic capital to break away from Xiaomi. Subsequently, it gradually jumped out of Xiaomi's mainstream user circle by launching its own brand and going to sea.
Huang Wang said in the earnings report meeting: "Most of Huami's private label products are sold overseas. "This strategy has been very effective, but unfortunately, the epidemic has hindered Huami's overseas expansion to a certain extent."
Huami Technology, which once abandoned the cottage hardware with the three core capabilities of "high value, high quality and low cost", is now meeting the mobile phone giant in the smart watch track.
According to Counterpoint Research, shipments of the global smartwatch market have barely increased in 2020 due to the impact of the epidemic, but it has increased by 24% year-on-year in 2021. Among them, Huami Amazfit has increased by more than 20% year-on-year in the past two years, ranking among the top five in the world.
But the opponents who clash with Huami are Apple, which has a market share fault, Android dual-power Samsung and Huawei, and a small genius watch Imoo that dominates the children's watch market. Among the opponents that are close behind, sports brands Garmin and fitbit are firmly entrenched, and Xiaomi's global smartwatch market share has rushed from 1.5% in 2020 to 3.6% in 2021.
▲Changes in the market share of global Top9 smart watch brand shipments from 2020 to 2021 (Source: Counterpoint)
Huami and fitbit are two representative independent wearable device manufacturers at home and abroad, Huami has Xiaomi behind it, and Google behind fitbit, and from the perspective of the global smart watch brand battle, apple, Samsung, Huawei, these three mobile phone giants control half of the global smart watch brand market, forming an insurmountable barrier for independent wearable device manufacturers.
At present, the smart wearable track has become the tacit direction of mobile phone giants. Because wearable devices and mobile phones have natural interconnection attributes and can form complementary functions, mobile phone manufacturers have a unique advantage in expanding the layout of wearable devices.
The medical and health "gold mine" that Huami bet on early has also become the consensus of major mainstream smart watch players.
When the user stickiness is not enough, the technology is not to the leading degree of a ride, if Huami "flies alone", it is difficult to fight against the mobile phone giants with strong funds, brand appeal, user groups, business categories and supply chain resources.
On the other hand, the ongoing COVID-19 pandemic has put a lot of pressure on Huami's offline retail and supply chain. In addition to the logistical disruption and its global delivery and sales, the shortage of components and chips has also affected Huami's supply and production cycle.
Fourth, there is no way back from the construction technology, and it is difficult to cut the mat with xiaomi in the short term
In terms of tamping the technical base, Huami can be said to have no way back.
At present, mainstream smart watch players are optimizing battery life, health monitoring, data security protection and other functions. In the face of strong enemies, Huami must continue to increase its investment in research and development to build its own moat.
For example, in 2018, Huami began to explore in the field of cloud services and launched the world's first intelligent wearable AI chip based on RISC-V architecture, "Huangshan No. 1"; in June 2020, Huami released the AI chip "Huangshan No. 2" and a new generation of self-developed optical sensors for tracking objects; in July 2021, Huami launched new achievements such as Huangshan 2S chips and zepp OS, a self-developed smart watch operating system.
However, it is a little surprising that Huami's annual report shows that its R&D investment in 2021 is 515 million yuan, a slight decrease from 538 million yuan in 2020.
In addition to self-developed chips, sensors and operating systems, Huami also licensed related technologies and patents in the field of sensors to E&T Technology, which is engaged in the manufacture of radio and television equipment, so that Whale Microelectronics, a wholly-owned subsidiary of E&P Technology, has the ability to further develop new sensor modules and chips.
▲Huami Technology investment map
At the same time, Huami and Xiaomi, which have been repeatedly "broken up", still maintain a close cooperative relationship.
In October 2017, Huami Technology signed a three-year commercial cooperation agreement with Xiaomi. After the agreement expired, the two sides renewed the cooperation agreement for another three years, and Huami will be the highest priority partner in the supply of Xiaomi wearable devices. The two companies will also collaborate on the development of AI chips and algorithms for wearable devices.
When Old Rivals such as Apple, Huawei, and Samsung have all gone down, Xiaomi's ambition to enter the entire wearable field will obviously not stick to an ecological chain company.
In November 2019, Xiaomi launched the Xiaomi Wearable App as a Xiaomi smart wearable platform and launched its first Xiaomi watch. It is worth noting that the foundry of this watch is not Huami, but a company called Dragon Banner. In November 2020, Xiaomi Group made organizational adjustments and established a wearable department under the mobile phone department.
Different from the independent universal of Huami smart watches, Xiaomi smart watches have a stronger correlation with Xiaomi mobile phones, and as the "second screen" outside the mobile phone, it can play the advantages of mobile phone + AIoT collaboration.
This makes Huami and Xiaomi both partners and competitors in the wearable field.
On March 16, Xiaomi announced that "in order to encourage ecological chain companies to develop their own brands", the existing "Xiaomi Sports" app was renamed "Zepp Life", which is independently operated by Huami, and Xiaomi will launch its new official application "Xiaomi Sports Health".
However, Xiaomi and Huami have not broken off their relationship, and Huami's sports health application still supports Xiaomi's ecological chain products, and retains the data generated during use on Huami's servers under the premise of ensuring privacy and security. At the same time, Xiaomi also said that it will continue to deepen cooperation with Huami in product development, self-developed chips, algorithms and other aspects in the wearable field.
"Huami will continue to work closely with Xiaomi Technology strategically; the two sides are currently actively exploring the development of new products, including the latest generation of Xiaomi Bracelet 7 will also be launched within the year." Huang Wang said at Huami's latest earnings report meeting.
In the short term, Huami will still walk on two legs in the future.
Conclusion: The road to independence, obstacles and hardships
Based on the complementarity of Huami's own brand and Xiaomi's ecological chain business, Huami's cumulative global shipments of smart devices exceeded 200 million units in 2021. However, judging from the unsatisfactory financial performance, at this stage, huami is still difficult to truly achieve "self-reliance".
At present, the global smart watch market is gradually showing a trend of resource concentration, and mainstream mobile phone brands have extended their product layout from mobile phones to wearable fields, forming an ecological linkage between mobile phones and IoT devices, and the competition in the smart watch market will become more and more fierce.
Huami, which no longer relies on the endorsement of Xiaomi's ecological chain, not only needs to use the warming performance to prove its hematopoietic ability, but also needs to show long-term value through technology accumulation. Only when Xiaomi's various advantageous resources are no longer needed by Huami, Huami can truly move towards independence.
In addition to Huami, several other listed "rice chain" star enterprises are also facing the stage dilemma of independent growth.
For example, the annual revenue growth rate of the sweeping robot company Stone Technology decreased from more than 500% in 2017 to 28.84% in 2021; the annual revenue growth rate of yunmi technology, a whole house intelligent enterprise, also fell from 193.31% in 2018 to -8.96% in 2021.
▲Change in the share price of Stone Technology from February 2020 to April 22, 2022 (unit: yuan), and change in the stock price of Yunmi Technology from September 2018 to April 20, 2022 (unit: USD)
Nowadays, intelligent hardware has gone through a period of being sought after by social resources, and many subdivision tracks have begun to slow down, competition has intensified, and "rice chain" companies under the blessing of internal and external troubles still need to break out a new path that can impress consumers and investors.