For the foreseeable future, the core revenue of the United States will still come from the home appliance business, but the weight of the corporate business will increase day by day. How to balance the ToB and ToC businesses is bound to pose new challenges to Midea's corporate culture and management model
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Wen | Reporter Han Shulin of Caijing
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Home appliance giant Midea Group (000333. SZ) is accelerating its enterprise-oriented business.
On the evening of April 29, Midea Group released its 2021 annual report, and its total revenue reached 343.4 billion yuan, an increase of 20% year-on-year, becoming the first domestic home appliance company with a revenue of more than 300 billion yuan; the net profit attributable to the mother reached 28.6 billion yuan, an increase of 5% year-on-year.
In terms of revenue and net profit scale, Midea continues to maintain its leading level since 2020. Among its main competitors in the home appliance industry, Haier Zhijia (600690. SH) total revenue of 227.6 billion yuan, net profit attributable to the mother of 13.1 billion yuan, an increase of 8.5% and 47.21% year-on-year, respectively; Gree Electric Appliances (000651. SZ) total revenue of 189.7 billion yuan, attributable to the net profit of 23.1 billion yuan, an increase of 11.24% and 4.01% respectively.
Judging from the financial report information of each company, the recovery of the home appliance industry market to the pre-epidemic level is the environment that promotes the performance growth of several major appliance companies. The rise in raw material prices has led to a cost growth rate of its main business being higher than the revenue growth rate, affecting the level of profitability, and the growth rate of net profit attributable to the mother of Midea and Gree is lower than the growth rate of revenue. Haier's net profit attributable to the mother has grown significantly, thanks to its successful privatization of Haier Electric Appliances, and the profit and loss of the original minority shareholders has been converted into net profit attributable to the mother.
In addition to the consumer-facing home appliance business, the corporate business layout of the leading enterprise Midea is quietly taking shape.
Midea now divides its business into five business segments: Smart Home Business Group, Industrial Technology Business Group, Building Technology Division, Robotics and Automation Division, and Digital Innovation Business Unit. In addition to the Smart Home Business Group, the other four business segments are all Enterprise Market (ToB) businesses.
In its 2021 financial report, Midea disclosed for the first time the revenue and growth of each business segment: smart home business group revenue of 234.9 billion yuan, an increase of 13% year-on-year; industrial technology business group revenue of 20.1 billion yuan, an increase of 44%; building technology business unit revenue of 19.7 billion yuan, an increase of 55% year-on-year; robotics and automation business revenue of 25.3 billion yuan, an increase of 23% year-on-year; digital innovation business revenue of 8.3 billion yuan, an increase of 51%. According to the reverse calculation of the revenue scale and growth rate disclosed by it, the revenue of the four major enterprise business segments in 2020 will total 53.9 billion yuan, and the revenue growth rate of enterprise business in 2021 will be 36%, nearly 3 times the growth rate of the home appliance business.
The smart home business group, a home appliance business for ordinary consumers, is still the largest source of income for Midea, with its revenue of 234.9 billion yuan accounting for 68% of the total revenue (343.4 billion yuan) and 76% of the main business income (308.3 billion yuan). The total revenue of the four major enterprise business sectors reached 73.4 billion yuan, accounting for 21% of the total revenue and 24% of the main business revenue, and the scale can not be underestimated.
Five years to build four Major ToB services
Looking back at the company's corporate history, Midea's ToB business became an independent business segment starting with the acquisition of German robotics company KUKA in 2016. Before 2016, Midea's business segment was divided into large appliances and small household appliances according to the category of home appliances. Since 2016, its financial report has divided its business segments into three major business segments of consumer appliances, HVAC and robotics and automation for the first time, marked by the acquisition of KUKA, Midea began to enter the enterprise business market in a planned way, and then expanded its territory for corporate business.
In 2017, its business added a smart logistics supply chain segment, including andbe Zhilian's logistics business. In 2019, the intelligent logistics supply chain sector was adjusted to the digital business sector, and the industrial Internet and chip business were newly incorporated on the basis of the original logistics business.
In 2020, Midea once again adjusted its business layout, concentrated its consumer-facing business in the smart home business group, and newly established the mechanical and electrical business group, HVAC building division, the mechanical and electrical business group includes motors, compressors, industrial control, chips, heat dissipation and other products, which are applied in home appliances, 3C products, new energy vehicles, industrial control and other fields; HVAC building business unit provides energy, HVAC, elevator, control and other products for buildings and public facilities. The former Robotics and Automation Division and digital innovation division will also continue to be retained.
In 2021, Midea upgraded its mechanical and electrical business group to an industrial technology business group, and HVAC's building business unit was upgraded to a building technology business unit, maintaining the five major business segment divisions established in 2020.
History of changes in the division of business segments in the United States Source: Company Annual Report
Specifically, based on comprehensive financial reports and public information, the core brands and products of Midea's industrial technology business group include Meizhi (compressor), Welling (motor and drive), Meiren (semiconductor), Toshiba (heat dissipation module), Hekang (frequency conversion, servo), Nissier (frequency conversion, servo), Gaochuang (motion control), Dongling (servo, drive) and other brands.
Some of these businesses are held by Midea before it began to deploy its corporate business on a large scale in 2016, such as Meizhi, which produces compressors, and Welling, which produces motors, and produces core components for its home appliance business. KUKA is not included in the Industrial Technology Group, but in the Robotics and Automation Technology Group.
Most of them are from the acquisition of KUKA in 2016, Starting with the acquisition and investment of KUKA, Toshiba's heat dissipation module business comes from the acquisition of Toshiba in 2016, Meiren, which produces special micro control chips (MCUs) and power control chips, was founded in Shanghai in 2018, and Hekang (including Niye and Dongling) was controlled by Midea in April 2020, and Gaochuang, founded in Israel, was acquired by Midea in 2017.
On the whole, the layout of these industrial technology products is concentrated in the relevant links of industrial automation, including motors, compressors and their related core frequency conversion, servo, control fields, and the production of core components of industrial automation and industrial control. These products and technologies themselves are widely used in Midea's own home appliances and home appliance manufacturing lines, and also have a broad industrial manufacturing application scenario.
According to midea's layout, the products of its industrial technology division are mainly for home appliances, 3C, new energy vehicles, and industrial automation.
Among them, midea's layout in the field of automobile travel is quite eye-catching. In May 2021, Midea Welling Automotive Components' three major product lines (drive systems, thermal management systems, and auxiliary/autonomous driving systems) were put into operation in Hefei, including drive motors, electronic water pumps, electronic oil pumps, electric compressors and EPS motors. In February 2022, Midea Industrial Technology invested in the establishment of a strategic base for new energy auto parts in Anqing, with a total investment of 11 billion yuan, which is one of the largest investments in midea's history. From the perspective of products, Midea does not build its own cars, but tries to become a supplier of the two core components of new energy vehicle motors and electronic controls.
The latest move of its Industrial Technology Group business group is the acquisition of Wuhan Tianteng Power on April 26, which supplies motors and control drive systems for two-wheeled electric bicycles (E-Bikes).
The predecessor of Building Technology is midea's central air conditioning business division, which also has the Italian Clivet central air conditioning brand acquired in 2016, in addition to central air conditioning, there are also multi-line, centrifuge business, and the products are oriented to the enterprise-side building market. Midea also acquired Foshan Lingwang Elevator in November 2020 to further layout the building market.
The Robotics & Automation division, with KUKA at its core, includes industrial robots, logistics automation and conventional system solutions, as well as service robots for medical, entertainment and consumer applications. In November 2021, Midea proposed a plan to fully privatize KUKA and announced the purchase price (80.77 euros per share) in March 2022, which will be considered at the KUKA shareholders' meeting on May 17, and if approved, KUKA will be privatized and delisted.
Digital innovation business mainly includes Ande Zhilian in the logistics business and Meiyun Zhishu in the industrial Internet business, both of which are incubated by Midea on its own basis. In addition, in February and July 2021, Midea became the controlling shareholder of Wandong Medical (holding 45.46%) through the transfer of equity and private placement, which is mainly engaged in the manufacture of imaging medical devices and the production of X-ray, magnetic resonance and other medical diagnostic equipment, which is also included in Midea's digital innovation business.
What corporate business means to The United States
The development of corporate business has become the corporate strategy of Midea Group. Midea stressed in the financial report that the focus of its business in 2022 is to "achieve the equal development of ToB and ToC businesses", saying that "achieving incremental creation for ToB transformation and firmly igniting the second engine", defining the core ToB business as four major areas of robot automation, building technology, energy management, and intelligent travel.
For the significance and prospects of the enterprise business to the company, Midea once said in an investor survey in May 2021 that the overall profit stability of the ToB business will be stronger than that of the ToC business, and the development of the ToB business will not affect the overall profitability of the group, and there will be obvious contributions in the medium and long term. "The future of Midea is to make homes, buildings and factories intelligent."
The shift from ToC business to ToB business is indeed the path followed by many overseas manufacturing giants. Siemens' home appliance business was spun off to Bosch, GE's home appliance business was sold to Haier, Toshiba's home appliance business was sold to Midea, air conditioner's grandfather Carrier, and its parent company UTC was split into three, focusing on the aviation market.
However, compared with these overseas giants, Midea has gradually entered the ToB enterprise and industrial market from the ToC home appliance industry. The overseas manufacturing giants, most of which were facing the ToB and ToC markets at the beginning of their establishment, have long been representatives of high-end manufacturing in history, and have divested the business for ordinary consumers in the development. Among them, there is the impact of business strategy and corporate strategy, as well as the impact of the management of diversified large companies that no longer adapt to the new competitive situation.
In fact, there are also cases of such transformations in China.
In 2016, TCL, located in the Pearl River Delta, had 11 business segments (7 major product businesses, 3 major service businesses and 1 venture capital business group), including enterprise display businesses such as Huaxing Optoelectronics, as well as consumer businesses such as multimedia electronics, home appliances and communications.
Since 2017, TCL has promoted business reform, and in 2019, it completed asset restructuring, and TCL Group split into TCL Technology (000100.SZ) and TCL Industrial, facing the ToB and ToC markets respectively. TCL Technology then acquired Tianjin Zhonghuan shares in 2020, and now TCL Technology includes two major business segments: the semiconductor display business with Huaxing Optoelectronics as the core, and the semiconductor photovoltaic and semiconductor materials business with Tianjin Zhonghuan as the core, which is completely oriented to the enterprise market. In 2021, TCL Technology's revenue was 163.54 billion yuan, an increase of 113.3% year-on-year, and the net profit attributable to the mother was 10.06 billion yuan, an increase of 129.2% year-on-year.
TCL Technology Business Segment Division Source: TCL Technology Annual Report
On the whole, most of the foreign manufacturing predecessors have gone to the path of divesting consumer business and focusing on the enterprise market. Domestic counterparts have also split the corporate business and consumer business into different companies to focus on operation.
For Midea, for the foreseeable future, the enterprise business will continue to provide a new engine of growth, rather than a core source of revenue. Midea is the market leader in many categories of white goods, China is the world's largest home appliance market, the main business revenue accounted for more than 70% of the consumer home appliance business, will still be the most core business of midea. Midea is unlikely to abandon C to B in a short period of time.
With the continuous layout and growth of enterprise business, Midea will have a large amount of enterprise business and consumer business at the same time, from the perspective of growth rate, the proportion of enterprise business is expected to continue to increase, how to take into account The ToB and ToC business, is bound to put forward new challenges to the Midea's corporate culture and management model.