Against the backdrop of slowing growth, reducing marketing expenses, improving profit structure, and increasing R&D investment, tech companies such as Xiaomi are beginning to learn to slow down, stabilize a bit, and invest more money in the longer term.
Author|Yang Zhichao
Edit|Wilderness
WeChat public account: slightly larger reference (ID: hyzibenlun)
"Good student" Xiaomi handed over a financial report that did not look very good.
Xiaomi recently released its 2022 financial report, which shows that throughout 2022, Xiaomi's revenue and profit have experienced double-digit declines. This is the first time since Xiaomi went public.
If this achievement is placed in the general environment of the mobile phone market, it is not surprising. The difficulties of the mobile phone market have become a common topic. Quantum tunneling shattered Moore's Law, but also slowed down the upgrade of mobile phones significantly, coupled with market saturation and macro consumption decline and other factors, many mobile phone manufacturers have a difficult 2022.
But similar difficulties can point to a completely different future. For Xiaomi, this is a critical time of pressure. An important factor contributing to the decline in profits is the planned mass production of cars next year. Burning R&D funding, while dragging down earnings data, is also giving birth to new stories.
Xiaomi has staged a headwind turnaround. "There is no mobile phone company in the world that can successfully reverse the decline in sales, except Xiaomi." This is Lei Jun's bold statement in 2017. 6 years later, Xiaomi walked into the familiar examination room again, and this time, more people chose to believe it.
01 Industry trough
Financial reporting data that is studied in isolation from history and industry environment is often meaningless.
Xiaomi's "poor" results are almost inevitable.
The mobile phone industry's now-stinging decline line actually emerged as early as 2015. In the first quarter of that year, domestic mobile phone shipments fell by 4.3% year-on-year, which was the first decline after entering the mobile Internet era, and the warning light of market saturation lit up.
In the following 7 years, although there were 5G, full screen, face recognition and other technological innovations to continue to survive, so that the overall mobile phone shipments remained stable and progressive, but the two major problems of market saturation and technological innovation stopped have always hung over the heads of manufacturers.
By 2022, the downward trend will be difficult to stop. IDC data shows that China's total smartphone shipments in 2022 were 286 million units, down 13% year-on-year, the largest decline in history, and below 300 million for the first time in a decade. The situation in the international market is similar, the global smartphone market in 2022 fell 12% year-on-year, the lowest point in nearly 9 years, and Apple was not able to stand alone, with shipments falling 13.3% in the fourth quarter.
Based on this background, looking at Xiaomi's financial report, it is possible to draw a relatively objective conclusion.
According to the financial report, Xiaomi's total revenue in 2022 will be 280 billion yuan, gross profit will be 47.6 billion yuan, down 18.3% year-on-year, and adjusted net profit will fall by about 60%. However, because innovative businesses such as new energy vehicles have invested up to 3.1 billion yuan, after removing this part of the interference, Xiaomi's profits are not so ugly.
The mobile phone business accounts for 60% and is still Xiaomi's core business. Xiaomi's global smartphone shipments for the full year 2022 were 150 million units, compared to 190 million units in the same period the previous year. In the global mobile phone market, Xiaomi still ranks third with a market share of 13%. Third-party data shows that 50.1% of users will continue to choose the Xiaomi brand when changing mobile phones, and loyalty ranks first in the Android camp - which shows that Xiaomi has not lost its competitiveness in the cold winter.
In terms of horizontal comparison, according to IDC data, in addition to Honor, the other two domestic mobile phone giants OPPO and vivo both fell year-on-year more than Xiaomi last year. Glory is in the development period, the previous base is low, and the growth rate is naturally higher.
Contrary to Glory, Xiaomi in 2022 has to face a high base in 2021. In 2021, Xiaomi's revenue increased by 33.5% year-on-year, and adjusted net profit increased by 69.5% year-on-year, which is also the high point of Xiaomi's share price. In the second quarter of that year, Xiaomi's mobile phone sales ranked second in the world. Such good results also determine that even without external environmental interference, it is quite difficult for Xiaomi to continue to achieve substantial growth on the base in 2021.
It is worth noting that in the context of overall pressure, Xiaomi's performance in 2022 is also bright spots, such as high-end machines, tablet business, mobile Internet and home appliances.
In the key high-end market, Xiaomi's position has become more and more solid, and in the fourth quarter, Xiaomi ranked first in the domestic mobile phone market share of 3-4,000 yuan. By January this year, Xiaomi also achieved the top of the ranking in the 4-5,000 yuan price range. In terms of tablets, Xiaomi achieved a shipment growth of more than 160% in 2022, and its domestic market share rose to third. The Redmi Pad, released in October last year, was well received by the market, with first-selling sales exceeding 75,000 units.
In the LOT business, the revenue of smart major appliances increased by more than 40% year-on-year, and the shipments of air conditioners, refrigerators and washing machines all achieved a large increase. In addition, Internet users reached a new high, with global MIUI monthly active users exceeding 500 million in December 2022, a year-on-year increase of 14.4%.
On the whole, in the environment of pessimism, although Xiaomi's report card is not beautiful, it has both core competitiveness and future potential, and also creates imagination space for the capital market.
02 One copy
A large part of Xiaomi's imagination is provided by the past.
Xiaomi has experienced an even worse situation. In 2016, after 5 years of rapid growth, Xiaomi began to be "eaten" by speed, and in the first quarter of that year, Xiaomi, which had long occupied the top three in the world in terms of shipments, fell directly out of the top five. In the middle of the year, Lei Jun personally took over R&D and supply chain, and began to take Xiaomi to make up classes. A year later, in the second quarter of 2017, Xiaomi set a historical single-quarter shipment record, and mobile phone sales exceeded 100 million in 2018, returning to the top five and opening the second peak.
What's harder than 0 to 1 is to hit rock bottom and then reach the top again. Compared to the newborn calf, which is not afraid of tigers, the latter requires several times more courage and endurance.
However, repeated failures are easy, replicating successfully is hard. For Xiaomi itself, too.
Comparing the two crises after 7 years, there is good news and bad news.
The bad news is that the industry is harder. Although the mobile phone market in 2016 also encountered problems, the overall growth trend is still in a trend. And now the overall growth of the broader market has been difficult.
The good news is that Xiaomi is no longer who it was 7 years ago.
On the one hand, the immediate causes of the Xiaomi crisis have changed. The decline in 2022 is the entire mobile phone market, and the competitiveness of Xiaomi's own products has not decreased, but has become stronger. Once the consumer market recovers, it can also drive Xiaomi's performance to recover.
Right now, that recovery has already begun. Data released by the National Bureau of Statistics and the General Administration of Customs showed that the total retail sales of consumer goods in January and February this year rebounded from a previous 1.8% year-on-year decline to a year-on-year increase of 3.5%.
Recovery is first passed to Xiaomi's channel side. In 2022, offline channels will be affected by force majeure, and Xiaomi Home's customer traffic will decline, but offline channel payments will still grow. In 2023, with the recovery of consumption, Xiaomi's offline channels will also recover strongly. In January and February, the GMV of offline stores increased by 30%. At the end of February 2023, offline channels contributed about 55% of sales to the Xiaomi Mi 13 series.
Offline channels are the key for Xiaomi to get out of the trough in 2016, and it is also the basic disk of Xiaomi today, which can be regarded as the vane of the recovery of the entire Xiaomi.
On the other hand, after several years of business adjustment, today's Xiaomi has more flashpoints. In 2022, Xiaomi's non-mobile phone revenue will account for more than 40%.
The broad business lines share Xiaomi's risks and also provide more growth possibilities. In the Internet, AloT, wearable devices and car manufacturing, Xiaomi has made obvious progress, the much-anticipated car manufacturing business is progressing smoothly, according to Lei Jun, Xiaomi car manufacturing plan progress beyond expectations, will be in the first half of next year according to the original plan of mass production. After the mass production of automobiles is launched, the ecosystem with AloT and mobile phones will be opened, which is expected to promote the entire business line.
The new growth line that is taking shape gives Xiaomi more room to survive. When it no longer relies solely on the mobile phone business, there are more possibilities for recovery.
03 The eve of the outbreak
Lei Jun was once the key to leading Xiaomi out of the trough of 2016, and he personally managed the supply chain and research and development.
In 2019, Xiaomi once again encountered sales problems, stock price shocks, Xiaomi will Redmi brand independent, Xiaomi brand price probe, the implementation of mobile phone + AloT strategy, 2020 strategy upgrade to mobile phone xAloT, brought about a direct change is that Xiaomi out of the crisis and created a miracle of the second largest smartphone sales in the world.
Similar stories are continuing.
On January 30, 2023, Lei Jun issued an internal letter from Xiaomi announcing that two group governance professional committees, namely the Business Management Committee (hereinafter referred to as the Economic Management Committee) and the Human Resources Committee, will be established to coordinate and manage human resources strategies, with Lei Jun as the director. In addition, the car manufacturing project, which is regarded as Xiaomi's new focus, is also personally led by Lei Jun.
Overall, Xiaomi is fully prepared for the new development cycle. In an internal letter in January, Lei Jun said that 2023 is the year when Xiaomi opens a new development cycle, and it is also necessary to be fully prepared for a new round of outbreaks in the next 2-3 years.
The soldiers and horses did not move, and the grain and grass went first.
Xiaomi recently announced a "scale and profit" strategy, not only not to give up possible growth opportunities, but also to store energy for the next ones. When it comes to financial data, it is a significant improvement in business health. In the fourth quarter of last year, Xiaomi's overall inventory was 50.4 billion, down 3.7% year-on-year and 4.8% month-on-month, and the inventory data decreased by nearly 2 billion yuan compared with 2021.
Under pressure on profits, Xiaomi mobile phones still maintained a gross margin of 9%, and the overall gross margin was 17.0%, exceeding the average gross margin of 15.2% in the past five years. Lu Weibing said that if external factors such as exchange rates can remain stable, the gross profit margin of Xiaomi mobile phones is expected to increase to more than 10%.
The improvement in gross margin benefited from the improvement of the volume structure. In the case of the overall decline in sales, the average unit price of Xiaomi hit a record high, reaching 1111 yuan, indicating that the overall proportion of high-end machine sales has increased. In the fourth quarter, Xiaomi's marketing expenses decreased by 400 million yuan year-on-year, and administrative expenses also decreased.
But at the research and development level, Xiaomi still maintains active investment.
Obviously, research and development is the key basis for Xiaomi to achieve a "new round of outbreak in the next 2-3 years". In 2022, Xiaomi's R&D expenditure exceeded 16 billion yuan, a year-on-year increase of more than 3 billion. According to Lu Weibing, Xiaomi is expected to invest more than 100 billion yuan in research and development in the next five years.
Increasing R&D investment is Xiaomi's consistent strategy in recent years. In 2018, Xiaomi's R&D investment in the newly listed company increased by more than 80% year-on-year, and in the past five years, the compound growth rate of Xiaomi's R&D investment has exceeded 38%. Xiaomi's breakthrough in high-end machines, IoT and other businesses is largely due to this.
Of course, this is also the overall trend of the technology industry. With reduced marketing expenses, improved profit structures, and increased R&D spending, tech companies are beginning to learn to slow down, stabilize a bit, and invest more money in the longer term.
Financial data can still reflect a company's business conditions to a certain extent, but if you only focus on them, it is obviously irrational to deny the future of a company because of short-term data.
![Li Yanhong, Lei Jun, Cheng Wei and others attended the Chinese New Year Tea Party of the Internet Society of China[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)