Xiaomi, can it "roll" out of the future?

Xiaomi will no longer pursue expansion as aggressively as it has in the past.

The smartphone industry is becoming more and more volatile to become the industry consensus, Xiaomi, whose profits are not high, has to join it, and after the recent release of 2599 yuan of 1TB mobile phone Redmi Note12 Turbo, Xiaomi will release the 2023 image flagship - Xiaomi 13 Ultra on April 18.

Xiaomi's flagship phone is known in the industry as "starting to roll the lens after rolling the sensor". According to reports, the Xiaomi 13 Ultra will use the powerful configuration of IMX989 main camera + three IMX858 secondary cameras, and Lei Jun even invited Leica CEO Matthias Harsch from Germany to stand for this flagship.

According to Xiaomi's latest financial report, the company's revenue and net profit fell in 2022, of which revenue fell 14.7% year-on-year to 280 billion yuan, and the year-on-year decline in net profit was even more exaggerated, with a decrease of 61.4%, and finally recorded 8.518 billion yuan. This is obviously unacceptable for investors. As of the close of trading on April 13, Xiaomi's share price was HK$12.18, down 16.35% from the highest price of the year.

Objectively speaking, 2022 is not a good year, and the most convincing evidence is that even with Apple's market position, shipments still fluctuate sharply, and the downward trend of shock is obvious. It is worth noting that Apple's short-term positive growth relies on the price reduction strategy of the preferential force, although the method is effective, but it is easy to self-damage eight hundred, which is of little significance to Xiaomi, and Xiaomi's way of coping with the bottleneck period of industry development or "rolled to the extreme".

There is a view that Xiaomi will no longer pursue expansion as aggressively as in the past, but shrink back, first stabilize the main business, and improve profitability by adjusting the management structure and optimizing the business model. From Xiaomi's financial report, it can be found that Xiaomi is using layoffs to reduce labor costs and save performance as quickly as possible.

On the other hand, the car that Lei Jun put down his cruel words to build has not yet been released, and IoT and Internet services do not see the inevitable outbreak in the short term. Core performance is under pressure and emerging businesses are confused, where should Xiaomi go?

Who will make up for Xiaomi's 40 million units sold?

Xiaomi's financial report shows that its revenue in Q4 2022 was 66.047 billion yuan, down 22.8% from the same period in 2021; Net profit was 1.461 billion yuan, down 67.3% year-on-year. Looking at Xiaomi's performance in recent years, 2022 is the first revenue decline since listing, and once the decline is opened, it will be out of control, and in 2022, for a total of four quarters, Xiaomi is worse than the previous quarter in almost every quarter.

In Q1 2022, Xiaomi recorded revenue of 73.351 billion yuan, a decrease of 14.2% from the previous quarter, followed by a decrease of 4.3 percentage points and 6.3 percentage points in the second and fourth quarters respectively, and the third quarter was the only slightly optimistic quarter, but the real revenue was only 70.5 billion yuan, compared with 70.2 billion yuan in the second quarter, just flat.

Liu Hengchao, a researcher at TMT industry, said that the reasons for Xiaomi's decline in performance are not so complicated. "Why is the data poor? The answer is clear and straightforward, that is, mobile phones sell less, and other businesses cannot make up for this shortcoming. ”

According to Xiaomi's own disclosures, smartphone shipments in 2022 were 151 million units, while in 2021 this figure was 190 million. This means that Xiaomi's mobile phone sales have lost 40 million units in just one year, and at the same time, Xiaomi's smartphone revenue in 2022 is 167.2 billion yuan, and the revenue of smartphones in 2021 is 208.9 billion yuan, a decline of nearly 20%.

However, dismantling Xiaomi's business composition, the revenue of the smartphone business in the fourth quarter was still half of Xiaomi's performance, accounting for 55.5% of the total revenue, followed by IoT revenue accounting for 32.5% and Internet services accounting for 10.9%. In the annual results, the revenue of the smartphone business recorded 167.2 billion yuan, down 20% year-on-year, but still occupied an important position with a contribution rate of 59.7%.

There is no doubt that the strength of the smartphone business will directly determine the quality of Xiaomi's financial fundamentals. In other words, whether Xiaomi can do it or not, you have to look at the phone. In 2022, the global consumer electronics market is sluggish, and data compiled by market analyst Canalys shows that global smartphone shipments in 2022 are the lowest in 9 years, down 11.7% year-on-year. But this does not constitute an obvious explanation for the decline in Xiaomi's performance, because Xiaomi mobile phone shipments not only fell by 20.9%, significantly higher than the global level, but also the gross margin indicator fell simultaneously.

For Xiaomi, which was previously known as the "low-price machine", if it wants to seek incremental markets, go to the high-end and pursue brand premiums, that is, the "hardware involution" mentioned at the beginning of the article is the most effective way.

However, according to Xiaomi's annual financial report, although the ASP (average sales unit price) of smartphones increased in 2022, a detailed analysis of Xiaomi's ASP changes, 1097.5 yuan in 2021 and 1111 yuan in 2022, the absolute value growth is not large, and the increase is only 1.3%. And affected by overseas market inventory in the fourth quarter, the overall smartphone ASP fell 2% to 1121 yuan, and then superimposed from 11.9% to 9.0% gross margin, it is not difficult to see that Xiaomi's high-end road still has a long way to go.

Liu Hengchao said that there is no doubt that the diversification of Xiaomi's business is a direction for breakthrough, and the de-mobile phone of Xiaomi's main business is also what Xiaomi wants to express. But Xiaomi's biggest dilemma now is that "the mobile phone business is overwhelmed, and other businesses are also mediocre." "For the whole year of 2022, Xiaomi Group's IoT business revenue recorded 79.8 billion yuan, down 6.1% year-on-year; Internet service revenue was RMB28.3 billion, a slight increase of 0.4% year-on-year; The revenue of other businesses, which accounted for the smallest proportion, recorded 4.7 billion yuan, a year-on-year decrease of 24.61%.

Xu Xuefeng, a secondary market investor, believes that IoT was originally the most promising business to become Xiaomi's second growth curve, but now it seems to be a bit of a tiger, which is regrettable, "Xiaomi's IoT business also has a perfect start, but it has not turned advantages into victories, forming a monopoly situation like Apple and Tesla." Therefore, in the face of a gap of 40 million mobile phones, Xiaomi lacks effective supply means, Xu Xuefeng said that Xiaomi urgently needs to come up with new solutions, otherwise the decline in performance will only appear again.

The layoffs didn't work

In the conference call after the earnings report, Lu Weibing, partner and president of Xiaomi Group, appeared for the first time and said that in 2023, Xiaomi will launch a new business strategy of "paying equal attention to scale and profit". Many long-term Xiaomi investors are surprised, in their impression, this is the first time Xiaomi began to emphasize profits, and this is not an empty phrase, because Lu Weibing also revealed that Xiaomi has now established a group management committee and a group human resources committee, responsible for managing business strategy, planning and major business decisions.

According to Liu Hengchao's analysis, Xiaomi will no longer pursue expansion as aggressively as in the past, but shrink back, first stabilize the main business, and improve profitability by adjusting the management structure and optimizing the business model. Judging from the situation revealed in Xiaomi's earnings report, it may be more blunt, that is, to use layoffs to reduce labor costs and save performance as quickly as possible.

As of December 31, 2022, Xiaomi had 32,500 employees, of which nearly 30,000 were located in Chinese mainland, while on September 30, Xiaomi had 35,300 employees and 32,600 in Chinese mainland. In just three months, nearly 3,000 Xiaomi employees disappeared, and more specifically, Xiaomi laid off 2,798 employees in the fourth quarter, of which 2,642 were from Chinese mainland.

Around the end of 2022, people familiar with the matter continued to break the news on social media such as Weibo, Pulse, and WeChat, saying that Xiaomi's mobile phone department, China department, Internet department and other departments are laying off employees, with different intensities, but the most exaggerated departments have a layoff rate of up to 75%. A middle Xiaomi executive, who did not want to be named, also revealed that they have been working overtime for months, and the building is still lit at one o'clock in the morning, because "if I don't do this, it's me who leaves." ”

However, the industry can also directly see that from Q3 to now, Xiaomi's performance has not picked up. Xu Xuefeng said that this is partly due to the poor macro external environment in 2022, "geopolitics and high base, inflation and the new crown epidemic, weak demand and inventory pressure, intensified competition and changes in the overseas pattern are all affecting Xiaomi's main electronic consumer market."

On the other hand, it is because layoffs themselves do not have the ability to bail out the market. "To put it bluntly, layoffs are short-acting drugs, which can play a role in rapidly reducing costs, but if you want to increase efficiency, you essentially have to make adjustments within the company and innovate in the business." Xu Xuefeng gave the example of iQiyi, "The loss of iQiyi in 21 years and 22 years is not small, and the performance report has indeed become good after the layoff, but those who know the bottom know that the core must be good and stable, and many investors really change their views on iQiyi after this year's "Crazy", you have to prove your core business capabilities, and the secondary market will buy it." ”

Of course, the adjustment of business strategy mentioned by Lu Weibing is not only about human resources. Lu Weibing also said on the conference call that 2022 is the year of improving the efficiency of offline stores, and the main task in 2023 is not to open stores, but to integrate and adjust stores to further improve operational efficiency.

This is another "self-slap in the face" behavior after Xiaomi's pursuit of profits. In 2021, Lu Weibing announced at the Note11 series press conference that Xiaomi Home stores broke through the pride of 10,000 homes, when Xiaomi opened 1,003 stores a day, expanding the store size several times in just a few months, Lu Weibing said that he would make every county in the country have Xiaomi Home within a year. Two years later, Xiaomi's tendency to close stores in the open and in the open and in the dark can't help but make people feel worried, and the aforementioned Xiaomi person said: "The ship is difficult to turn around, which is easier said than done." ”

Building a car becomes the last hope

In fact, while the official announcement of the store broke 10,000 in 2021, Lu Weibing and Lei Jun also set another Flag - the current task is to stand second in the world, and the goal is to become the first in the world in three years.

However, as time goes on, the pace of 2024 is approaching, and the distance between Xiaomi and the target is still far away. According to the "Top 10 best-selling smartphones in China in 2022 sales share list" released by research institute Counterpoint Research, 3 of the top 10 are Apple, and the remaining 7 seats are occupied by OV glory. No such person was found.

Prior to this, Counterpoint Research also released the "2022 Global 10 best-selling smartphone sales share and monthly ranking", Apple overwhelmingly carved out 8 positions, the remaining 2 are Samsung A13 and A03, from China's mobile phone manufacturers, in the global market no survivors.

Perhaps because of the hopelessness of the mobile phone business, Xiaomi and Lei Jun have begun to invest their energy in other directions, such as building cars.

At the press conference, Lu Weibing said that Xiaomi's automotive business maintained the formal mass production target in the first half of 2024, and under the premise of facing the huge pressure of cost reduction and efficiency increase, Xiaomi's investment posture in the car manufacturing business has also been very resolute.

According to Xiaomi's results announcement, the size of its automotive business R&D team is about 2,300 people. Earlier data is before the release of the 2021 annual report, that is, as of April 2022, when the size of the R&D team was "more than 1,000 people". By the end of 2022, Xiaomi Group's R&D personnel increased by 1,579, but the total number of full-time employees decreased by 884, which is equivalent to more than 2,400 fewer non-R&D personnel.

It is undeniable that under the call of global low-carbon carbon reduction, the replacement of fuel vehicles by new energy vehicles will certainly be a major trend in future development. However, the car manufacturing business is still far from mass production, and it is still unknown how long Xiaomi, which is reducing costs and increasing efficiency, will need continuous blood transfusions. In addition, although the scale of Xiaomi's current R&D personnel has expanded, it is still some distance away from Wei Xiaoli, a recognized new force in car manufacturing.

Unlike other mobile phone manufacturers, Xiaomi has many more believers. Love is deep, responsibility is cut, a rice fan for many years said directly when talking about Lei Jun building a car, now is not the time.

"Xiaomi should reflect on the course of the past few years, is it based on manufacturing high-quality products? Does it reflect the care and sincerity of consumers throughout the life cycle of the product? Has it been perfected in terms of both software and hardware details? Can new concepts and new words be implemented into specific product details and every quality standard? Without reflection and marketing, the vision described in language cannot be supported by products and quality, and profits and market share will be reflected in the report. ”

Liu Hengchao also said that for many years of listing, Xiaomi is gradually moving away from the issuance price of 17 Hong Kong dollars, "Can you expect people to believe more in a company that is still breaking after 5 years?" Looking at the stock price of 12.18 Hong Kong dollars, Xiaomi, Lei Jun and Lu Weibing may have to think again.

Wen 丨BT Finance You Li 

Welcome to follow [BT Finance] to read more wonderful content. 

All rights reserved, no unauthorized reproduction! If infringement is involved, please contact to delete.