On May 24, Xiaomi handed over a financial report that exceeded expectations. First-quarter revenue was RMB59.5 billion and adjusted net profit was RMB3.2 billion, up 13% year-over-year and 121% sequentially. Record gross profit margins and continuous decline in inventory levels have become the keywords of Xiaomi in the first quarter. (For details, see the special topic of online economic and social services: https://www.100ec.cn/zt/xmyjd/)
Produced by|NetEconomics Network Retail Department
Author|Wu Xiaxue
Reviewer|Shu Shu
First, focus on technology investment The trend of profitability has ushered in an inflection point
On April 27, according to the first-quarter data of China's smartphone market released by a number of institutions, the smartphone market is still sluggish. However, with the breakthrough of the supply side and the release of the demand side, the market has bottomed out and consumer confidence has recovered.
According to QuestMobile's "2023 China Mobile Internet Spring Report", in the first quarter of the Chinese market's new smart device activation ranking, Xiaomi 13 ranked third with 4.535 million units, the only model above 4,000 yuan in the TOP5. In the fiercely competitive industry environment, Xiaomi's global smartphone shipments in the first quarter still ranked among the top three in the world.
The release of profitability brought new growth to Xiaomi, and in the first quarter, Xiaomi's revenue and gross margin both completed expectations. In this regard, Professor Liu Junbin, special researcher of the E-commerce Research Center of NetEconomics and Social and Professor of the School of Economics and Management of Hainan Vocational and Technical College, said: After the global epidemic, the economy has recovered rapidly, and the overall market situation and consumer confidence have improved. Thanks to Xiaomi's timely adjustment of strategy, Xiaomi began to focus on profitability while continuing to expand its scale and achieve a balanced development of scale and profit.
Lu Weibing, partner and president of Xiaomi Group, said in the performance conference call that the improvement of Xiaomi's profitability mainly has several impacts, first of all, the improvement of product structure, and now the proportion of Xiaomi's mid-to-high-end products is getting higher and higher; Secondly, Xiaomi's expense ratio is a new low in recent times, which also shows that cost reduction and efficiency increase have begun to play a role; Then there's business diversification, which reduces risk in the single market.
Mo Daiqing, senior analyst of the online retail department of the e-commerce research center of NetEconomics, analyzed: Xiaomi's operating expenses in this quarter decreased more than expected, which was ultimately reflected in profits. This shows that Xiaomi's implementation of the new business strategy of "both scale and profit" has been effective, although the scale of revenue has declined, but its profit has begun to recover strongly, and the overall quality of operation has improved.
Second, the water level of stocks has reached a new low to promote sustainable development
Data released by Canalys showed that in the first quarter of 2023 Chinese mainland smartphone market shipments fell 11% year-on-year, and shipments fell to 67.6 million units, the lowest first quarter since 2013. The broader market continues to come under pressure, and Xiaomi's smartphone shipments have also declined. In the first quarter, Xiaomi's global smartphone shipments were 30.4 million units, a year-on-year decrease of 21.1%, but even so, Xiaomi still maintained the third place in the global smartphone shipment ranking, with a market share of 11.3%.
It is worth noting that Xiaomi's inventory level has fallen for three consecutive quarters, and the overall inventory amount is 42.6 billion yuan, down more than 24% year-on-year, the lowest level in nearly nine quarters. As Lu Weibing said, "Last quarter, I promised that the inventory problem would be basically solved in the first quarter of this year, leaving a little tail in the second quarter, and we have achieved this goal." ”
"The effect of greatly reducing inventory is very large," Chen Hudong said, adding that if the inventory cycle is too long, the cost will increase greatly. Therefore, regardless of the industry, in general, the higher the inventory turnover rate, the higher the efficiency.
Liu Junbin also said that the significant reduction of inventory plays an important role in the return of funds, rapid renewal and cost reduction of enterprises, which is beneficial to sustainable development. At the same time, it also prompts enterprises to make better use of social big data to make decisions about production, implement how fast and save thinking, adjust production scheduling, and increase JIT production capacity.
Third, increase investment in research and development to meet market demand and enhance core competitiveness
On April 18, at the Xiaomi new product conference, Lei Jun once again reiterated that Xiaomi will continue to adhere to "technology-oriented" and continuously increase investment in research and development. The emphasis on R&D and innovation is the core driving force for Xiaomi to achieve benign development in the face of adverse trends. According to the financial report, Xiaomi's R&D expenditure in the first quarter of 2023 increased by 17.7% year-on-year to RMB 4.1 billion, and it is expected that the total R&D investment for the whole year will exceed RMB 20 billion, and as of March 31, 2023, the proportion of R&D personnel has increased to more than 50%, about 16,500 people.
For such R&D investment, Mo Daiqing said: Xiaomi's financial report exceeding expectations is largely due to its strong investment in R&D. Since the beginning of this year, Xiaomi has released 300W wired fast charging technology, launched Xiaomi 13 Ultra and Leica to develop a new generation of Summicron lenses, etc., which have received fruitful innovation results and widespread attention inside and outside the industry. R&D investment has accelerated Xiaomi's high-end and enhanced its product competitiveness.
Chen Hudong combined with the technology industry situation analysis: at present, basically all technology companies are increasing research and development expenses, which may be affected in revenue in the short term, but in the long run, this is also a necessary road, and the increase in research and development expenses is to a large extent to lay the foundation for the subsequent realization of "cost reduction". However, R&D expenses are indeed very large investments, and it takes cycles to show results, and enterprises need to have the determination and ability to invest in the long term.
In April, Xiaomi paid attention to the development opportunities in the field of artificial intelligence and AI, and officially established an AI laboratory large model team, and there are currently more than 1,200 relevant personnel in the field of AI. It can be seen that Xiaomi will continue to increase investment in research and development, and is confident to stabilize the investment cycle.
Liu Junbin believes that Xiaomi is a high-tech enterprise, and it is normal to increase investment in research and development, which can increase its core competitiveness and meet the changing new needs of the market.
Fourth, the new retail strategy is technology-driven to complete the ecological architecture and achieve optimization
In the first half of 2022, Xiaomi proposed that "online and offline integration is an important part of Xiaomi's new retail development". In this earnings call, Lu Weibing also mentioned that 2023 is the year of store integration. We focus on improving the operational efficiency of our offline stores; The positive impact of scaling up the scale we see from partnerships. The New Retail strategy has facilitated the growth of our premium products, with offline channels accounting for more than half of shipments of the Xiaomi 13 Series and the newly released 13 Ultra.
"The so-called new retail, to a large extent, is to adapt to the market consumption pattern, and then quickly adapt to the scene through technology, marketing and other methods." Chen Hudong analyzed, "At present, Xiaomi's new retail strategy is basically technology-driven to complete its own ecological architecture, and then optimize the overall management efficiency and supply chain chain. This is actually a consensus in many companies, but because the company's situation is different, the way of looking at new retail is different, and the effect is definitely different. ”
"Among the four elements of new retail, Xiaomi attaches great importance to strong user relationships, but it can still improve the scale and method of customer service, and only when strong user relationships are done well can the efficiency of new retail be achieved." Liu Junbin said.
As of March 31, 2023, the number of connected IoT devices (excluding smartphones, tablets and laptops) on Xiaomi's AIoT platform increased by 29.2% year-on-year to 618 million, a record high. The number of users with five or more devices connected to the AIoT platform (excluding smartphones, tablets and laptops) increased by 29.6% year-on-year to 12.3 million. In March 2023, the number of monthly active users of the Mijia APP reached 78.1 million, a year-on-year increase of 18.8%.
Zhuang Shuai, a special researcher of the e-commerce research center of Neteconomics and founder of Bailian Consulting, believes that the prospects of Xiaomi's new retail strategy are still very optimistic, especially as major e-commerce platforms increase investment in instant retail business and competition for 3C categories, which is a great benefit for Xiaomi, which has a large number of offline physical stores.
End
With the recovery of the domestic economy, the market generally believes that the electronics industry is expected to usher in a new round of upward development cycle. Taking advantage of this east wind, Xiaomi will also continue to strengthen its new business strategy. In 2023, this is a key year for Xiaomi's comprehensive acceleration, and we will wait and see how Xiaomi accelerates its recovery growth.