【Text/Observer Network Lv Dong】
"I think there has been competition for so many years, especially the Chinese market, which is the most competitive market. Therefore, I still think that the competitive environment is not the most critical, and I do not think that any competitor will completely change the entire industrial structure, and the most important thing is to improve its own capabilities. ”
Recently, at the Xiaomi Group's earnings call, Lu Weibing, president of the group, said to the media such as Observer Network in response to issues such as "friendly business competition and return".
The financial report disclosed that in the second quarter of this year, the core of Xiaomi Group's business strategy is still "equal emphasis on scale and profit". By further reducing costs and increasing efficiency, the company achieved revenue of 67.4 billion yuan, a year-on-year decrease of 4% from 9.9% in the previous quarter, and a quarter-on-quarter increase of 13%; Adjusted net profit was RMB5.1 billion, up 147% year-on-year and 59% month-on-month; Gross margin reached an all-time high of 21%.
Screenshot of Xiaomi Group's financial report
In terms of cost reduction, Lin Shiwei, chief financial officer of Xiaomi Group, revealed that Xiaomi's overall operating expenses in the second quarter were 10.2 billion yuan, and core operating expenses excluding new business investment were 8.7 billion yuan, down more than 1 billion yuan year-on-year.
During the period, Xiaomi Group's sales and promotion expenses were 4.5 billion yuan, down 16% year-on-year, and administrative expenses were 1.1 billion yuan, down 13% year-on-year.
Despite the decline in many expenses, Xiaomi's R&D spending continued to expand in the second quarter, with R&D expenses increasing 21% year-on-year to RMB4.6 billion during the period, accounting for 6.8% of revenue, mainly due to increased R&D expenses related to the smart electric vehicle business and other innovative businesses.
Xiaomi Group stock price trend
"There are still a few battles this year"
For a long time, the smartphone business has been the pillar of Xiaomi Group's revenue, but in the past two years, the mobile phone market has suffered headwinds and continued to decline, and the operation of Xiaomi mobile phones in the "market winter" has also continued to attract attention.
The financial report disclosed that the revenue of Xiaomi's smartphone business in the second quarter was 36.6 billion yuan, down 13.4% year-on-year, and the proportion of total revenue fell to 54.3%; Shipments also fell 15.8% year-on-year to 32.9 million units, indicating that the company's mobile phone business has not yet escaped the downward cycle.
However, the optimistic signal is that the year-on-year decline in Xiaomi mobile phone business revenue in the second quarter was nearly half compared with the first quarter, up 4.6% month-on-month, and Xiaomi's mobile phone shipments increased by 8.3% month-on-month during the period against the backdrop of a 4.3% month-on-month decline in global mobile phone shipments.
In the second quarter, Xiaomi ranked third in global mobile phone shipments
In the headwind, the market is more concerned about inventory.
Lin Shiwei revealed that Xiaomi has been optimizing inventory management since the middle of last year, and the overall inventory amount in the second quarter of this year was 38.5 billion yuan, down 33.5% year-on-year, the lowest inventory level in 10 quarters, of which the inventory amount of raw materials and complete machines fell by more than 30% year-on-year.
This may have something to do with Xiaomi's promotions during the 618. According to data released by TechInsights, Xiaomi has 3.75 million Xiaomi phones during the 618 period this year, accounting for 28% of the market share, second only to Apple's 42%. Xiaomi's official data shows that the cumulative payment amount of omni-channel during the 618 period was 19.4 billion yuan, a year-on-year increase of 3.7%.
For Xiaomi phones, sprinting to the high end is the key word in the past few years.
The financial report cited third-party data showing that in the second quarter of this year, Xiaomi's market share of smartphone sales in the Chinese mainland 4,000-6,000 yuan price range was 12.7%, an increase of 6.2 percentage points year-on-year; the proportion of high-end mobile phone sales in Xiaomi's overall sales increased by 3.3 percentage points to 20.1%.
Screenshot of Xiaomi's earnings report
This also pushed the average sales unit price (ASP) of Xiaomi mobile phones to 1112.2 yuan in the second quarter, a year-on-year increase of 2.8%, mainly due to the ASP of Chinese mainland increased by more than 24% year-on-year.
During the period, the gross profit margin of Xiaomi mobile phones was 13.3%, a record high, an increase of 4.6 percentage points year-on-year, mainly due to factors such as the increase in the gross profit margin of Chinese mainland mobile phones, and an increase of 2.1 percentage points month-on-month, mainly due to the decrease in inventory impairment provisions in overseas markets and the price reduction of core components.
Although Xiaomi's high-end strategy has shown results, the overall shipment volume still encounters a lot of challenges under the market downturn.
According to IDC data, in the second quarter of this year, Xiaomi's mobile phone shipments in the Chinese market fell by 17.5% year-on-year, and its market share fell to 13.1%, ranking fifth, only 0.1 percentage points ahead of Huawei's mobile phone share, which grew as high as 76.1% year-on-year.
In response to the recent return of friends and the topic of competition, Xiaomi President Lu Weibing said frankly at this performance meeting, "The construction of capabilities is the key, this year we have a few battles in the future, after the fight, let's take a look, Xiaomi's capabilities have indeed undergone tremendous changes." The development of Xiaomi still depends on ourselves, and the external environment is not the main factor. ”
He also revealed to Observer.com and other media that the size of Xiaomi's AI team has reached about 3,000 people, and it will adhere to two layout directions in the field of large models, one is lightweight, and the other is local deployment. At present, Xiaomi's self-developed 1.3 billion parameter models have been run through on the mobile phone, and after these models are deployed on the end side, user information does not need to be uploaded to the cloud, and localized operation can fundamentally protect user privacy.
On August 14, Xiaomi announced that Xiaoai classmates were connected to the big model and announced the opening of the invitation test. Lu Weibing revealed that more than 180,000 people have applied for the test so far. "In the future, Xiaomi will continue to expand the scale of large models, explore solutions for device-cloud integration, and multi-modal integration, and Xiaoai will definitely have a lot of integration with MIUI, AIoT, robots, automobiles, etc."
Xiaomi AI investment history
The goal of mass production of automobiles remains unchanged by controlling new business investments
The IoT and consumer products business is Xiaomi's second largest source of revenue outside of smartphones. In the second quarter of this year, the business achieved revenue of 22.3 billion yuan, a year-on-year increase of 12.3% and a sequential increase of 32.2%; This was mainly due to higher revenue from smart appliances, tablets and certain consumer products, partially offset by lower revenue from smart TVs and notebook computers.
Xiaomi revealed that Xiaomi's smart appliances maintained a strong momentum of development, and its revenue in the second quarter increased by more than 70% year-on-year, mainly due to the significant increase in shipments of Chinese mainland smart air conditioners, hitting a record high in a single quarter. During the same period, Xiaomi tablet revenue increased by 27.3% year-on-year, while smart TV and notebook computer revenue decreased by 10.1% year-on-year to 4.7 billion yuan.
The financial report disclosed that the gross profit margin of Xiaomi's IoT and consumer products business in the second quarter was 17.6%, a record high, an increase of 3.3 percentage points year-on-year and 1.9 percentage points month-on-month, mainly due to the increase in the gross margin of certain consumer products and the strong growth of a number of IoT products with higher gross margins, such as tablets and sweeping robots.
The gross profit margin of various businesses of Xiaomi Group
The internet services business is Xiaomi's third largest source of revenue. During the period, revenue reached a record high of RMB7.4 billion, up 6.8% year-over-year and 5.9% sequentially, primarily due to higher advertising revenue, partially offset by lower gaming revenue. The gross margin of this business was 74.1%, an increase of 1.1 percentage points year-over-year and 1.8 percentage points sequentially, mainly due to the increase in the proportion of advertising revenue.
In addition to the main business, Xiaomi's car manufacturing business has also attracted much attention in the past two years.
Lu Weibing revealed at the performance meeting that in order to make more efficient use of resources, Xiaomi has made some control over new businesses, and its investment in automotive innovation business in the second quarter was 1.4 billion yuan, "which is less than our budget."
He also revealed that Xiaomi has nearly 3,000 R&D personnel, and the goal of mass production in the first half of 2024 has not changed, and the current progress has exceeded expectations and plans. "We have adopted a full-stack self-research method, almost all of which are self-developed by Xiaomi, and the second is that we build our own factory, and in order to ensure the technological leadership and smooth research and development of the first car, we have invested a lot."
Despite the heavy investment period of car manufacturing, Xiaomi Group's cash flow is not tight. According to the financial report, as of June 30 this year, the group's cash reserves were 113.2 billion yuan, an increase of 18.6 billion yuan from the previous quarter.
Screenshot of Xiaomi's earnings report
"Firmly on the path of internationalization"
In addition to various businesses, Xiaomi also announced domestic and foreign revenues.
The financial report disclosed that Xiaomi's revenue in Chinese mainland in the second quarter was 39.6 billion yuan, a year-on-year increase of 9%, accounting for a year-on-year increase of 7.2 percentage points to 58.8%; Revenue in the rest of the world, mainly India and Europe, was $27.8 billion, down 18% year-on-year to 41.2%.
Lu Weibing revealed at the performance meeting that a particularly big difficulty encountered by Xiaomi last year was in the Indian market, which has been affecting this year. "In addition to the Indian market having some recovery this year, we almost bottomed out in the second quarter and rebounded in the third quarter, you can see that we have very good growth in the European market, the Middle East market, the Southeast Asian market and the Latin American market in the future."
In the second quarter, Indian mobile phone market shipments Source: Canalys
In the financial report, Xiaomi also disclosed the difficulties encountered in India: Since December 2021, relevant Indian departments including the Income Tax Department, the Tax Intelligence Bureau and the Enforcement Bureau have respectively launched investigations and notices against Xiaomi Technology India Private Limited (hereinafter referred to as Xiaomi India) on compliance with relevant income tax regulations, tariff regulations and foreign exchange regulations.
In this regard, the Indian authorities alleged that Xiaomi India improperly deducted certain costs and expenses, including the purchase of mobile phones and royalties paid to overseas third parties and the Group's companies. As a result, some bank accounts have been seized and INR 44.14 billion (equivalent to RMB 3.9 billion) is considered restricted as of June 30, 2023.
Lu Weibing said at the performance meeting, "I also saw media reports that our funds were confiscated, and the actual situation is that the money was frozen in the bank, which is Xiaomi's money, not confiscation." India from the perspective of business adjustment, or achieved very obvious results, Xiaomi's market share in India, product structure, etc., I believe that in the future we will see particularly good changes in some indicators. ”
"In the past few years, with the rapid changes and challenges in the international market, some friends have withdrawn from some overseas markets. But Xiaomi is very clear that we must firmly follow the road of internationalization, no matter how difficult we encounter, we must go, and we must deepen the layout in the strategic market. He said.