China – Xiaomi’s first quarter net profit halved year-on-year

Economic Observation Network reporter Qian Yujuan On May 19, the Hong Kong stock market closed at HK$11.08 per share, a drop of 4.97%. Then, Xiaomi Group (01810) issued a financial report for the first quarter of 2022: revenue in the first quarter was 73.35 billion yuan , down 4.6% year-on-year; adjusted net profit was 2.859 billion yuan, down 52.9% year-on-year.

On the eve of the issuance of this report card, IDC data showed that Xiaomi’s smartphone shipments in the first quarter of 2022 fell by 17.8% year-on-year. performance.”

Profit growth can not just rely on mobile phones

At present, it is not only the domestic and international new crown pneumonia epidemic that has adversely affected Xiaomi’s performance. According to the analysis of the Orient Securities Research Report, the uncertainty of the international environment such as the Russian-Ukrainian conflict has also caused Xiaomi’s smartphones, IOT and other products to be shipped overseas. short-term pressure.

However, Orient Securities believes that after crossing the low point of Xiaomi’s annual performance in the first quarter, when the domestic and foreign epidemic situation improves, the growth momentum of Xiaomi’s overseas business is expected to recover. In its view, “Xiaomi’s long-term growth momentum will not change.”

Regarding the weak performance of revenue and net profit in the first quarter, Xiaomi Group President Wang Xiang explained on the earnings conference call that due to the shortage of core components, the repeated outbreak of new crown pneumonia, and the disturbance of the global macroeconomic environment caused by the international situation, Xiaomi has Smartphone shipments fell sharply.

From the financial report, Xiaomi’s shipments in the global smartphone market in the first quarter were 38.5 million units, a decrease of 10.9 million units compared to the same period last year. The resulting smartphone business revenue also increased from 51.5 billion yuan in the first quarter of last year. , down to 45.8 billion yuan today.

“Xiaomi mainly wins by volume.” Lin Zhi, chief analyst of Wit Display, who has deeply observed the field of communication electronics, sees that the sales of smartphones in the first quarter contracted significantly, making the profit of Xiaomi, which uses this business as its main revenue, decline sharply.

Hu Qimu, chief researcher of Sinosteel Economic Research Institute, believes that “the profit brought by the mobile phone business alone is not enough to support Xiaomi’s long-term growth.” From the financial report, Xiaomi’s IoT and consumer goods revenue in the first quarter reached 19.5 billion yuan, a year-on-year increase. Growth of 6.8%; gross profit margin also increased to 15.6%, a record high in a single quarter.

Hu Qimu suggested that Xiaomi advocates the ecological synergy of “mobile phone X AIoT”. When it expands to the high-end market through mobile phone products, it still needs to build a smart ecology that integrates terminals such as smart home appliances with mobile phones, so as to expand multiple profit growth points.

The price of mobile phones is raised, but rice noodles are no longer “fever”

Hu Qimu has long noticed signs of a slowdown in global smartphone shipments. He believes that in the absence of disruptive technological innovations in the mobile phone industry, the decline in shipments is not just a current problem, but is very likely to become a trend.

Focusing on the mobile phone industry, the shortage of chips and the epidemic containment have led to difficulties in the supply chain of the entire industry. In addition, the investment and research team of Futu Securities also pointed out a reality that cannot be ignored. The impact of high inflation and economic weakness has further curbed the situation. Consumer spending, resulting in longer replacement cycle.

According to the data given by investment and research, the current 5G penetration rate has reached 80% and will remain sustainable, but this factor has long been unable to motivate users to enter the season changing tide. According to the report of Counterpoint, an industry analysis agency, the average replacement cycle of users has exceeded 31 months. Another market research firm, StrategyAnalytics, estimates that the average replacement cycle for Chinese users is 28 months.

Consumers are no longer enthusiastic about switching phones, which is now a common problem faced by all mobile phone manufacturers, which also stimulates manufacturers to make subversive innovations in mobile phone products and experiences in order to attract users. Based on this situation, if mobile phone manufacturers, including Xiaomi, want to maintain revenue, they will increase the average selling price of smartphones (hereinafter referred to as ASP) to ensure revenue growth and increase profit margins. “High-end is a path that Xiaomi must and is forced to take.”

Lin Zhi sees that although Xiaomi is selling mobile phones with higher added value and its product series is moving towards high-end, in the market where mobile phone sales have shrunk sharply, the price of Xiaomi’s high-end smartphones is increasingly deviating from the trend of sales.

Data shows that although Xiaomi’s mobile phone ASP in the first quarter increased by 14.1% year-on-year to RMB 1,189, the global shipments of high-end smartphones priced at RMB 3,000 or more in mainland China and overseas priced at or more than 300 euros were only about 4 million. Taiwan, the performance was not as good as the same period last year.

Hu Qimu analyzed that Xiaomi, which came from the people-friendly route, used to focus on cost-effectiveness. Before the refined manufacturing or intelligent service experience, the primary factors for Xiaomi fans to choose Xiaomi mobile phones are often the price and complete functions. Once it moves to high-end, “it means that the design concept of Xiaomi’s entire mobile phone will change.” In his view, competing with Apple, Samsung, and even other manufacturers in the domestic market for high-end market share and changing users’ perceptions will be a huge challenge for Xiaomi. Not a small challenge.

High-end and car manufacturing, both require investment

The reporter saw that the growth rate of Xiaomi mobile phone ASP was higher than the expectation of Guosheng Securities. The securities firm analyzed in the research report that the sales volume of the smartphone market in 2022 will still be under pressure, but “high-endization will help increase ASP”. Xiaomi may launch more high-end machines in the future, pushing ASP to maintain an upward trend, thus providing a guarantee for profitability.

Although the sales performance was not optimistic compared with the same period last year, Linzhi saw such a set of data in the financial report that Xiaomi’s high-end smartphones accounted for more than 50% of offline shipments in mainland China. He believes that to a certain extent, this will motivate Xiaomi to continue investing in high-end products.

Lei Jun, founder, chairman and CEO of Xiaomi Group, also announced on his personal social account that the second phase of Xiaomi’s smart factory is scheduled to start production at the end of next year. + mass production” industry synergy, thereby driving the growth of Xiaomi’s smartphone business.

However, Hu Qimu felt that, judging from the stock price trend before the earnings report, due to the high dependence on the mobile phone business, when mobile phone shipments were not optimistic, global investors’ confidence in Xiaomi’s growth also declined. “It has to convince investors that the mobile phone business is shifting to high-end.” At the same time, there needs to be other high-margin or innovative businesses to support the company’s long-term growth.

For example, the Internet service revenue reached 7.1 billion yuan in the first quarter, an increase of 8.2% year-on-year; the overseas revenue of this indicator reached 1.6 billion yuan, a year-on-year increase of 71.1%, and the proportion of the overall Internet service revenue increased to 21.9%, hit an all-time high.

“Xiaomi’s huge number of hardware devices will continue to support the growth of the Internet business.” The investment and research team of Futu Securities noticed that with the intensification of market competition and investment in the smart electric vehicle business, Xiaomi’s marketing costs and R&D costs are rising.

According to the financial report, Xiaomi’s R&D expenditure in the first quarter of this year increased by 16.0% year-on-year to 3.5 billion yuan, of which innovation business expenses reached 425 million yuan. Many brokerages and research institutions believe that, in addition to spending a lot of R&D on technological innovation to achieve differentiation and high-end core smartphone business, Xiaomi is currently investing in the smart electric vehicle business and investing in Futu Securities. According to the research team, “this is expected to support the long-term development of Xiaomi Group.”



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