Author | Marutoyama
On the evening of May 19, Xiaomi Group released its financial report for the first quarter of 2022. During the reporting period, Xiaomi achieved a revenue of 73.352 billion yuan, a year-on-year decrease of 4.6%; a loss of 531 million yuan during the period, and a profit of 7.789 billion yuan in the same period last year; after adjustment The net profit was 2.859 billion yuan, down 52.9% year-on-year.
The revenue scale of about 73.4 billion yuan is the first time that Xiaomi has recorded a year-on-year decline in single-quarter revenue since its listing on the Hong Kong Stock Exchange in July 2018.
Objectively speaking, under the influence of continuous global core shortage, repeated epidemics and global macroeconomic fluctuations, the decrease in revenue is not surprising, even in line with the low expectations given by the market, but the halving of net profit can no longer be used. Environmental factors to explain, and the high-end goal of its mobile phone business even played a counter-productive role in this process.
According to the first quarterly report, Xiaomi’s global average selling price (ASP) reached 1189 yuan during the period, a year-on-year increase of 14.1%, but to a certain extent, this is probably due to Xiaomi’s previous rounds of price reductions for flagship models. The strategy of “quantity for price” seems to run counter to Xiaomi’s high-end strategy.
Who is taking Xiaomi’s profits?
2.859 billion, which is the lowest level of Xiaomi’s single-quarter profit since the second quarter of 2020, when the global epidemic was still at the most severe stage.
From the perspective of revenue structure, the mobile phone business is still the absolute core of Xiaomi. In the first quarter, it achieved revenue of 45.8 billion yuan, accounting for 62% of revenue. However, this cornerstone business is facing a serious impact. The first quarterly report shows that Xiaomi’s smartphone shipments The volume reached 38.5 million units, a year-on-year decrease of 22.1%.
Coincidentally, on the same day that Xiaomi’s first quarterly report was released, “Nikkei Asia” reported that Xiaomi informed the supply chain that it would reduce the original sales target of 200 million units this year to 160 million to 180 million units; OPPO and vivo. It is also reported that about 20% of the orders will be cut in this season and next season to digest the current accumulated inventory.
In the conference call after the release of the quarterly report, some media verified the authenticity of the news with the management, but Xiaomi did not reply directly. Wang Xiang, president of Xiaomi Group, said, “It is mainly because of the shortage of 4G products, give us a The quarter caused relatively big difficulties. But at present, if we look at the broader market, the global mobile phone market is declining.”
The 4G chips mentioned by Wang Xiang are more used in the Indian market and are positioned at low-end models below $150. Since the Indian market is more sensitive to price changes, and India is one of Xiaomi’s most important overseas markets, Xiaomi It has been the sales champion for 18 consecutive quarters in this region, so the shortage of 4G chips has caused a heavier impact on Xiaomi. According to Wang Xiang, the supply gap caused by low-end chips in the first quarter may be around 10 million units.
Combined with the previous suppression of Xiaomi in India from the official level, there are indeed many unfavorable factors in the development of Xiaomi’s overseas market, but this cannot explain Xiaomi’s sluggishness in the domestic market.
According to data from IDC, a third-party agency, in the first quarter of this year, smartphone shipments in the Chinese market were about 74.2 million units, down 14.1% year-on-year. Among them, Xiaomi shipped about 11 million units, down 18.4% year-on-year. In terms of market share, Xiaomi has slipped to the fifth place in China with a 14.9% share.
All mobile phone manufacturers except Honor were slumped in the first quarter. Source: IDC
Like the international market, Xiaomi is also facing multiple pressures in the domestic market. On the one hand, Apple’s position in the high-end market is unshakable, and it firmly controls the premium channel of domestic manufacturers. On the other hand, the Glory after the return has demonstrated its strong combat power through early channel construction and precise control of products. According to data from Canalys, in the first quarter of this year, Honor ranked first in the domestic market with a 20% sales share.
Compared with businesses such as IoT and Internet services, Xiaomi’s mobile phone business has even begun to drag its feet.
According to the financial report, in the first quarter of this year, Xiaomi’s second largest source of revenue, IoT and consumer goods business, had revenue of 19.477 billion yuan, a year-on-year increase of 6.8%, accounting for 26.6% of the overall revenue, and the gross profit margin hit a new high of 15.6%. .
In addition, the Internet service business also maintained steady growth. The financial report shows that in the first quarter of this year, Xiaomi’s Internet service revenue reached 7.113 billion yuan, an increase of 8.2% year-on-year, accounting for 9.7% of the group’s business revenue, an increase of 1.2 percentage points over the same period last year.
Compared with traditional Internet manufacturers, Xiaomi’s biggest advantage is that it occupies the hardware traffic entrance. If Xiaomi’s mobile phone business cannot reverse the trend in time in the future, the advantages of IoT and Internet services may no longer exist.
High end fade
Compared with the decline in shipments, Xiaomi should be more alert to the sharp reduction in the profit margin of the mobile phone business.
According to the first quarterly report, Xiaomi’s net profit margin during the period was only 3.9%, while the net profit in the same period last year was 7.9%. This part of the net profit margin is calculated on a non-IFRS basis, that is, changes in fair value are not included, and it is necessary to It should be noted that Xiaomi’s IoT and consumer goods business and Internet service business contributed a total of more than 8 billion yuan in gross profit, and the profit margin of its mobile phone business is shrinking.
Image source: Xiaomi Group’s 2022 first quarter results announcement
Paradoxically, just three months ago, Lei Jun held a high-end strategy seminar with group executives and general managers of relevant business departments, and defined the impact on high-end as “the battle of life and death for Xiaomi’s development”, and shouted at the same time. The goal is to win the first share of the domestic high-end mobile phone market within three years.
Xiaomi has made enough efforts to achieve high-end. Since the beginning of last year, Xiaomi has successively expanded offline channels, invested in the construction of smart factories, and released self-developed chips. Through these actions, it can be seen that Xiaomi is getting rid of the thinking shackles of the past “industry chain game” and began to participate in industrial chain innovation. middle.
But these changes are not enough to support the premium price of Xiaomi mobile phones, and it can even be said that Xiaomi itself may not have full confidence in the price increase of flagship models. For example, the Mix 4 model released in the second half of last year has basically become the model with the most serious price diving in the Android camp after several official price adjustments.
Since last year, domestic manufacturers have taken up the banner of entering high-end, and the meaning behind it is self-evident: after the end of the dividend period of the 5G replacement wave, in the face of competition in the stock market, mobile phone manufacturers must increase unit prices to maintain profits. However, from the results, most of the domestic mobile phone manufacturers, including Xiaomi, have adopted the low-price promotion of flagship models to expand the market, but this will only make profit margins lower.
What’s more, the original domestic manufacturers did not occupy a stable ecological niche in the high-end market. According to Xiaomi’s first quarterly report, the shipment of high-end mobile phones (more than 3,000 yuan) during the period was about 4 million units, accounting for 10% of all shipments, a decrease from 13% of high-end mobile phone shipments last year.
In other words, Xiaomi’s high-end progress may actually be at a bottleneck.
After the release of the Xiaomi Mi 12 series, “impacting high-end” began to be frequently put on the agenda
In addition, the channel adjustments made by Xiaomi to enter the high-end market have not yet produced actual results. According to the quarterly report, as of March 31, 2022, Xiaomi has more than 10,500 offline retail stores in mainland China. At the same time, Xiaomi’s online channel shipments accounted for 32.2% of the market in the first quarter, ranking first. However, in the same period, Xiaomi’s total shipments accounted for 14.9%, ranking fifth, which is enough to show that offline channels are still a shortcoming of Xiaomi.
Although the average price of offline mobile phones is higher than that of the online industry, it is a consensus in the industry that Xiaomi has obviously not achieved efficiency gains in offline expansion at this stage.
Strategy upgrade, upgrade what?
In Xiaomi’s first quarterly report, facing the problem of double decline in revenue and profit, Xiaomi gave two strategic upgrades: mobile phone × AIoT and new retail.
At the current stage, Xiaomi’s biggest basic disk is its huge user base. As of March 2022, MIUI’s monthly active accounts have risen to 529 million, a year-on-year increase of 24%. This is already the 17th quarter of MIUI’s contact with active users that have risen by more than 20%. Compared with Android manufacturers in the industry, Xiaomi has an advantage in smart ecology. it goes without saying.
But the problem is that it is difficult for traditional IoT products to expand into new incremental markets, and emerging IoT devices such as VR and AR are not the strengths of mobile phone manufacturers, so can Xiaomi continue to expand in the IoT market in the future? This question has actually been answered in Xiaomi’s quarterly report. Although the revenue of IoT and consumer goods business achieved a slight year-on-year increase, it fell from the fourth quarter of last year.
In addition, the attributes of IoT business spanning multiple industries are also destined to be unable to maintain stable profit growth in this market. For example, Xiaomi’s smart TV shipments reached 3 million units in the first quarter, ranking first in mainland China for 13 consecutive quarters, and the gross profit margin increased year-on-year and month-on-month, becoming the most important part of Xiaomi’s smart home business. A source of income.
But there is only one reason why smart TV profits can grow against the trend: the price of large-size LCD display panels has fallen to near the cost line. However, the display panel itself has a strong cyclical property. If the price rises again in the future, can Xiaomi maintain the profits of the smart TV business? The same problem applies to Xiaomi’s other IoT products.
More importantly, the most important change in the IoT and smart home industry is about to happen.
In the second half of this year, the “Matter” smart home general standard jointly promoted by Google, Apple and Amazon is about to land. This agreement solves the compatibility problem between different standards to realize the connection between different smart home products and various terminals. This means that the “closed-loop ecology” painstakingly built by various brands in the past will be forced to be developed. Compared with mature ecological chains such as Apple and Huawei, Xiaomi’s IoT products may not have many advantages.
As for another new retail upgrade of Xiaomi’s strategy change, it is more based on the adjustment of expanding offline channels. For example, the strategic cooperation with Meituan Shansong allows users to obtain a shopping experience of “30-minute home delivery”, but in fact, the stubborn problem that hinders Xiaomi’s offline channels is not here. The underlying reason is more Xiaomi’s offline mode. disadvantages.
Looking at it now, “offline flash delivery” is more like an innocuous innovation
For example, Xiaomi adopts an e-commerce direct supply model in offline stores. From the perspective of consumers, this can indeed achieve a better consumption experience and ensure the consistency of online and offline prices. Squeeze the profit margins of authorized stores.
Another example is that Xiaomi cooperates with distributors to open “integrated sales and service” stores. These stores definitely surpass many industry friends in terms of shopping experience, but the funds of hundreds of thousands are by no means small cities or even districts and counties. Affordable, so it can be seen that compared with OV, a domestic manufacturer that specializes in offline channels, Xiaomi’s coverage on offline channels is far less than the previous two.
In addition to the old-fashioned strategies of AIoT and new retail, another important change of Xiaomi that was not mentioned in the financial report is the car-building plan that has attracted much attention from the outside world. For this business, Xiaomi only stated in the research and development expenses that the research and development expenses of smart electric vehicles in the first quarter were 425 million yuan.
Compared with the research and development costs of mobile phones, electric vehicles can be regarded as a “gold-swallowing beast”, but if the profitability of the mobile phone business cannot be guaranteed, how can Xiaomi transfuse blood for the automobile business?
This reminds me of an interesting fact. In April last year, Lei Jun launched three rounds of voting on his personal Weibo. One of the important questions was, “What do you want Xiaomi’s first car to cost?”
The final result of the vote was that the voice of “within 100,000 yuan” was the highest, perhaps to consider the feelings of Xiaomi fans. After the vote, Lei Jun said, “Xiaomi’s first car is positioned at the mid-to-high end, with a price of 100,000-300,000. between.”
“Mid-to-high-end” and “between 100,000-300,000” seem to be contradictory. I wonder if Xiaomi will be troubled by the high-end impact of the electric vehicle industry again in the future?