Shulou(Shulou.com)11/24 Report--

On the evening of August 19, Xiaomi Group (HK: 1810) today released its second quarter results ended June 30, 2022. According to the financial report, Xiaomi's second-quarter revenue was 70.17 billion yuan, down 20.1% from the same period last year, with an estimated 69.86 billion yuan; net profit was 1.39 billion yuan, estimated at 1.5 billion yuan; and adjusted net profit was 2.08 billion yuan, down 67.1% from a year earlier, with an estimated 1.99 billion yuan.

After the release of the results, Wang Xiang, partner and president of Xiaomi Group, and Lin Shiwei, vice president, CFO and CEO of Star Mathematics, attended two subsequent teleconferences to interpret the main points of the results and answered questions from several reporters and analysts.

The following is a transcript of the question and answer session of the analysts and journalists in this conference call:

Xinhuanet reporter: I have two questions. First of all, Xiaomi Group's profits declined this quarter compared with the same period last year. Could you ask the management to analyze the reasons behind this? My second question is about Xiaomi's overseas market. How is the Indian market doing so far? Can you share the progress with us? Is it possible to buy Xiaomi low-end product line phones in the Indian market?

Wang Xiang: first of all, with regard to the decline in revenue and profits, I think the main reason is the weakness of the global consumer market. Due to the recurrence of the epidemic, there are difficulties and weakness in the demand of the Chinese market. The weakness in the global market is mainly due to the increase in fuel and food prices. In fact, the increase in fuel and food prices is happening in many countries around the world, coupled with inflation and changes in exchange rates, which have led to the weakening of global market demand and the difficulties and challenges of our revenue growth.

When it comes to profits, we launched a lot of promotions in the second quarter, including "618" and so on. Due to weak market demand, we will certainly take more measures to clear inventory, resulting in a decline in profit growth, in other words, a decline in profits. This is about profit and revenue in the second quarter.

The Indian market. We are still shipping low-end mobile phones in the Indian market, and there is no problem with selling them, but there is a problem with the rhythm of product supply. For quite a long time last year and even this year, our low-end chips were out of stock, which caused some trouble for our sales in the Indian market. On the low-end products, some of the major chips of our chip suppliers still have supply problems, which also affects us.

We are still actively dealing with other aspects, including our tax issues in India, discussions and disputes with the government, and so on. Xiaomi is a listed company, we strictly abide by local laws and regulations and various tax regulations, and all the planners of our Indian company are implemented in strict accordance with laws and business norms, including the payment of intellectual property fees. At present, we are actively communicating with the relevant Indian authorities and the judicial system.

Lin Shiwei: the question of profit margin. In this quarter's results, we also highlighted Xiaomi's expenses on new business. Our investment in new business has also continued to grow. We have invested about 610 million in the development of new business such as electric vehicles. I would like to focus on our analysis here.

As for the low-end mobile phone market in India, we have also seen relevant news reports, but so far we have not seen any public government information.

Wang Xiang: everyone may be concerned about Xiaomi's tax problem in India. At present, through the judgment of India's judicial system, we have lifted the freeze of about $725 million in funds. At present, in accordance with the rules of administrative reconsideration in India, we are still negotiating with relevant government departments on relevant issues.

Economic Daily reporter: the first question is about the volume of shipments. We saw a significant decline in global mobile phone shipments in the second quarter. Will this decline continue in the second half of the year? Or will there be a rebound? Which areas are likely to have a better rebound momentum? Can we see a month-on-month rise in Europe or India in the second half of the year?

The second question is about destocking. It can be seen that the "618" promotion in the second quarter also had an impact on the gross profit margin of mobile phones. May I ask the management whether the trend of gross profit margin in the second half of this year will remain at the current level?

Wang Xiang: for the whole of this year, we expect the performance in the second half of the year to be slightly better than that in the first half. As you can see, although our mobile phone shipments in the second quarter did not increase much, compared with the first quarter, the mobile phone shipments in the second quarter showed an increasing trend. Therefore, we hope that the growth trend will continue, because there are still some good products in the third and fourth quarters, and in the international market, there are many promotional festivals in the fourth quarter, such as the "Black five" and the Christmas sales season. To sum up, with the gradual control and stabilization of the epidemic in China, coupled with the good products and good promotion mechanisms we sell in the global market, we hope to achieve a gradual rebound.

Overall, we also mentioned in the briefing that according to the data analysis of third-party companies, the global smartphone market, including China's smartphone market, has declined to varying degrees this year, about 10%. Compared with the first half of this year, the overall expectation for the second half of this year is slightly better, but due to a lot of uncertainty, we still remain cautious and slightly optimistic about the second half of the year.

Inventory. Our current inventory level is generally healthy. Although inventory is still high, we will seize the opportunity to clean up our inventory.

Lin Shiwei: let me add a few more points. During the "618" promotion, we hope to take advantage of this opportunity to get rid of some old products, and the final effect is also very good. As you mentioned just now, this may have a certain impact on gross profit margin, but on the whole, it is good for us to restore overall inventory, especially Chinese mainland inventory to a very normal level. There may still be some channel inventory in the world, but there are not many dangerous inventories, which are some categories that we think can be disposed of.

We also mentioned that the future trend of gross profit margin is still quite uncertain internationally, and the appreciation of the US dollar will actually have a certain impact on our gross profit margin, so we will continue to observe the trend of the US dollar. At the same time, Xiaomi didn't launch many new products in the first half of this year. In the second half of July and August, we launched a series of high-end products, including Xiaomi 12s and K50, which are now on pre-sale. The introduction of these high-end mobile phones will help the gross profit margin to a certain extent.

Wang Xiang: let me add one more point about the formation of international inventory. In fact, the whole industry did not expect the changes in the international economic situation and the international political situation, and their impact on the economy exceeded everyone's expectations. As a result, last year, there was a phenomenon of semiconductors from shortage to oversupply: everyone was reducing demand, and there was a partial lag in the supply chain in the process, which led to an increase in the inventory of finished goods or raw materials. I think this is also a normal phenomenon. Therefore, we still maintain a relatively positive view.

Thepaper.cn reporter: at Xiaomi's recent press conference, Xiaomi released its first full-size humanoid bionic robot, CyberOne, which received wide attention in the industry and was released earlier than Tesla. I would like to ask the management, can you share with us Xiaomi's forecast of the commercial potential of the intelligent robot market? What follow-up strategies will Xiaomi have in the intelligent robot market in the future?

Wang Xiang: intelligent robot is also a new, multi-disciplinary category, it has more complex technology. I think from the first generation of CyberDog, we are actually doing an open platform, hoping to stimulate the strength of society to conduct cutting-edge discussions. The humanoid robot CyberOne is more complex than CyberDog, and we are also exploring the future, hoping to really put the technology we have put into use over the years. I think biped robots will have a lot of applications in the future. Of course, the product is still in its early stages, and we will continue to invest in the robotics category and do early, predictive exploration in the open source community and surrounding industries. In the future, it can really support intelligent factories and provide services for people instead of people. But there are a lot of technologies involved. This is a multi-category, multi-span technology research and development, including AI, artificial joints and so on. Therefore, as far as we are concerned, CyberOne is still laying the groundwork for future products.

Lin Shiwei: at the press conference on the same day, General Lei (Lei Jun) also mentioned that the cost of robots is still very high and has not yet reached the stage of mass production. We set up the Robotics Lab last year, and we hope to continue to explore at the front end to see if we have a chance to make a breakthrough in this area. Although the robot has not yet reached the stage of mass production, Lei also mentioned that there are many technologies that we can use in other directions, such as last year's CyberDog technology was used in our lens technology of "everything in focus" this year. Therefore, while we are exploring these new products, we are also looking at whether these technologies have other application opportunities and whether they can be applied to our entire ecological chain.

Wang Xiang: these technologies include high-power density-driven modules, large dynamic, high-burst foot motion control algorithms, many AI algorithms and robot intelligent perception and decision fusion algorithms, these algorithms can be used in many fields. For example, I just mentioned that it can replace people on the production line. At present, many countries and regions are exploring and trying in this area, and in China, the robot field has also formed a complete system. According to incomplete statistics, the number of people employed in this field is more than 80 million. It can be seen that this is a very big industry.

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