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

On the morning of November 24, Xiaomi released its third quarter 2022 results yesterday. According to the financial report, the company's total revenue in the third quarter was 70.47 billion yuan, down 9.7% from the same period last year; adjusted net profit was 2.12 billion yuan, down 59.1% from the same period last year, including 829 million yuan for innovative business such as smart electric vehicles.

After the release of the results, Wang Xiang, partner and president of Xiaomi Group, Lin Shiwei, vice president, CFO and CEO of Star Mathematics, Sun Qian, vice president of finance, and Wang Hua, general manager of the public relations department, attended two subsequent teleconferences to interpret the main points of the results and answered questions raised by several reporters.

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

Reporter: I saw in the financial report that Xiaomi's adjusted net profit reached 2.1 billion, but the operating profit and period profit were negative. Can the management explain the reasons behind this? In addition, through the financial results, it is easy to see that Xiaomi's revenue and shipments have improved at the quarter-on-quarter level. However, the management also mentioned in the briefing just now that in the context of continued macroeconomic pressure, how should Xiaomi maintain its competitiveness?

Wang Xiang: look at our results in the third quarter. I think the good thing is that our mobile phone shipments, revenue and gross profit margin of mobile phone shipments have improved a little. In fact, this is a very positive signal for us. I think the main reason for the year-on-year decline is that it has indeed declined compared with last year. We were also out of stock in the third quarter of last year, and last year's growth was really good. However, judging from the month-on-month comparison this year, we have stabilized the situation. Our pressure comes from global inflation, interest rate hikes, exchange rate fluctuations and so on, all of which bring us a lot of uncertainty and have a certain impact on demand. The domestic (influencing factor) is mainly the recurrence of the epidemic, which has had a great impact on us. The above factors have contributed to today's situation. There are, of course, other factors. Compared with the third quarter of last year, the gross margin was relatively high due to shortage. We began to pay attention to how to clean up the inventory last quarter, and achieved some results, but it also takes some resources to clear the inventory. All these factors have contributed to the differences in the data that we are seeing now.

Looking to the future, we still have room for growth in overseas markets. We still had some growth in the European market in the third quarter, and Xiaomi's overall ranking was stable in second place, and its market share also increased. These are some positive news and good signs. We will continue to increase our investment and fine management in these areas and these markets.

Lin Shiwei: just now you mentioned that Xiaomi's adjusted profit reached 2.1 billion, but according to IFRS (International Financial reporting Standards), we are negative. The main reasons include the investment portfolio of our company, the decline of the fair value of the investment enterprises and so on. If you look at other companies with more investment, you may also see (a similar situation). First, the performance of the stock market is not very good, so the prices of some of our listed companies have been lowered, which will affect the fair price of our overall investment portfolio; second, some of our unlisted companies have also made value adjustments because the overall investment market is in the doldrums. Both of these are non-cash adjustments of the company. Since our listing, the company has been making similar adjustments, regardless of whether the fair value of the portfolio goes up or down, we take this part out and give the adjusted net profit.

Financial Associated Press reporter: I have three questions here. The first question is about products. Can the management disclose the sales performance of Xiaomi 12s Ultra? What are the update plans for the follow-up millet MIX FOLD series products? The second question concerns real-time retail. We have observed that Xiaomi has gone to stores online in Meituan, ele.me and JD.com. What are the targeted strategies for the company to promote real-time retail? Such as operation or cooperation and so on. The third question is, what are Xiaomi's future plans and strategies in promoting Chinese Internet companies to go abroad? In which markets will Xiaomi's own international business have greater opportunities in the coming period of time? Which part of the business will become the new growth point?

Wang Xiang: Lin Shiwei has just mentioned these high-end products we launched this year, including Xiaomi MIX FOLD and Xiaomi 12 series, especially Xiaomi 12s Ultra, which have a very good reputation in the industry. JD.com 's praise rate is at 99% and 98%. These are the two high-end phones that have won the best reputation since we entered the high-end line in 2010. I think these products are still in short supply at present.

We have also been summing up experience and exploring how to do a good job in high-end (line). After all, being high-end (line) is not achieved overnight, it is not just one or two products. From 2010 to 2022, we have also learned a lot in these years, with both successes and lessons. Overall, our high-end strategy is more solid. We have not disclosed the specific sales figures before, but through the high praise rate and the sales data of Xiaomi products of more than 4000 yuan, we can judge the approximate sales volume.

About instant sales. We have cooperated with several major platforms, including Meituan, ele.me and JD.com. This is a new exploration. How to make full use of our offline resources and combine these large platforms to provide faster and better services for our users, this is a very good attempt, the first phase of the results are also good. At present, JD.com and Meituan have connected to more than 3500, and ele.me has received more than 1500. All the products on sale in Xiaomi House stores, except mobile phones, including large household appliances and ecological chains, have been put online as long as they can be distributed and distributed in the store. If we want to fully develop this channel, the most important thing is to be able to complement each other's advantages and to better serve and manage the customers around Xiaomi House's life circle more quickly. This is a very good coverage, our basic goal is to cover consumers within 3-5 kilometers. This is also a good attempt, Xiaomi will continue to increase the operation and investment in this area.

International business. IoT products, including mobile phone products, we will continue to bring more IoT products to overseas markets. At present, Xiaomi continues to promote our IoT products in Europe, especially in some developed or moderately developed countries and regions. I think TV is a very good category. We have entered many countries, especially in Europe and Asia-Pacific region. Xiaomi will continue to push our smart TVs to Europe and other places, while we will provide better coverage for other popular products, such as floor-sweeping robots.

Lin Shiwei: I also mentioned several figures in the briefing PPT. Let me repeat them here. We have not announced Xiaomi's shipments, but you can see that our high-end mobile phone ASP (average selling price) is up about 9% year-on-year, and high-end mobile phone shipments are up 14% year-on-year. These two figures are the performance of Xiaomi in the high-end line in the third quarter.

Second, about direct retail. We have cooperated with every major platform, including JD.com, Meituan, ele.me, etc., and contributed about 190 million GMV (total merchandise trading volume) during the "Singles' Day" period, especially now that the epidemic is relatively repeated, which is also of great help to stores and contributes a lot to their GMV.

Third, about overseas markets. Wang Xiang also mentioned a lot just now. Xiaomi's overseas revenue accounted for about 50.5% of the group's total income last quarter, which is also our overseas layout. We will certainly continue to move forward next year, but as the development of different regions is different, the specific plan is still under discussion.

Reporter: recently, the epidemic has been repeated. Will this affect the number of production days of Xiaomi in the mainland? Finally, the management just mentioned whether Xiaomi will save money. At present, many technology companies will cut down on capital expenditure through layoffs. Does Xiaomi have any layoffs plans this year and next?

Wang Xiang: the epidemic will have a certain impact not only on us, but also on all industries. For example, our processing plant will have a short-term impact as a result of the epidemic. At present, we can still work closely with processing plants and the government to help our factories maintain production while managing the epidemic. The impact must exist, the same for everyone, but I think the impact on Xiaomi is still under control.

Reducing costs and increasing efficiency is what we have been doing since last year. We have been working on reducing costs and increasing efficiency since the beginning of this year, and we have seen some results. We are now making further planning on how to improve human efficiency and reduce costs. For the development of next year and for the improvement of overall performance next year, we will continue to reduce costs and increase efficiency.

Lin Shiwei: I would like to add two points. For the time being, the epidemic has little impact on our current production, as long as there are no big problems in South China (Xiaomi's main production capacity is there), the impact is actually good. In addition, as we have just said, our expenses have been decreasing, and we will continue to pay attention to these figures to explore how to improve human efficiency. You may see that our number of employees has actually increased compared to the second quarter, and there are many new graduates coming to Xiaomi Group this quarter. At the same time, we also have some new business investments. But all in all, we will continue to focus on how to improve human efficiency.

Bloomberg reporter: I have a follow-up question. Can you ask the management to look forward to the shipments of the Chinese market in the fourth quarter and the overall progress of the Chinese market? In addition, the epidemic has also affected China's IoT equipment. What is the management's assessment of the overall situation in China in the fourth quarter? I also see that there are actually some big moves on Xiaomi's IoT side, such as some equipment investment, etc., in the overall depressed environment, whether the supply of Xiaomi is adequate?

Wang Xiang: about the fourth quarter. Judging from our performance in the third quarter and the second quarter, Xiaomi's shipments are basically stable, which can be said to have risen steadily, which is a good side. However, there is still uncertainty in the overall macro-economy and industry, so we are also paying attention to it at any time. There are also several other favorable environments and opportunities in the fourth quarter, and "Singles Day" is one of them. "Singles Day" although the market has declined, but our performance is still good. There are "Black five" and Christmas in overseas markets, and Diwali in India, which are all positive effects in the fourth quarter. But as I said, the overall macro situation, including the epidemic prevention and control situation, is still uncertain. So we have to pay attention to the development of the overall situation in real time.

As for the Internet side, I believe we are relatively stable.

Just now you also mentioned the release of Xiaomi energy storage products, we still got a lot of positive feedback. This is an emerging market. We released Xiaomi's first outdoor power supply (Mi Home Outdoor Power 1000Pro), as well as a foldable solar cell, and the market feedback is good. We will continue to pay close attention to the household energy storage market. First of all, pay attention to the needs of consumers camping, camping, and then carefully study how to do better. As Xiaomi also makes electric smart cars, in fact, we pay very deep attention to the whole industry chain, including batteries and surrounding industries, we have done relevant layout, but also do in-depth research and careful preparation.

Lin Shiwei: regardless of the macroeconomic changes in the fourth quarter, Xiaomi's global layout has helped us spread a lot of risks. For example, our shipments abroad accounted for 78% of this quarter. You can also see that the proportion of Xiaomi's competitors (shipments) is much lower than ours, so our global layout and our size are still helpful to combat risks.

Interface journalist: I have two questions here. The first question is for the domestic market. Since the launch of the Xiaomi 12s series from last year to this year, from the perspective of social platforms and e-commerce platforms, word-of-mouth has rebounded significantly. However, the sales volume of the domestic market from the first quarter to the third quarter still failed to catch up, hovering in the fifth position. I would like to ask the management of the reasons for the formation of this contrast, has Xiaomi conducted any internal analysis?

The second question is for overseas Indian markets. Since the beginning of this year, including OPPO, vivo, one Plus and Samsung, they have a lot of momentum and a growing market share. But in fact, India used to be a very strong part of Xiaomi's overseas market, and now the competition is becoming more and more fierce. how does Xiaomi view the current situation?

Wang Xiang: we have done a lot of reviews on the high-end market. To sum up, our high-end market, especially high-end brands, takes time to gradually achieve. In the past, people thought that "relying on one or two products to achieve quick victory" was incorrect. So what we are doing now is to work steadily, so that high-end products not only pay attention to parameters, but more importantly, we should pay attention to user experience and reputation. It is precisely because of this understanding that there are two better high-end products of Xiaomi today.

At the same time, we also realize that even with today's two better products, Xiaomi still needs to make continuous improvement in the level of user experience and brand. We are strategically patient, and we do not expect to completely win the high-end market through one or two products, but these two products give us good confidence and we have learned a lot. We will use what we have learned on these two products to continue to launch high-end products.

About overseas markets. In fact, we still have a lot of room to do a good job in high-end products, but due to the overall economic situation, fuel prices, inflation, exchange rate changes, we still use a steady way to steadily promote the development of our high-end line. But our strategic determination is very great. No matter what happens, we will steadily promote the development of Xiaomi's high-end products. We pay attention not only to the volume, but also to the profitability of the products. This is the case with high-end products.

When it comes to the Indian market, we have been in the lead in the Indian market for quite a long time, perhaps since 2017. The current competitive situation has not changed much, it has always been a very fierce competition. This is also the status quo of the Indian market. The problems facing the Indian market, in addition to geopolitical factors, may be affected by the epidemic and the overall economic situation, the overall market of the Indian market has also declined, which has also intensified competition. Therefore, we still have to stabilize the Indian market, especially in the current uncertain economic environment, we will pay attention to the quality of Xiaomi's operation in India.

Lin Shiwei: why our sales in Chinese mainland did not rise, I think the reason is that the overall market sales remain low. We all know that mobile phone shipments in China this year are much lower than those in the same period last year, and we have also been affected to a certain extent. But Xiaomi's products have a good reputation, which is of great help to our future products, and has established a good foundation for Xiaomi's new products next year. As the market picks up, I believe we will get more market share.

In India, frankly speaking, the overall market in India is also relatively low, and other brands may grab a certain market share, but Xiaomi's strategy in India is to focus on both profitability and shipments, rather than just focusing on market share.

Xinbao reporter: first of all, considering the current situation of the overall mobile phone market, what is the pace of Xiaomi's new product release? Will it favor high-end products in the fourth quarter of this year and next year? Or will it be inclined to launch relatively medium-and low-end mobile phones? The second question is, Wang Xiang just mentioned the issue of inventory. How long do you expect inventory to return to a relatively healthy and normal level? The third question is about investment. We can see that some other technology companies in the mainland have withdrawn some of their investments. Does Xiaomi have any adjustment plans in this respect? What are your plans for the future?

Wang Xiang: we have indeed made a lot of strategic investment and layout, and we will certainly deal with the assets invested by the company at the right time.

When it comes to the overall product release, we basically release the product at our own pace. We have two big brand series, one is Xiaomi series, the other is Redmi series. While we promote high-end, we do not want to ignore the Redmi series and the mass market. The mass market is still a very important market for us in the world, covering most of the markets in developed and developing countries around the world. Therefore, the launch of high-end products is step by step, and we will promote the high-end market with a long-term development strategy. Xiaomi still launches products at its own pace every quarter. We will have a new product release at the end of the year, and we are also in the process of making preparations.

As for the inventory clean-up, I also communicated with my friends in the media last quarter. We have been using the big promotion season, including "Singles Day", Christmas Day and "Black five" to clean up the inventory in the overall channel. We hope to turn our capital levels to health in the fourth quarter of this year and January and February next year.

Lin Shiwei: in the past few years, our mobile phone products have actually achieved full coverage, that is to say, different prices and different series, including Xiaomi's MIX series and Civi series, as well as Redmi's Note series and K series. What we want to achieve is full price coverage to meet the needs of users at different levels. We will continue to work in this direction next year, covering as many users as possible.

Investment. Xiaomi is different from other big mobile phone companies and Internet companies, most of our investment may not be that high. As you can see, in fact, we have some investment income every quarter, and we are always looking for the right time to sell our previous investment again.

Wang Xiang: let me add one more figure about inventory. At present, Xiaomi's overall inventory is in the process of decline, especially after these major promotional festivals, the current inventory has decreased by 9% year-on-year and month-on-month. This is still a relatively good situation.

Thepaper.cn reporter: the management also mentioned the inventory problem just now. I have a follow-up question here. I know that the inventory problem of Xiaomi attracted more attention last quarter. According to this year's financial report, the inventory problem in the third quarter has actually improved to a certain extent. Can you ask the management to share with us what means and ways the company has used to improve Xiaomi's inventory problem? What is the specific improvement at present? what is the effect of shopping festivals such as "Singles Day" on the inventory of Xiaomi mobile phones?

The second problem is that I noticed that the total cost of innovative businesses such as Xiaomi smart electric vehicles reached 829 million yuan in the third quarter of this year. May I ask the management whether Xiaomi's new business investment has an impact on the overall performance of the company? Does Xiaomi have any new developments that can be disclosed in the car-building business?

Wang Xiang: at present, our inventory in China has returned to a healthy level. Whether it is "Singles Day" or any promotion season before "Singles Day", inventory is no longer a big problem. We will now use several important festivals in the fourth quarter to deal with overseas inventory problems. On the whole, we don't have so-called "sluggish inventory", that is to say, we don't have inventory that will cause a lot of problems. Just now I also mentioned that Xiaomi's inventory has dropped by 9% on a month-on-month basis.

We still have some stock to prepare for the fourth quarter. With the end of sales in the fourth quarter, you will also see a decline in inventory. As I mentioned just now, Xiaomi will return to health by the end of this year and early next year. The same problem may occur every year. Rest assured that we will pay close attention to the inventory level of Xiaomi. Now we should have a solution.

About building cars. First, we hope to achieve formal mass production in the first half of 2024. According to the current progress, our progress is still very smooth. We are very confident. Just now Lin Shiwei also said in his report that Xiaomi has more than 1800 car-building R & D personnel. These are our own people. This also shows our confidence and determination. You have also seen the data we disclosed that the investment in new business in the third quarter was 830 million, and the total investment in the first three quarters was 1.86 billion. Our investments have been calculated very carefully and have been investing in an efficient way. The efficiency and scale of the company's current investment will not have a significant impact on the operation of the group.

Hong Kong Economic Daily reporter: let me follow up the problem of Xiaomi building a car. I see Xiaomi's total number of employees continue to grow this year. How many of these people are in charge of building cars? Does management predict the timetable for the resumption of growth in mobile phone shipments?

Wang Xiang: as I mentioned just now, these 1800 people are all tram R & D personnel, so we still attach great importance to R & D. We must make every effort to ensure that Xiaomi's first car can be successful, and of course it must be launched on time.

As for when the smartphone market will return to normal annual growth, I think there are several factors. The most important factor is to look at the global economic and market situation. At present, uncertainty still exists. For example, inflation in the United States, the global economy, and so on, have a very significant impact on smartphone shipments, but also on global consumer confidence. So it all depends on the situation, and we will pay close attention to the situation and prepare for growth. This is what we are going to do now.

I don't think any economist in the world has reached a consensus (on when the economic environment will recover). In the long run, we will definitely get out of the trough, because the economy is cyclical. Everyone believes that the trough will come out, but it is not clear when it will be. What we need to do in the short term is to keep a close eye on and be prepared. This is my personal opinion.

Lin Shiwei: compared with the second quarter, the number of our employees did increase in the third quarter, and most of them are fresh graduates. Some went to the car (department), while others went to other departments. Xiaomi still has a relatively complete training plan for new graduates.

We have also talked to many experts about the recovery of the mobile phone market, and we still have different opinions. The main thing is that we have encountered a lot of problems this year, both at home and abroad. When the problem can be solved will affect not only the mobile phone industry, but also the consumer industry as a whole.

Wang Xiang: in fact, uncertainty is the biggest challenge at present. What is certain? What is certain is what we can control. What are the things we can control? That is to take advantage of this opportunity to continue to do a good job in our basic investment, capacity-building and R & D capacity-building. Not only cars, but also mobile phones and IoT infrastructure. We need to use this time to get ready, and the whole group is very sure of that. In order to do a good job of such investment, we actually need to optimize our cost structure, operational efficiency, human efficiency and so on. Just now many friends asked similar questions. Xiaomi is very firm in this field, and we also have a very deep understanding and consensus.

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