Xiaomi Sees Annual Decline in Q3 Net Profits and Revenue, Car Production Ran Smoothly

Xiaomi released its financial report for the third quarter of 2022 on November 23. Its revenue in the period was 70.47 billion yuan ($9.87 billion), down 9.7% year-on-year. Net profits were -1.476 billion yuan, while adjusted net profits were 2.117 billion yuan, down 59.1% year-on-year.

During a conference call, Wang Xiang, President of Xiaomi, said that the decline in revenue mainly came from the impact of the global macroeconomic environment, which affected not only Xiaomi but the whole industry. Unlike other tech giants in China, which laid off employees to varying degrees, the number of employees of Xiaomi had not decreased as of the end of the third quarter, but increased by more than 10% year-on-year to 35,314. Xiaomi‘s R&D expenditure in the third quarter was 4.1 billion yuan, up 25.7% year-on-year, and a large part of this was used for innovative businesses such as electric vehicles.

Xiaomi‘s car-making business is still the focus of significant attention. According to the financial report, Xiaomi invested 829 million yuan in innovative businesses including automobiles in the third quarter. Wang Xiang said that the efficiency and scale of Xiaomi‘s investment in building cars will not have a significant impact on its operations. At present, Xiaomi‘s auto R&D team has exceeded 1,800 people.

Xiaomi‘s financial data declined this quarter, which was mainly affected by its core business – smartphones. The financial report showed that total revenue of its smartphone business in the third quarter was 42.5 billion yuan, down 11.1% year-on-year, but up 0.6% quarter-on-quarter. Global shipments were 40.2 million units, down 8.4% year-on-year and up 2.8% quarter-on-quarter.

“Global inflation, dollar interest rate hikes, and exchange rate fluctuations have brought us a lot of uncertainties, and repeated epidemics in China have also had a great impact on us,” Wang Xiang said frankly. “The silver lining in the third quarter is that smartphone shipments, revenue and gross profit margin have increased slightly from the previous month.”

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Wang mentioned that there are some other factors causing today’s situation. For example, since last quarter, Xiaomi has gradually paid attention to how to clean up its inventory, which means it needs to spend certain resources. Therefore, in comparison, the gross profit margin of its smartphone business in the same period last year was relatively higher.

Another important reason is the huge investment losses. According to the financial report, in the third quarter, Xiaomi‘s share of investment income recorded by the equity method changed from a profit of 45 million yuan in the same period last year to a loss of 265 million yuan.

Xiaomi also disclosed a fresh strategy – new retail. According to Wang Xiang’s introduction, in September this year, Xiaomi‘s offline sales channel Mi Home was connected to platforms such as JDDJ, Dada’s on-demand retail platform, and food delivery platform Meituan and Ele.me. Xiaomi will continue to increase its operations and investment in this area in the future, with the goal of covering consumers within three to five kilometers of their Mi Home.

The high-end and overseas markets are still the focus of Xiaomi. During the third quarter, smartphone shipments priced at 3,000 yuan and above in mainland China increased by about 14% year-on-year, while the average unit price of a smartphone increased by about 9% year-on-year.

“To explore a high-end market, the idea that one or two products can win quickly is incorrect,” Wang said. “Xiaomi hopes to work steadily at present, not only paying attention to parameters, but also paying attention to users’ feedback, so as to improve our brand capability.”

In the third quarter, Xiaomi‘s overseas market revenue was 35.6 billion yuan, accounting for 50.5% of the total revenue. Among them, the challenges faced by Xiaomi in the Indian market are particularly concerning. India has always been an important market for Xiaomi, but the situation has changed after many investigations by the local government and the freezing of funds. In this regard, Wang Xiang said that competition in the Indian market has been fierce, and that geopolitics, the pandemic and the overall economic situation have led to a downturn in the market. Wang added that Xiaomi will pay more attention to the quality of operations in India, not just market share.