Xiaomi Corp

Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 2020 third quarter results. I'm Steve Lin, Director of Core Finance and Company Secretary. Before we start the call, we would like to remind you that this call may include forward-looking statements which are underlined by the number of risks and uncertainties and may not be realized in the future for bad results. Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, company's financial prepared in accordance with IFRS. Joining us on the call today are Mr. Wang Xiang, Partner and President of Xiaomi Corporation, Mr. Alan Lam, Chief Financial Officer and Vice President of Xiaomi Corporation. To start with, Mr. Wang will provide an overview of company performance and share strategic initiatives of the company. Mr. Lam will then review the detailed business and financial updates that they put up. Following that, we'll move on to the Q&A session. I will now turn the call over to Mr. Wong.

Yeah, thank you. Thank you, Steve. Hello, everyone. Thank you for joining our third quarter 2020 earnings call. Before my presentation, actually, I want to take this opportunity to introduce our new member, Alan Lam, who is joining us about one and a half months ago. So I'm very happy to introduce him as a new friend or old friend to you all. I think many of you may know him well. But, yeah, see a few words.

Hey, everyone. Good to meet you all over the phone. Alan Xiaomi on October 9th. It's been a very interesting seven weeks since I joined and I look forward to sharing more with you guys both online and offline. Thank you. Thank you. Thank you, Alan.

So actually this quarter we delivered another very solid result across all our business segments as we relentlessly focus on the execution of our core strategies. In this quarter, we posted historical highs in both revenue of RMB 72.2 billion and adjusted net profit of 4.1 billion RMB up 34.5% and 18.9% year-over-year respectively. Our commitment to our core strategy of smartphone times AIoT continued to underpin our robust performance. I'm very pleased to share that our global smartphone shipment rose to number three in the third quarter of 2020, the first time since 2014. Actually, it's a record high market share. It's about 13.5%, that's a record high in Xiaomi history. We continue to execute our dual-brand strategy, driving our success in the premium smartphone market. Supported by our well-received premium smartphone models, including the Mi 10 series, we sold more than 8 million premium smartphones as of October 31, 2020, driven by a higher percentage of sales from our premium smartphone models. Our smartphone ASP maintains an upward trend year over year, especially in mainland China. Our relentless effort to pursue technological innovation boosters our remarkable achievements in the smartphone market. For example, one of our primary R&D achievements is the camera performance. We achieved the number one position in DXOMark two times this year. These achievements were made possible as a result of our dedicated team of close to 1,000 talent camera focus engineers in nine global R&D centers across the world, from Beijing to Paris to Tokyo to San Diego. Another example. of our efforts in technological innovation is Xiaomi's Smart Factory, which demonstrates major progress in our smart manufacturing. Xiaomi's Smart Factory is equivalent with an annual production capacity of 1 million premium smartphones, not only serving as a mega lab that engages in the R&D of new materials, cutting-edge technologies, but also as an experimental base for next-generation manufacturing equipment and automated production lines. This marks another step towards elevating China's smart manufacturing capabilities as well as increasing manufacturing efficiency for all Xiaomi partners. Looking forward, we'll continue to invest in R&D at the a forefront of the rapid changing technologies in smartphones from 5G era and key technological features that advance the smartphone industry as a whole. Lastly, we have significantly strengthened our management team this year. Today, I'm very proud to introduce Mr. Alan Lam, and also, we also have other executive members joining us, including Adam Zeng, including other members, and also Peng Zhi Bin joining us as our chief HR officer in the company. Actually, I may spend a few words to introduce Alan. Alan actually is a seasoned capital market professional with an in-depth understanding of the industry. With Alan joining the team, I'm sure he will bring his experience and expertise to his work with Xiaomi. Now, I think it's time for Alan to discuss more details of our third quarter earnings results and the business updates.

Alan, please. Yeah, thank you, Wang Zong. Hello, everyone. As I said before, I'm very honored to join this big family of Xiaomi and to share with you our latest statistics. As you may have read from our press release, in the first quarter of 2020, we achieved a record revenue of 72.2 billion RMB, which is up 34.5% year over year. Adjusted net profit for the period also hit a record high of 4.1 billion RMB, which was up 18.9% year over year. All of our business segments achieved robust growth, which demonstrates the strength and the resilience of our business. I'd like to share with you some key updates and then walk you through each of our segments' performance for the third quarter. The first point that I would like to highlight is our record-breaking performance in global smartphone shipments. In the third quarter, we regained our top three position globally with an all-time high market share of 13.5% and year-over-year growth of 44.6%, which was the highest among the top five smartphone manufacturers. In the quarter, we continued to execute our dual-brand strategy for our smartphone business, which propelled our successful entry into the premium smartphone segment. Inspired by our outstanding performance following the debut of Mi 10 Pro, in August of this year, we launched Mi 10 Ultra, sporting our most cutting-edge technologies and a price starting from $50 to $99 RMB each, which has become highly sought after upon its launch. Just as an illustration of how popular our premium models are this year, in the first 10 months of this year, we have sold more than 10 million premium smartphones worldwide. which we define as retail price point at or above 3,000 RMB in mainland China or 300 Euro in the overseas market. The third point I would like to talk about is our relentless pursuit of innovation, which is one of Xiaomi's core values, and we believe it's becoming the most important success factor in our industry. One of the testaments of our advanced technologies lies in our camera development. We achieved the number one position globally on DSO Mark's camera score with three of our flagship products, CC9 Pro, Mi 10 Pro, and Mi 10 Ultra. Another area of our technological leadership is our fast charging technology. In October, we debuted our 18-watt Mi wireless charging technology, which enables full wireless charging of a 4,000 mAh battery in 19 minutes. We also try to make technological breakthroughs in advanced manufacturing. As Mr. Wang mentioned earlier, we introduced our smart factory in Beijing in August of this year. The factory has three major roles. Number one, a light-out annual capacity of 1 million premium smartphones. The transparent edition of our flagship Mi 10 Ultra was actually manufactured in this factory. Number two, a mega laboratory that engages in R&D of new materials and cutting-edge technology. And number three, an experimental base for our next-generation manufacturing equipment and automated production lines. Last but not least, we have strengthened our senior management team significantly by bringing in top talent with a wide breadth of seasoned experience this year. We brought in Mr. Zheng Shui-Zhong and Mr. Chang Cheng this year for our smartphone business, and we brought in Mr. Peng Ji-Bing, who is acting as our Chief Human Resources Officer. I'm very pleased and honored to be among this group represented here and to work together with them to drive the long-term value for all of our stakeholders. Now let me further discuss our smartphone business segment. In the third quarter, our smartphone business grew significantly, reaching number three position globally in terms of smartphone shipments, as I mentioned before. Our smartphone revenue reached a record high of 47.6 billion RMB, which is up 47.5% year over year, with global shipments of 46.6 million units. In the third quarter of 2020, our smartphone market share in mainland China climbed to 12.6%, from 9% in the third quarter of 2019, which represented an 18.9% increase year-over-year in terms of shipment, becoming the only one of the top five smartphone companies to achieve positive growth in mainland China, according to Canvases. Our overseas smartphone business also continued to experience robust momentum this quarter, Driven by market share expansion across all the major markets, we ranked top three in the overseas smartphone market with a market share of 13.8%, a 54.1% year-over-year. Excluding India, where we have been the number one smartphone brand for 13 consecutive quarters, our overseas smartphone shipment almost doubled on a year-over-year basis. We further expanded our advantages in the online channels in mainland China. Our online smartphone market share increased to 25.7% in the last quarter, from 18.5% in the first quarter of this year. During the Single-Stage Shopping Festival in 2020, we ranked number one in sales volume among all Android smartphone brands on Tmall.com, JD.com, and Suning.com. If you look at our ASP, our smartphone ASP for the quarter increased by 1.6% Euro per year, with Mainland China smartphone ASP increased 14.7% Euro per year, which was driven by the higher proportion of sales from our premium smartphones. Smartphone ASP in the overseas market decreased slightly due to a shift in our product mix. In particular, Our entry-level Redmi 9 series has been extremely popular, and we sold more than 14 million units worldwide as of the end of September. We continue to expand our product portfolio at different price points. First, our Mi 10 series, including Mi 10 Ultra, Mi 10 and Mi 10 Pro, are priced at 4,000 RMB and beyond. further strengthening our position in the premium smartphone market. Second, our Redmi K30 series and Redmi 10X 5G series priced between 1,000 to 3,000 RMB support our devotion to making 5G technology accessible to the mass market. And third, to fulfill the need of global consumers amidst the macroeconomic uncertainties, we also introduced highly competitive entry-level smartphones, including the Redmi 9A series, with pricing starting from $499 RMB, setting a new standard for entry-level smartphones worldwide. We will continue to execute our dual-brand strategy to strengthen our position in the premium smartphone market, while also making 5G technology accessible to the mass markets. Now let's move on to the IoT and lifestyle products. Built on our smartphone times AIoT strategy, our large user base, and our leading position in the IoT market, our IoT and lifestyle product revenue reached 18.1 billion RMB in the third quarter of 2020, up 16.1% year over year, showing significant recovery from the pandemic. At the global leading consumer AIoT platforms, we continued to expand our global IoT user base this quarter. The number of connected IoT devices as of the end of September reached 289.5 million, up 35.8% year-over-year. Moreover, The number of users who have five or more devices connected to Xiaomi's IoT platform reached 5.6 million this quarter, up 59% year-over-year. Our AI Assistant had 48.4 million MAUs in September, an increase of 35.5% year-over-year. Finally, our Mi Home ATP MAU reached 43.1 million increasing 34.2% year-over-year. We also continue to lead in the smart TV industry as our global shipment of our smart TV reached 3.1 million units in the third quarter of this year. This quarter also marked the seventh consecutive quarter that Xiaomi TV shipments ranked number one in mainland China, according to ABC. As the market leader in smart TVs, We continue to innovate and make leading technologies accessible to the market. In the third quarter, we introduced a number of premium TVs within the Mi TV Master Series, further solidifying our position in the premium TV market. These products include the August debut of the Mi TV Luxe Transparent Edition, which was the world's first mass-produced transparent TV. In September of 2020, we launched the Mi TV Lux 82-inch and the Mi TV Lux 82-inch Pro. The Mi TV Lux 82-inch Pro was priced at $49,999 and introduced a cutting-edge mini-LED backlight technology that enriches images with incredible detail. The Mi TV Lux 82-inch has a great price-to-performance ratio among all 4K TVs. with prices starting from 9,999 RMB. One of the major drivers of our IoT business this quarter is the overseas market. In the third quarter of 2020, revenue from overseas IoT and lifestyle products increased by 56.2% year over year, driven by our leading position across major overseas IoT products. Notably, Overseas revenue from certain key IoT categories already surpassed that in mainland China in this quarter, such as wearable bands, electric scooters, and robot vacuum cleaners. Given these products' huge growth potential, we intend to leverage our highly efficient new retail channels and large user base to introduce more popular IoT products in the overseas markets. Let's move on to the internet services In the third quarter, our internet services revenue reached 5.8 billion RMB, up 8.7% year-over-year. Revenue from advertising hit a quarterly record high of 3.3 billion RMB, which was up 13.7% year-over-year, due to the enhancement of our monetization efficiency and the strong growth in overseas advertising revenue. Our overseas internet services revenue also reached a historical high, which was another driver for our internet services revenue growth. Our user base also grew significantly in the first quarter. Our global MIUI MAU increased 26.3% year-over-year to a record high of $368.2 million, with $109.4 million MIUI MAU in mainland China. Meanwhile, the MAU of our smart TV and meat box increased by 49.9% year-over-year to 35.8 million, with paid subscribers reaching 4.2 million. I'd like to add a bit more color on our rapid growth in overseas internet services. In the third quarter, overseas internet revenue increased by 75.6% year-over-year and accounted for 12 of the total internet services revenue this growth was boosted by increasing overseas smartphone sales volume and the expansion of our overseas user base especially in europe and in other developed markets we also continue to enrich our overseas service offerings for example our me music app ranked number one on xiaomi smartphones by bau among all music apps in india in Indonesia and in Russia. Next, let's talk about our overseas business. In the third quarter, revenue from the overseas market reached 39.8 billion RMB, up 32.1% year-over-year, again marking a quarterly record high in overseas revenue. We continue to hold our solid market position in major markets worldwide. According to , in the third quarter, our market share ranked number one in 10 markets globally, top three in 36 markets, and top five in 54 markets. We're very proud to report, for the first time, our smartphone shipment ranked top three in Western Europe, with a 13.3% market share and year-over-year growth of 107.3%. The surge in Western Europe was driven by continued robust performance in several key countries. In particular, we ranked number one in Spain for the third consecutive quarter, with a 33.9% market share in that market. We ranked number two in Italy, number three in France, and number four in Germany, with year-over-year growth of over 100% in each of these markets. We continue to expand our overseas online sales channels. First, through our ownme.com, which is now available in 32 countries and regions. And second, through various e-commerce platforms such as Amazon, Lazada, and Shopee. In the first nine months of this year alone, we shipped over 10 million smartphones via online channels in overseas markets, excluding India. We are also making solid headway on expanding our overseas carrier channels. We partnered with 50 carriers covering over hundreds of networks in 50 countries. As a result, in the first nine months of 2020, our smartphone shipments via carrier channels grew by more than 200% year over year. Our carrier channel market share in Western Europe doubled to 4.6% in the first quarter of 2020. We obtained leading market share in multiple major areas in Europe. We believe we are very well positioned to capture the huge growth potential in the overseas market with this rapidly growing carrier channel market share. Next, I would like to go through our financials. As I mentioned before, in the third quarter, our total revenue reached a record high of 72.2 billion RMB. up 34.5% year-over-year and 34.8% quarter-over-quarter. The robust top-line growth was mainly driven by a strong momentum in the smartphone business, as well as very encouraging performance in the IoT and internet services segment. Despite a stagnant global smartphone market, largely due to the impact of COVID-19, in the third quarter, Our revenue from smartphones was 47.6 billion RMB, up 47.5% year-over-year, and 50.5% quarter-over-quarter. Revenue from IoT and lifestyle products grew to 18.1 billion RMB, up 16.1% year-over-year, and 18.8% quarter-over-quarter. Our revenue from Internet services, which is 5.8 billion RMB, up 8.7% year over year, and slightly decreased by 2.3% quarter over quarter. Our overall gross margin was 14.1% in the third quarter, slightly lower than the previous quarter due to the stronger growth in our smartphone business. Looking at the breakdown by segments, gross margin for our smartphone segment remained steady at 8.4% this quarter. The gross margin of our IoT and lifestyle product segments increased to 14.2%, mainly due to the strong growth in our IoT products with high growth margin and the improvement in our smart TV growth margin. The growth margin of our internet services segment was 60.4% in the third quarter, largely stable compared to the last quarter. While we continue to step up investments in brand building and R&D, our stronger sales performance gave us significant operating leverage. As a result, you can see that our operating expense ratio decreased to 9.4% in the third quarter compared to 11.2% in the second quarter of this year and 10.1% in the third quarter of 2019. As a result of all this, we have seen a steady growth in adjusted net profit. In the third quarter of 2020, Our adjusted net profit reached a record high of 4.1 billion RMB, which was up 18.9% year-over-year. Our adjusted net profit margin was 5.7% in the quarter. At the same time, we continue to manage our working capital in a very efficient way. Our inventory turnover days decreased to 54 days this quarter from 72 days in the second quarter. Our cash conversion cycle was very healthy at negative 22 days. We have strong cash flow in the third quarter and our cash resources reached 75.5 billion RMB as of September 30th, 2020. The net cash generated from operating activities reached 12.3 billion RMB this quarter. Finally, we continue to see strong growth in our investment performance with an increasing number of our invested companies going public in both the mainland China and overseas. Most recently was Ninebot's successful listing on the Science and Technology Innovation Board of the Shanghai Stock Exchange. As of the end of last quarter, we invested in over 300 companies. In the third quarter, we generated an after-tax net gain of 713.5 million RMB from the disposals of investments. In fact, you have probably seen that we have been generating realized investment gains consistently in the past few quarters. As of the end of last quarter, the total amount of our investments reflecting mark to market for the listed companies reached 50.6 billion RMB, which equals to 2.4 Hong Kong dollars per share. We'll continue to leverage our group resources and advantages to empower our ecosystem companies and transform more manufacturing industries globally. With that, this concludes our prepared remarks. We shall now open the line for questions.

Thank you, Mr. Lam. We'll now proceed to the Q&A session. Please submit your questions in maximum two so we can allow more investors to ask their questions. Thank you.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on the telephone keypad. And our first question has come from with . Please go ahead.

Thanks, ,, and thanks for taking my question. My first question is about in response to the honors of and also It will run independently going forward. Was Xiaomi's strategy to compete with these separated brands? Do you see it as an opportunity to beat your peers? My second question is about internet business. In the second quarter, we noted that the gas margin declines was due to strong gaming, which has a lower gas margin. But this quarter, we see fintech and also gaming makes it likely to decrease. Was the driver behind to see these God's margin staying relatively stable sequentially. What should we expect when the mix to improve going forward? And what is the strategy for the FinTech going forward because of some kind of regulatory change? And also, we see that you are rebranding the business. So what's the strategy going forward in that? Thank you.

Okay. Thank you. Thank you for the question. So actually, we heard the news from the media. So actually, Xiaomi was born from a very competitive environment back to 10 years ago. So we have a strategy to expand our business not only in China, but to many, many different countries in the markets. I believe we have the right strategy. The strategy, we will focus on the strategy we are having now, which is, number one, from the product side is that we caught smartphone times AIoT strategy will focus on two major areas, smartphone as a cornerstone, but also the millions of consumer IoT products in our system so that we can have a multiplier effect, we will do that. Also, we will continue to invest into technologies like a camera, like chargers, continue to invest into the technology area. so that we can have the ability keep inventing new things to offer, continue to offer good product, not only for China domestic market, but for the overseas market as well. I think we will focus on those strategies. We'll focus on the growth potential, not only in China, but also in many different markets like Europe. As Alan just mentioned, we have achieved significant growth in the last quarter. Actually, since early this year, you see the continued growth of our business in many, many markets. The European market is one good example, and also Latin America, and also Southeast Asian countries, while we are keeping our position in the Indian market. So we are very confident we will grow our market share in those markets. And also, we will definitely monitor any market dynamics to us as a very, very normal environment for us. I don't see any change in our strategy. We should focus on the product, focus on the customers, and also focus on the channels, online channel and offline channels. So this is our position.

And then, regarding a question regarding the gross margin, right, so I think you asked about, like, with FinTech and gaming going slower this quarter, either the gross margin improved, because traditionally FinTech and gaming were lower gross margin. I think this was the question. So in the past few quarters, I think we explained that FinTech did have a negative impact TWO OR GROSS MARGINS BECAUSE OF THE REGULATED ENVIRONMENT TOGETHER WITH COVID-19 WE HAVE ADDITIONAL CREDIT ALLOWANCE IN THE PAST QUARTERS WE HAVE BEEN ACTIVELY ACTIVELY CONTROLLING THE RISK SINCE THEN AND WE HAVE BEEN CLOSELY FOLLOWING ALL THE COMPLIANCE COMPLYING ALL THE REGULATIONS ON THEM ON THE SO THE CREDIT PERSPECTIVE IS ON THE UPPER TRACK BUT I THINK THIS Quarter we also talk about for gaming because of the change in the customer mix. We call gaming gross margin was lower this quarter. So I think with all these factors together, the gross margin was flat compared to last quarter. We think the current gross margin reflects the current state of the business situation across each business segment in Internet service. Going forward, it will depend on the product mix on how that works. So I think that's the answer to your gross margin question. Overall, FinTech, we believe having a stronger regulation is beneficial for the development of the entire industry. Since the beginning of our business, we have been closely following all the regulations. We have all the necessary licenses and related finances. have been strictly following all the no matter interest rate or on the different types of regulations so we believe uh internet finance constantly to be a very good business for us long term and in the additional to and we talked about in the announcement the current focus in addition to retail finance consumer finance we're also actively capability supply chain finance which we believe uh Averaging or large supply chain relationship and technology capability should offer a good growth process going forward.

Thank you. Thank you.

And our next question comes from Yiping Huang with CICC. Please go ahead.

Thank you for taking my question. I have two questions. One is about your future room of growth in the smartphone business. You outperformed the market quite a lot in both China and overseas and achieved a very good market share in a few European countries. Looking forward, where do you think your major room of growth what is the reasonable market share you plan to achieve in Europe and in South America? And this is the first question. And the second question is that we see that the internet business is roughly Q&Q flat for at least since the beginning of this year. So how we should look at the internet business going forward and what's the correlation between your growth of your MAU and growth of your smartphone user base versus the internet. So how, or the other way, how many quarters do we need to wait before we can see a strong growth on internet?

Thank you. Yeah, thank you. Thank you for the question. The first question is related, regarded to the future growth, the trend. So actually I see a very big room for us to grow. Although we have achieved a very high growth rate in the quarter three of 2020, given Europe as an example, right now, although we reached the top three position in European market, actually, if you look at the market share, we are still in the 12, 13% range. So that means we have a big room to grow even in Europe. Another example is right now we are number one in Spain. Our market share in Spanish smartphone market in Q3 was about 34%. It's a very high percentage. But compared to other countries, we are still below 30%. below 20% or in the 10%, 10 plus percent. So that's a huge growth area. That's Europe. And you're talking about the Latin American market, this huge market, even bigger market space for us to grow. Right now we are only in the, maybe in some countries we are 10%. Some countries may be below 10%. We see a huge potential. We are in the Latin American market only one year. So we just established our partnership in the offline channels, online channels, and carrier channels as well. So we keep investing in those markets. So we also see a very big potential to grow. in the market we are right now we have we are number one for for I think a 13 quarters already so we will we see in the market actually there there's about I think of 130 to 150 million smartphones every year but the potential growth areas at the same time actually we have the Indian market you can also see another 150 million feature phones so that means we have a lot of work to do right we should continue to innovate to make a very cost effective high performance smartphones to serve the Indian consumers we should go build the channels down to the countryside, the villages, to serve the people there so that they can be equipped with the mobile internet so that we hope we can change their lives and help them to have a better life with the access to the internet. This is our plan. So overall, I think we are very, very optimistic about the future growth for the next maybe five years.

Oh, yeah. And your second question regarding the Slack QonQ internet service revenue. So we talked about the reason for the slower revenue growth this quarter was mainly, one, because we're actively controlling the risk for the fintech business. And second is because of the gaming business. And third is, as Xiangdong mentioned, we see a very, very good momentum and a strong potential for user gain. So I think we will focus more on user acquisition than exhausting on the monetization. We'll focus more on user experience to gain more users. But going forward, we do see a lot of growth prospects for internet business. I think first, as you grow your instruments, you will start to accumulate more users. So with that, we see a very strong potential for that. And second, we talk about this quarter, our oversea internet service revenue grew rapidly. Our oversea internet revenue grew over 75% year-on-year this year and accounted for about 12% of our internet service revenue already. And third, as we increase or shipments in the higher end premium smartphone market. Based on our data, we do see smartphone advertising, smartphone internet service revenue on higher end phone is much higher than normal. So that will naturally also drive up the ARPU. And fourth, we didn't talk much, but this quarter, the TV internet service revenue was also very strong. As we continue to be number one in China in terms of smartphone instruments, we are accumulating more and more users. On the same time, we are improving our monetizing capability. So together, we do see a very strong potential for TV internet service. So we believe all of these will give us a very large growth potential for internet service business. But I think at the moment, as Xiangzhou mentioned, I think the focus for us is really on the user acquisition. Yes.

User acquisition is the most important thing. We don't even start the monetization in the overseas market yet, but you can see from our report, actually, the internet revenue from the overseas market will vary very fast. But we definitely will focus on the user acquisition in the coming years.

Okay, yeah. Thank you very much.

Thank you. And our next question has come from Piyush Boya with Goldman Sachs. And please go ahead.

Thank you for taking my question. My first question is about the China MAU progression, which has dropped slightly on a quarter-by-quarter basis, even though your market share has gained quite significantly. And that has also not made progress when we look at it on a year-on-year basis. So how do we correlate or how do we draw the correlation between your customer improvement that we're seeing and the fact that this line has not improved over the same period of time despite the significant market share gains we're seeing with your smartphone volumes? That's my first question. The second question concerns how you think of market share on a worldwide basis as well as back at home. If you could just take us through, so you've got a peak market share in Spain in the 30s. You've got very high market share in India. And overall, you've done very, very well in many countries. How do we go from there to looking at your market share in the countries where you don't have that market share and going back to China, overall market share as well as 5G market share? So if you could just give us a qualitative assessment of how you think through those points, that would be fantastic. Thank you very much. Thank you.

Regarding to your first question, it's about the MAU, right? So actually, this is stabilized. Our MAU is stabilized. It's around 110, 100, 108, 9, right? But it's a little difference is because of the time of when you do the calculations. of statistics. There's a time difference cost, not the number difference. It's stabilized. We'll continue to drive the local domestic China market share. So actually, China is a very unique market. So we are growing our market share online, but China has a huge offline market, and we need to build our stores not only the tier one cities, but we have to get into the tier three, tier four, tier five, tier six cities. It takes time for us to build our Xiaomi stores, our authorized stores, and also other stores to cover those rural areas. It takes a little time, but we will continue to drive the market share growth in the online channel. But at the same time, we have a plan to improve our offline coverage starting from this year. So it takes a little time. But in the overseas market, it's more complicated. Every market is different. So for example, in the European market, European market is mainly, this is the offline market, Online only represents, I think, less than 10%. But we're still working very closely with the online channels. Amazon, in many countries, CitizCon in France, for example, and also other online channels in Europe use those channels to do a lot of marketing, a lot of communications with our fans and the customers. But at the same time, actually we invest a lot in building the partnership with the traditional offline channels, which are the major channels for the smartphone sales. For example, media market. Media market is the largest, maybe the largest smartphone retail channel. So we have built a very, very strong partnership with the media market in many, many European countries. from Germany to spend to, uh, Italy to, to many other, other countries. There are several others like a media market. So we, uh, uh, we also build our Xiaomi authorized stores. Uh, you always see this market. We have, uh, I think over 700 stores, uh, so cross the, uh, different regions, Europe, as I mentioned, Europe is offline driven market. But if you talk about the Indonesia market, it's a, it's a, it's a, you caught the, uh, thousands of the mom and the top stores. It's a, it's a IR market. You have to, to cover those hundreds of thousands of, uh, very small stores across the nation. So we use another, uh, strategy to cover those markets. We see a very good growth. from the Indonesian market in Q3. That's the result of building a model to cover the IR channel in Indonesia. Indian market is similar, but Indian market has a very strong online channels and offline channels. Online channel close to 50%, so you need to have a more balanced approach. If you want to be successful in India. So it's a very different from country to country. I think we know, uh, through, I think a three years effort, we, we, we, we understand, we learn a lot, uh, from, uh, from a different, uh, Different models. So I think, uh, we'll continue to, uh, invest into a different type of a market. Right now, we have established a system to cover the major market, including Europe, Latin America, Middle East and Southeast Asian countries, and India. So, yeah, we are very optimistic or confident for the future growth, especially for the next two to three years.

Thank you. Thank you. And our next question has come from Koku Hariharan with JT Morgan and Chris Gohez.

Hi, thanks for taking my question and congrats for the good results. First of all, if you could give a little bit more color on the FinTech business now that you are kind of reconfiguring the business. How should we think about the extent of some of the credit pressures, et cetera? I think, Len, you mentioned that some of the credit pressures are starting to kind of bottom out. As we look at the next year or so on the FinTech side, how do we think about the thrust of growth? Is it going to be still mostly consumer lending related, or do we see more areas on the digital banks, on the other areas like supply chain finance, et cetera, start to become more prominent? That's my first question. Second question, I know that it is early days, but since you call out the overseas revenues for internet for the first time, and it's not a small number, either 12% of your overall numbers, could we talk a little bit more in terms of the avenues of monetization that we are using in these overseas markets, given that we don't really have a App Store presents in many of these markets, given the prevalence of Google Play Store. Thank you.

Yeah, why don't I take the first question on the FinTech business. As we announced about a month ago with our new FinTech strategy, we are focusing on three areas, consumer finance being one of them. We are increasingly going into the supply chain financing. as we see a lot more kind of positive regulatory headwind in that market. But more importantly, we do believe we have very unique advantages in that area. And the third area is technology transfer, obviously, to use our technology to enable more financial institutions to get into the supply chain financing side. So on the consumer finance, as you have seen, IN OUR RESULTS AND IN THE PAST TWO QUARTERS, WE HAVE BEEN SHRINKING THE LOAN BALANCE, WHICH WE ARE SEEING THE LIGHT AT THE END OF THE TUNNEL. I THINK WE ARE SEEING IMPROVEMENTS IN THAT BUSINESS IN THE PAST FEW MONTHS. SUPPLY CHAIN FINANCING IS AN AREA THAT WE ARE GOING TO FOCUS ON, AGAIN, GIVEN THE FACT THAT WE HAVE PRETTY UNIQUE ADVANTAGES IN THAT AREA. given that a lot of them are either our suppliers or the suppliers to our suppliers. So we're seeing good data of their production in that area. And also that a lot of them rely on working capital for their businesses, which we think we can help the process become a lot more efficient using data and using our technology advantages. So that's an area that I think... you'll hear more from us in the future about the progress in that area. I think that's something that we are quite focusing on. And then the first stage is obviously as the technology becomes more advanced, as the systems become more advanced, we also want to export that technology to enable more financial institutions to join the game there. So that's the FinTech business. On the overseas Internet businesses, Yeah, of course, we don't have the advantage of some of the bigger players in terms of app stores and whatnot, but we do have significant revenue coming from advertising as well as from preload in that area at this point in time. And also search.

Yeah, actually, we haven't started the monetization business from overseas marketing yet. But we have seen a very good result for some of our apps. So for example, the browser, in some of the regions, our browser has a higher MAU than Google's Chrome. So that's a good signal for us. So right now, we are focused still on the user acquisition. Number one. Number two, we want to improve the user experience so that we can keep the customer in our ecosystem. So we continue to improve the user experience. We continue to the user experience between smartphones and our IoT products. So that's why we launched several features. We call it Mi Share. With Mi Share, you can easily use your smartphone to control your IoT devices. For example, music. If you get closer to the smart speakers, AI speakers, your music will automatically... transfer from your smartphone to the AI speaker and the YC WASA, right? Your music in your home can usually transfer into your smartphone when you go out. So this kind of feature and also we are using another kind of technology called a UWB. So with your smartphone, you can easily point your smartphone to your TV and then you can easily turn your smartphone to a controller, or you can transfer your content from your smartphone to the TV, the similar feature. So we will continue to improve the user experience so that we can keep the customer. And then we will think about the monetization in the future. But although we have not started, but still we see a very good trend for the internet Overseas international revenue growth.

Yeah. Got it. Thank you. Thank you very much, you know, and .

Thank you. And our next question has come from Frank with HSBC. And please go ahead.

Good evening. Thank you for taking my question. My first question is about the online sales momentum. Given we do see the second wave or third wave of COVID-19 across the globe, so do you see any sales impact in the past two months, especially in Western Europe? And also, supply chain is indicating some auto slowdown in Q4 in general from Android 10. So I just wonder if we do see some similar type of seasonality. This is the first question. The second question is about your IoT GP margin, because you reached a record high, 14% GP margin in the segment. Do we see it should be a new norm to project your GP margin in IoT, or it should be turned to low teams in the coming three quarters? Thank you.

Okay. I can say for the first question, I can say like that, the COVID-19 definitely impacted our business in 2020, especially in the first quarter and the second quarter. We have seen the recovery from the third quarter, but it's definitely an impact. But as I mentioned several times in the past, Actually, smartphone business is kind of resilient, right? People will need a smartphone, especially in the difficult time period. So demand is there, but we are facing several challenges despite the COVID-19. For example, the supplier shortage. Supply shortage is the one. And COVID-19 definitely is another one. So we are closely monitoring the status of the pandemic in Europe and India. We hope... I personally hope... Actually, I was a little optimistic because the vaccine is almost ready. But this winter is going to be... I hope it's going to be the last winter for the pandemic. So we remain optimistic for the next year. As Alan just mentioned, we see the light at the end of the tunnel. So we are working very hard. We try to help in the Q1, try to help to solve the problem, the pandemic issues in China, in Wuhan, And also we have done some things for India, even European countries, with our technology and our effort. I think it will be over. It's a near-term thing. Yeah. The second question is IoT.

That's for the IoT gross margin, right? So I think, Xiaomi, we are having a very strong position in IoT, the whole IoT industry. We are having a lot of leadership in China IoT market across a lot of different categories. We're also expanding over to the applied IoT markets with our staff. So while we're doing this, you will see a lot of the products we are growing right now, for example, in the small home appliance category, these naturally have higher growth margin than some of the products we traditionally are strong, for example, like notebook and TV. So I think on the product mix-wise, this is pointing to benefiting on the growth margin. And the other number we share on this quarter is our overseas IoT business also grew rapidly. Overseas IoT tend to have a higher growth margin than in mainland China. So with that, also a benefit for growth margin. But overall, I think from IoT, again, it's very similar to when we talk about smartphone. I think it's still relatively early in terms of the industry development. For us, the key is still improving user experience and to gain more users, as opposed to really optimizing the growth margin. But I think despite not actively doing so, because of the shipping product mix and the geography, it did help us on the growth margin there.

Thank you very much.

Due to the time constraint, we'll now take the question from the last investor.

Sorry, management, and we don't have questions at this point in time, so would you like any closing remarks to our investor?

Yeah, I want to say... Thank you. So we are happy to achieve a good result, but we are actually working very hard to prepare for the Q3 and also, more importantly, the year 2021. There are challenges down the road. I think the supply shortage is one of the issues in the near term. We're working very hard on that. And also, we continue to hire more engineers to send more people to different markets and regions. So a lot of work to do. I want to take this opportunity to thank everyone in the call. for your support, your understanding, and your questions to help us to improve in many, many areas. Thank you.

This concludes the conference call today. Thank you everyone again for joining us. You may now disconnect. Thank you.

Thank you. Thank you. Thank you everyone. The conference call has been concluded. Thank you for your participation.