Xiaomi Corp

Ladies and gentlemen, thank you for standing by and welcome to ShellMate 2021 First Quarter Results Announcement Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to introduce myself, Mr. Anika Chen, Head of Investor Relations. Good evening, ladies and gentlemen. Welcome to Investor Conference Call hosted by ShellMate Corporation regarding the company's 2021 First Quarter Results. Before we start the call, we would like to remind you that the call may include forward-looking statements, which are underlined by a number of risks and activities and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFI financial measures. that should be considered in addition to, but not as a substitute for the company's financials prepared in accordance with IFRS. Joining us on the call today are Mr. Wang Xiang, partner and president of Xiaomi Corporation, and Mr. Alan Lam, chief financial officer and vice president of Xiaomi Corporation. To start, Mr. Wang will share recent strategic initiatives of the company Therefore, Mr. Lam will review the business financial performance for the first quarter of 2021. Following that, we will move on to the Q&A session. I will now turn the call over to Mr. Wang.

Thank you. Thank you, Anita. Hello. Hello, everyone. Thank you for joining our first quarter 2021 earnings call. In this quarter, we reported outstanding results across all business segments. Our revenue reached RMB 76.9 billion and adjusted net profit reached RMB 60.1 billion, up 54.7% and 163.8% year over year, respectively. Both revenue and adjusted net profit achieved historical highs. Throughout this quarter, we remain committed to advancing our core smartphone multiplies AIoT strategy. I'm pleased to share that our global smartphone shipments ranked number three for the third consecutive quarter, with market share of 14.1% in this quarter. Notably, we saw explosive growth in Europe and ranked number two in the region for the first time. We continue to strengthen our position in premium smartphone market. In this quarter, we further expanded our premium offerings through the launch of Mi 11 Ultra and Mi Mix Fold, priced above RMB 5999 and RMB 9999, respectively. Our premium smartphones have been well received by the market as shipment exceeded 4 million units globally. in the first quarter of 2021. We continue to deliver cutting edge technologies and a best experience to our users. For example, our Mi 11 Ultra achieved the global number one DxMark position. And the first foldable smartphone Mi Mix Fold features our proprietary C1 image signal processor. making a significant milestone for our imaging technology and leading us to a greater technological aspirations. We also announced our official entry into smart electric vehicle business. The smart electric vehicle represents indispensable components of smart living and entering The smart EV business is a natural choice for us as we expand our smart AIoT ecosystem and pursue one of the largest business opportunities of the next decade. Last but not least, the first quarter, we also introduced our new logo, which presents Xiaomi's new brand identity. We believe the new brand identity will allow more people to feel and understand Xiaomi's corporate philosophy to let everyone in the world enjoy a better life through innovative technology. Now, I'd like to invite Alan to discuss more details of our first quarter earnings and business updates. Alan, please go ahead.

Thank you, Xiangzhu. Good evening, everyone. Thank you for joining us today for our 2021 first quarter earnings call. In the first quarter of 2021, we maintained solid growth trajectory across all business segments. Total revenue grew 54.7% year over year to 76.9 billion RMB, and adjusted net profit grew 163.8% year over year to 6.1 billion RMB. Our revenue and adjusted net profit both hit record highs in this quarter. In this quarter, we maintained a number three position in global smartphone shipments with a market share of 14.1%. Our shipment increased 61.9% year over year, the highest growth rate among the top smartphone companies. We have strengthened our position in the premium smartphone market. In March, we released three premium flagship smartphones, the Mi 11 Pro, Mi 11 Ultra, and Mi Mix Fold, and all have been well received by the market. To illustrate, from January to April of 2021, total orders for Mi 11, Mi 11 Pro, and Mi 11 Ultra exceeded 3 million units. Meanwhile, the Mi 11 series ranked number one in its category among all Android smartphone series in mainland China. In total, We shipped over 4 million premium smartphones this quarter. Our premium smartphones were defined as retail prices at or above 3,000 RMB in mainland China and 300 Euro in the overseas markets. Our market share in the premium smartphone category in mainland China grew considerably to 16.1% in the first quarter, up from 5.5% in the first quarter of 2020. Our achievement in the premium smartphone market is underpinned by our relentless pursuit of technology innovation. For example, the Mi 11 Ultra achieved a DxO mark score of 143 for overall camera performance and ranked number one globally. In addition, it debuted a jointly developed GN2 sensor, the largest smartphone camera sensor currently on the market. In terms of charging technology, Mi 11 Ultra debuted the silicon oxygen battery, which enables faster charging in a thinner smartphone body and sets a new benchmark with 67 watt wireless charging support. Our Mi Mix Fold is another example of our pursuit of technology innovation. It is equipped with our proprietary search C1 image signal processor, which uses advanced algorithms for auto focus, auto exposure, and auto white balance, significantly enhancing the image quality. Additionally, it is the world's first smartphone to use liquid lens technology, which combines macro and telephoto capabilities in a single lens. In terms of displayed, It is equipped with a flexible 8.01 inch OLED screen, featuring Xiaomi's own color calibration algorithm with impressive color accuracy. In Q1, we further improved our number one online leadership position in China, with our online market share doubling to 38% from 18.5% in the first quarter of 2020. Meanwhile, we rapidly expanded our offline retail presence. As of the end of April, we had over 5,500 retail stores in China, an increase of over 2,300 stores compared to the end of December 2020. As Jiangyong said, we've also elevated our brand and stepped up our promotional efforts globally. In March, we launched our new Xiaomi logo, with the new Alive branding identity, which expresses the relationship between life and technology. At the same time, we invested in brand building in key global markets. In February of this year, massive screens of our Mi 11 smartphone were displayed on three landmark buildings, including Dubai's Burj Khalifa, London's BFI IMAX, and Bangkok Central World. This move demonstrates our efforts to expand into the overseas premium markets. On March 30th, we've also made one of our most important decisions in our corporate history, which was our official entry into the smart electric vehicle business. We'll establish a wholly owned subsidiary with an initial investment of 10 billion RMB and expect to invest around 10 billion US dollars over the next 10 years. We believe offering quality smart EV will help us build a closed-loop smart living ecosystem and fulfill our vision to let everyone in the world enjoy smart living anytime, anywhere. We also believe that we have unique advantages to support the smart EV business, including our internet business model, our extensive experience in software and hardware integration, our broad user base, our powerful brand, our distribution channels, and our investment in prior technology surrounding smartphones, which can also be applied to smart EVs, and with our abundant cash resources. These factors will contribute to our future success in the smart EV sector. I'd like to give everyone an update with regard to our litigation with the U.S. Department of Defense. As you may have seen from this morning's announcement, The U.S. District Court issued a final order this morning vacating the U.S. DOD's destination of Xiaomi as a CCMC, a communist Chinese military company. In vacating the destination, the court formally lifted all restrictions on U.S. persons' ability to purchase or to hold our securities. We are very grateful for everyone's trust and support. and we will continue to relentlessly build amazing products with honest prices to let everyone in the world enjoy a better life through innovative technology. Now let us dive deeper into each segment, starting with smartphones. In the first quarter, our smartphone revenue grew 69.8% year over year to 51.5 billion RMB, our highest quarter ever. Our global smartphone shipment reached a record high of 49.4 million units, up 69.1% year over year. Our smartphone gross margin also rose to 12.9% due to improved product mix and fewer discount activities as a result of supply shortage. Let's take a closer look at the mainland China market. In the first quarter, our smartphone market share in mainland China rose to number four. According to Canalyst, during the quarter, our smartphone shipment in mainland China reached 13.5 million units, a year-over-year increase of 74.6%, and with a market share of 14.6%. This is supported by the continued success of our new brand strategy, targeting different user segments. For example, Our Mi Max Fold, with prices starting from $99.99, catered to the business executives and power users. To reach the younger generation and female users, we launched our Mi 11 Lite. And for gamers, we unveiled our Redmi K40 gaming series, with prices starting from $19.99, R&B. We believe that this strategy will help us capture greater market opportunity by satisfying the unique demands of the different users groups. With respect to the IoT and lifestyle product business, our revenue increased by 40.5% year-over-year to 18.2 billion RMB in the first quarter of 2021. As the leading global consumer AIoT platform, The number of connected IoT devices on our AIoT platform reached 351 million of 35.6% year-over-year. Moreover, the number of users who had five or more devices on Xiaomi's AIoT platform reached 6.8 million of 48.9% year-over-year. Our AI Assistant MAU reached 93 million, an increase of 31.9% year-over-year. Lastly, our Mi Home app MAU reached 49.2 million, which was up 22.8% year-over-year. We continue to expand and upgrade our IoT product portfolio to offer the best user experience and to further promote interconnectivity across devices. In the first quarter, we launched new products with distinctive features, including Mi Laptop Pro 15, featuring a super-retina OLED display with 3.5K resolution, and Mi Router AX9000 with dedicated 5G eSports spectrum. In the smart home category, we launched our Mi Smart Air Conditioner with Ventilation, with prices starting at $3599. It is an innovative next-generation air conditioner that takes clean, fresh air from the outside and to effectively lower indoor carbon dioxide levels, bringing to our users a more healthy and comfortable experience. It also doubles up as an air purifier that achieved 19.9% air sterilization. This smart air conditioner is also the industry first to win a Red Dot Design Award. In mainland China, our IoT products deliver outstanding results across multiple categories. This shows that we have become an increasingly important part of our users' daily life. Notably, our air purifiers rank number one with 52.5% market share. Our meat bands rank number two with market share of 37.5%. Our smart locks rank number one with market share of 28%. 4.8%, and I can keep going on the list. Meanwhile, the IoT segment continued to grow in the overseas markets. In the first quarter, revenue from our IoT products in the overseas markets increased 81.1% year-over-year as we strengthened our brand and increased our penetration in the key markets. We continue to enrich our overseas IoT portfolios and introduce a variety of cool products, such as our Mi electric scooter Pro2, Mercedes AMG Petronas F1 Team Edition. Our IoT product portfolio has great potential in the overseas market, which we believe will be a key driver of future growth in our business. With respect to the internet services segment, revenue from internet services reached 6.6 billion RMB, UP 11.4% YEAR-OVER-YEAR. OUR ADVERTISING REVENUE HIT A HISTORICAL HIGH THIS QUARTER, RISKING 3.9 BILLION RMB, PRIMARILY DUE TO HIGHER PRE-INSTALL AND SEARCH REVENUE ON OUR PREMIUM SMARTPHONES. GAMING REVENUE DECREASED YEAR-OVER-YEAR, AS MENTIONED BY XIANG ZHONG, MAINLY DUE TO THE HIGHER BASE IN THE PRIOR YEAR, DUE TO THE STRONG GAMING INDUSTRY PERFORMANCE DURING THE PANDEMIC. ALSO, Revenue from our other value added services decreased as we voluntarily reduced the risk on our FinTech business. If you look at our global internet user base, it has continued to grow and drive our internet services business. In March of 2021, the global MAU of MIUI increased 28.6% to 425.3 million, while the MAU in mainland China rose to 119 million, up 6.4% year over year. Our TV value added service offerings continue to expand and include video entertainment, e-learning, kids mode and karaoke, providing diversified content to a wide user group. During the pandemic, our education channel also offered live streaming educational courses for free. providing a convenient learning option for kids at home. In the overseas market, our internet services revenue increased 50% year-over-year in the first quarter, accounting for 13.8% of total internet services revenue. This was driven by increasing overseas smartphone shipments and the expansion of our overseas business. Notably, the MAU in Western Europe grew 95.5% year-over-year, And our Mi browser business is also expanding in the key overseas markets. Talking about the overseas business, in the first quarter, our overseas revenue increased 50.6% year-over-year to 37.4 billion RMB, which accounted for 48.7% of our total revenue. According to Canada's, our smartphone market share ranked number one in 12 markets in the first quarter, and ranked in the top five in 62 markets worldwide. For instance, in Spain, we ranked number one for the fifth consecutive quarter, and we also ranked number one in Russia for the first time this quarter. We have further expanded our scale in the key overseas regions. Our smartphone market share in Europe climbed to number two for the first time this quarter. Our ranking in Latin America and Middle East both rose to number three, and we maintain our number two position in Asia Pacific. I would like to further highlight our excellent performance in Europe this quarter. As I mentioned before, we ranked number two for the first time in Europe, with a market share of 22.7%, as our smartphone shipment increased 85.1% year over year. In Spain, our smartphone market share reached 35.1%. And in Italy, our ranking surged to number two with a market share of 25.2%. We also maintained our number three positions in France and Germany, with year-over-year growth exceeding 100% in both markets. We continue to deliver strong results in both the carrier and online channels overseas. In the first quarter, excluding India, our overseas smartphone shipments through the carrier channel exceeded 5 million units, up more than 310% year-over-year. As of March 31st, we've cooperated with over 150 carrier channels worldwide. At the same time, our smartphone market share in Western Europe carrier channel surged to 11.3%. compared to 7.4% in the fourth quarter of 2020. In the online channel, our overseas smartphone shipment, excluding India, also exceeded 5 million units, up more than 100% year over year. Now let's move on to the financials. In the first quarter, as I mentioned before, our revenue reached 76.9 billion. up 54.7% year-over-year and 9.1% quarter-over-quarter. In particular, revenue from smartphones grew to 51.5 billion RMB, up 68.9% year-over-year and 20.8% quarter-over-quarter. Revenue from IoT and lifestyle products reached 18.2 billion, up 40.5% year-over-year. Our revenue from internet services reached 6.6 billion RMB, representing an increase of 11.4% year-over-year and 6.4% quarter-over-quarter. As you may have noticed, our growth margin has shown strong growth momentum during the last quarter. Our overall growth margin increased to 18.4% in the first quarter. And if you look at the gross margin for our smartphone segment, it grew to 12.9% in the first quarter from 8.1% in the prior year. The gross margin for IoT and lifestyle product increased to 14.5%, and the gross margin for internet services segment increased to 72.4%. During the quarter, We continue to step up our investments in brand building and R&D. Our R&D expenses increased by 61% year over year to 3 billion RMB. We remain dedicated to pursuing the cutting edge technology for our business. And we expect to recruit another 5,000 engineers in 2021. We saw robots grow in our adjusted net profit in this quarter. We reached a new record high of 6.1 billion RMB, up 163.8% year-over-year, and 89.4% quarter-over-quarter. And our adjusted net profit margin climbed to 7.9% in the first quarter, from 7, sorry, from 4.6% in the same period of 2020. We maintain our efficient approach to managing our working capital. Our AR turnover days decreased to 13 days in the first quarter of 2021. The inventory turnover days were 65 days in the first quarter, and our AP turnover days increased to 111 days in the first quarter. Overall, our cash conversion cycle was very healthy at negative 33 days. Last but not least, our strategic investments enable us to generate additional earnings growth. We continue to enrich our investment portfolio. For example, in the first quarter, we invested in Dong Yi Ru Shen Home Decoration, a premium home decoration solutions provider, which also established strategic cooperation with our AIoT smart living ecosystem. As of the end of the first quarter, we had invested in more than 320 companies. We generated an after-tax net gain of around 400 million RMB from the disposal of investment during the quarter. And as of the end of the first quarter, the total value of our investment is close to 70 billion RMB, which if you look into it on a per share basis represent about 3.3 Hong Kong dollar per share. We will continue to leverage our resources and our ecosystem to invest in more ecosystem companies, further empowering the entire manufacturing industry in China.