Xiaomi Corp

Good evening, everyone. Welcome to Xiaomi 2023 Third Quarter Results Announcement Investor Conference Call and Audio Webcast. Today's conference is being recorded. If you have any objection, you may disconnect at this time. If you have any questions and would like to raise during the Q&A session, please press star 1 on your telephone keypad to register your question. Should you wish to cancel your questions, please press star followed by 2. And I'll hand over the to Ms. Anita Chen, Head of Investor Relations and Corporate Finance. Please go ahead, Ms. Anita Chen. Good evening, ladies and gentlemen. Welcome to the Investor Conference call and audio webcast hosted by Xiaomi Corporation regarding the company's 2023 third quarter results. Before we start the call, we would like to remind you that this call may include forward-looking statements which are underlined by a number of risks and uncertainties and may not be realized in the future for various regions. Information about general market conditions are coming from a variety of sources outside of Xiaomi. This presentation also contains some undeterred non-IFRS 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 online today, we have Mr. Liu Weibing, partner and president of Xiaomi Corporation, and Mr. Alan Lam, vice president and CFO of the company. To start, Mr. Liu will share recent strategic and business updates of the company. Thereafter, Mr. Lang will review the financial performance of the third quarter of 2023. For the last, we will move on to the QA session. I now turn the call over to Mr. Liu. Good evening, everyone. Thank you for joining us on our third quarter 2023 earnings conference call. As you can see from our Q3 financial results, we have achieved robust performance across all our key operation metrics. And I would like to mainly focus on three points. And this is the first time that we have achieved a year-over-year revenue growth for the first time after six quarters. And the second highlight is that in Q3, in the mainland Chinese market, after substantial changes, everybody is paying attention to Xiaomi's performance high-end strategy, and in our Xiaomi 14 product that has just been launched, and we have achieved great results, and you can see that our capability has improved greatly. The external environment impact on us has actually reduced substantially. Number three, for this year, especially for three quarters, we have done very well, and you are very interested in our future development. We are also very capable. We have received quite great results for the past three quarters, and we believe that we can continue this sustainable growth. And we're very confident about ourselves. So tonight, I'd like to talk with you. There are three parts of the above areas. One is what changes have happened, and second, what have we done? In terms of Xiaomi's business, is this sustainable? And finally, how do we look at 2024 in terms of the industry, the operation, as well as the consumption? First of all, let's take a look at global macro. The global economy has been slowly recovering throughout 2023. However, the trend continues to be sluggish, and there is also very uneven trend. development or growth. And according to the latest report issued by the IMF, they are forecasting 2024, the economic growth was revised down by 0.1 percent point to 2.9 percent. Weakness stays, especially in the developed economies and relatively resilient in the emerging countries that demonstrate a fair degree of resilience. In the third quarter of this year, According to cannabis, the global smartphone market remained weak, though shipments continue to decline by 1% year on year. However, the decline has noticeably narrowed down compared to the previous years and were very bullish about 2024. Looking at competition, in Q3 for China market, we have seen certain changes and this will also affect our industry. Overall speaking, The macro environment remains challenging. However, for Xiaomi, for our all business segments, achieved very high balanced growth and operate efficiently. For the group, we have demonstrated robust execution. In the meantime, we have also seen very good results. And in our third quarter, our business has demonstrated resilience and navigated throughout economic cycles Total revenue for Q3 reached RMB $70.9 billion. Year-on-year growth has been realized. We continue to deliver solid performance in probability and net margin reaching $6 billion. Remarkable 183 year-on-year growth in the Q3 of 2023, excluding RMB $1.7 billion expenditures related to our smart technology. EV business and other new initiatives, our core business adjusted profit reached 7.7 billion. So I would also like to say that this is the reason why I'm very bullish about our core business and for our new business, EV business, this will lend a very strong support. I would also like to share with you some of my points on the few important areas and the first one is on the high-end market, and in Q3, Chinese economy has seen some changes within our industry. We have seen a lot of attention given to Xiaomi, especially for Xiaomi's high-end development, especially with Xiaomi's 14 Pro and the smartphone being launched, and we can see that for tell me 14 and very quickly with a one week and we have been able to realize the 1 million units of a sales and during double 11 for Xiaomi 14 and we have the nominated as the champion across four platforms. And this also helped us with our work across four platforms. And the revenue achieved over $2.4 billion. And in the meantime, we also have the whole complete Leica camera system. And in the meantime, for our product, studying above 5,000 has been significantly solidified, and this has exceeded our expectations. The reason why, Xiaomi, we can receive this progress, there are following reasons. The first one is that Xiaomi, we adhere to benchmark ourselves to iPhone, and starting from Xiaomi 12, And in terms of energy saving to capabilities and to today, overtaking Apple this time with the Xiaomi 14 series. And for Xiaomi 14, we benchmarked to iPhone 15 Pro. And so you can see that we are benchmarking ourselves across different lines of products with the products that we have already realized over overtaking of iPhone. and our customers have approved this point by their actions. Secondly, with the technology in front, and we have many innovations, you can see that, first of all, in terms of our screen. And this is a compact, full-spectrum screen, and this brings great user experience. And second, you can see that This is our Longjing glass. And this glass is very strong, and even 20% stronger compared with the military glass. And in the meantime, we have also used the fiber. And number four, we have the 14 pro titanium metal. And this is integrated into our Android flagship models. For Xiaomi 14's sale, this has also driven our market share in China. In 2011, we have reached market share increase to 22% and within the price range of 4,000 to 6,000 RMB and further rose to 51.1%. Apart from China market, also in overseas market, we have seen very good premiumization strategies. For instance, We have launched with the co-engineered with Leica and has gained widespread user recognition. The sale volume of Xiaomi 13T series ramped up significantly compared with its last generation. Secondly, I would like to talk about our internationalization strategy. You can see that for today's Xiaomi, in terms of our brand, has done very well. And globally speaking, we would like to establish a safe and robust and stable platform. And in this backdrop, continuously for three quarters and for Q3, we have reached 14.1%. In addition, among Apple and Samsung realizing negative growth, and for Xiaomi, we have realized positive growth. According to Canada, for over 55 countries, smartphone shipments ranked top three and ranked top five across 65 countries and regions globally. In the meantime, we achieved a 2.1% increase in the Europe market. In Latin America, for smartphones, shipments increased to 18.3%, with a quarter-on-quarter growth of 1.8% in Africa, with a quarter-on-quarter growth of 2.1% and 4.7 percentage point growth year-on-year. Total shipment increased to 10.7%. With mobile phones growth, not only that, we need to look at the increments. We also need to look at its existing market. By September, our MAU of MIUI reached $623 million and increased over 10.5% year-on-year, marking a solid driver to our internet service business. Number three, we continue to invest in future technology. And we have already seen very good market return in the past few years. We have seen very severe market strategies, but we continue to invest in technology in the future. Over the past few years, in terms of our investment, we have already seen good results. In Q3, our R&D investment has reached $5 billion. Recently, we have seen a statistical report from the National Bureau of Statistics, and this is a report on statistical bulletin on national science and technology expenditures in 2022. The total is $3.078 trillion with R&D investments, including universities and institutes. Xiaomi reached $16 billion. So last year, the R&D spending of Xiaomi has already exceeded 0.5% of the national R&D expenditure for the same year. So behind this is basically, for Xiaomi, we are committed to the investment in foundational core technologies and dedicated to become a leader in the evolving realm of global cutting-edge technologies. In the meantime, we have also upgraded our strategy to the new human car and home strategy. With this new strategy, and the Xiaomi HyperOS is our key platform to make sure this happens. In early 2022, we decided to integrate the software architecture across the four systems, MIUI, Vellum, Mina, and the in-car OS. After two years of hard work, we have been able to integrate all these software systems. We invested over 5,000 R&D engineers and seven years into this process. In the meantime, we have a few targets. First, optimizing performance for each individual device. Second, seamless and efficient cross-device connections. Thirdly, realize AI empowerment and to make sure AI becomes our brain to ensure delivery proactive intelligence services to users. Fourthly, ensuring robust protection for cross-device system-wide privacy and securities. And fifthly, fostering ecosystem development in collaboration with global developers. We aim to integrate all consumers' needs. In the meantime, in October, we unveiled a series of features aimed at improving user experience, including leveraging AI to enhance our internal management. We are also opening up our system to other developers internally. We also use AI technologies to further enhance our internal management. Behind all these results is actually thanks to the continuous improvement of management. We can see that a lot of our management benefits have realized, including the cost down, the improvement of our profit in the meantime. For Xiaomi, we have the widest management structure. We also need to rely on a very scientific management system and starting from the 2019 and we introduced the IPT value creation system at the product development level aiming to address how to consistently launch top selling products effectively. In addition, we also have the IPMS value realization system We look at the ITR system and to realize a feedback loops between the user front and the research and development front, and establishing a comprehensive strategic management framework. In the meantime, we have also established a DSTE system for the past two years for our work We have strengthened our closed-loop management mechanism of strategy, formulation, and ISC, provided the efficient and high-quality supply chain to deliver our proven products. With the support of the management transform and capability upgrades we mentioned above, we hope that we would be able to cope with the external environment's uncertainty. Number five, to continue to pursue long-term sustained high-quality growth. For the past few years, we know very clearly that from a technology leader, we need to continue to invest in our technology, and this needs a very strong and stable finance as a core supporting point. And therefore, we have been able to continue to solidify our capabilities. And based on this area, you can also see that we have seen very good results. Going forward in the industry, we continue to see very strong challenges. For instance, some of the parts, actually, we have seen the cost going up and the bond material costs are going up. But for our management team, we are very confident that we would be able to overcome the uncertainties of the external environment and to ensure very strong growth. And looking into 2024, not only in mobile phones, but home appliances, tablets, wearables will continue to grow. And for Xiaomi EV cars will also be launched to the market, not only in domestic Chinese market, but also in the overseas market. We will maintain our strong growth momentum So far, we already have a complete and extensive product lineup, coupled with a new strategy of a human car home smart system. We will provide our users with superior products, fostering sustainable and high-quality growth. And I would like to say that Xiaomi today is the best of Xiaomi. It's the Xiaomi that is ready, and it's the Xiaomi that is looking forward to embrace the future. I now pass the floor to our CFO, Alan. Thank you, Mr. Liu. Dear investors, good evening. Just now we have heard from Mr. Liu that in the macro economy there are still uncertainties. However, in this industry, with the pressure, we continue to carry out stable operations and consolidate our capabilities. For this quarter, Xiaomi, we have delivered very excellent answers. with our revenue growth resumed and the profit continued to increase significantly. In the third quarter of 2023, our total revenue was RMB 70.9 billion, which China accounted for 51%. Overseas, the revenue accounted for 49%. Our comprehensive growth profit margin was 22.7%. Year-on-year increase of 6.1 percentage points. Looking at by different business segments, In 2023, third quarter, our smartphone business revenue was $41.6 billion, accounting for 59% of our total revenue. For this quarter, even if the performance of the global mobile phone market is still under pressure, our global smartphone shipment improved by 27% quarter-on-quarter to 41.8 million units, exceeding 40%. for the first time in a single quarter this year, and our market share increased by 1.2 percentage points of QonQ to 14.1%. It has improved QonQ for the third consecutive quarter, has also ranked among the top three in the world for 13 consecutive quarters. Thanks to the product mix, the reduction in inventory impairment provisions in overseas markets, and the impact of falling core component prices, the gross profit margin of mobile phones was 16.6%, a record high, an increase of 7 percentage points year-on-year. In the IoT business, we have achieved year-on-year growth in both revenue and the gross margin. Revenue was RMB 20.7 billion, year-on-year increase of 8.5%. This is mainly thanks to our tablet business and several consumer products with a high gross profit margin in mainland China. Our gross profit margin reached 17.8%. This is a year-on-year increase of 4.3 percentage points, setting another record. quarter, we have multiple IoT categories performing very well. For instance, Xiaomi TV maintained its first place in TV shipment rankings. For our smart home appliance business, we continue to maintain year-on-year revenue growth, including refrigerator shipments. The sales volume surged by more than 95% year-on-year. Our global tablet product shipment increased by more than 120% year-on-year. and our shipment ranking ranked among top five for the first time in the world. According to Canada's data, we ranked second in TWS headset shipment in mainland China this quarter. In terms of Internet business, our user has further expanded. In September 2023, our global MIUI monthly active users reached a record high, with a number of users reaching 623 million, a year-on-year increase of 10.5%. Among them, the number of monthly active users of MIUI in mainland China reached 152 million, a year-on-year increase of 7.4%. Our revenue this quarter was RMB 7.8 billion, a year-on-year increase of 9.7%, a record high in a single quarter. The gross profit margin also performed very well. Internet gross margin in this quarter was 74.4%. Advertising business, we have seen revenue for this quarter for 5.4 billion year-on-year increase of 15.7% thanks to the outstanding performance of domestic and foreign effects and brand advertising. In terms of gaming business, revenue increased by 5.6% year-on-year to RMB 1.1 billion, marking the ninth consecutive quarter of year-on-year revenue growth. In addition, for overseas Internet service, revenues increased by 35.8% year-on-year to RMB 2.3 billion, a record high. Overseas Internet service revenue accounted for 30% of the overall Internet service revenue, a year-on-year increase of 5.8 percentage points. In terms of our business, for this quarter, our overall operating expenses were RMB 11.1 billion. If we exclude the new business investment expense of RMB 1.9 billion, Our core business operating expenses were RMB 9.1 billion, a decrease of 1% compared with the same period of last year. We continue to expand our R&D spending and invest firmly in the future. This quarter, our R&D expense was RMB 5 billion, a year-on-year increase of 22%. In the third quarter of 2023, Xiaomi Group adjusted the net profit margin We reached RMB 6 billion, a year-on-year increase of 183%. Adjusted net profit margin reached 8.4%, reaching a record high. Our core business profit was RMB 7.7 billion, year-on-year increase of 162%. In terms of optimizing inventory management, Since the beginning of last year, we continue to optimize our inventory management. We have heard from Mr. Liu about our management and our more meticulous management of the inventory. You can see that the overall inventory amount was $36.8 billion, down by 30.5% year-on-year. This is the lowest inventory level in 11 quarters. Looking at our cash flow, in the first three quarters of 2023, our cash flow, operating cash flow was 33.5 billion, much higher than the same period last year. In terms of our cash on hand, we have 127.6 billion, a record high. Abundant funds can better support the development of the group's core business and new businesses. At the same time, we also actively give back to our shareholders. As of now, the total repurchase amount in 2023 has reached 1.16 billion yuan. Finally, I'd like to touch upon ESG. We have fully integrated ESG management into our business operations and management as part of the company's important development strategies. in the third quarter of 2023, achieved in the MSCI and Sustainlytics for the ESG rating results. We have seen very significant improvements. We pay attention to talent development and talent cultivation and always regard growing together with our employees as an important driving force for our development. Telme Group has established been selected as one of the world's best employers, published by Forbes for the third consecutive year. At the same time, adhering to the mission of enabling everyone around the world to enjoy the better life brought by technology, we are committed to achieving carbon neutrality in our existing operations and using 100% renewable energy by 2040. We will release the carbon neutral action report at the end of 2023, detailing the group's carbon neutral action. Finally, we always practice socialist public welfare and actively assume corporate social responsibilities. We have established three business keywords from Beijing Xiaomi Charity Foundation. helping those in need, talent training and technology innovation. In terms of poverty alleviation, by the end of October 2023, Beijing Xiaomi Charity Foundation has already donated more than $156 million in public welfare expenditure. And in talent training, as of October 2023, Xiaomi Scholarship Anniversary has covered 60 universities and with a cumulative spending of 55 million RMB in technology innovation. As of October 2023, Xiaomi Innovation Joint Fund has funded a total of 108 million RMB and funded 74 projects. Thank you very much. This is what we would like to share with you for this quarter. We can now go into the Q&A session. Thank you. We now go into the Q&A session. If for the purpose and interest of all the investors can get a chance to ask questions, please limit your questions to two only per time. We now go into the Q&A session. Please press Start 1, and if you wish to cancel, please press Start 2. We welcome Andy from Morgan Stanley. Please go ahead, Andy. Thank you, management team. My first question is on mobile phone business. We can see that Xiaomi recently, after launching the 14 series product, we have seen a record performance for HyperOS as well as the AI system. And will this actually bring a completely new product competition landscape and how come the AI adoption actually changes the user's cycles. Yes, indeed, for Xiaomi 14, we have achieved very good results. For this year, we can see that for the overall mobile phone market has actually decreased compared to last year. But we can see that in the high-end market, actually, it is growing in the general market. So basically, for the high-end market, and overall speaking, this is why we have seen the growth. And this time, for the Xiaomi 14, we have actually launched earlier compared to previous years. So basically, we have... launch our product with Huawei Mate as well as iPhone and people used to worry that will this affect our sales and actually we have done okay and iPhone 15 has actually decreased compared to last year so basically the users will pay for innovative products. And if the users are not very attracted to your features and they will not purchase your product, so there are still opportunities for innovation. So this round compared with iPhone 15 and we are definitely not beaten by iPhone and actually in a way we have overtaken Apple and so this is also one of the reasons that we have done well you have also talked about Hyper OS so we have talked about this many times this time with a Hyper OS we can see that indeed we have seen very good results and for Xiaomi this is a great way to help our users and a lot of our users actually because they have used HyperOS and come back to our product. And why so? It's because of our human car and home strategy and ecosystem. And we are the only one who can achieve this. And we believe that for people might say that they have done very well, but actually they do not cover that much, and they don't cover cars, nor do they cover a large percentage of homes. And for us, we have realized that with a very smooth connection of mobile phones and the batteries can last for a long time, and there is a very smooth and seamless connection with all your other devices. When we talk about AI, We also will see the features that are enabled by AI and behind it is about AI and we look at AI and we look at its capability and for Xiaomi and all various OS and it can play a very strong role. So we believe that for Xiaomi's core technology, And the user experience that Xiaomi brings, I believe that this will continue to reduce the cycles of how often the users would change their mobile phones. So going forward and looking into the future, what I'm trying to say is that with the core technology, the investment needs a long time, and the Xiaomi that you see today compared with the technologies that we have launched. And it's part and parcel of the old technologies, and each round with the iteration of our new product launches, there will be new core technologies launching, and all of this will also be very beneficial to the next round of our technology. Thank you, Mr. Lu. You have also talked to us about what are the points that Xiaomi has done right. And please also share with us in the future what are the areas that you will continue to focus on. And what about Q4? So in the past, we have a few very important strategic points and lines, and I often talk about this. And number two is to continue to go through premiumization. Premiumization strategy is a very important strategy. It's hard to do, but we are adhering to this. We are adhering to mobile phones' premiumization and to drive the premiumization of our other series of products. So this is a very important premiumization strategy. Thirdly, for our strategy, which is we need to push forward for new retail. We believe that the premiumization of mobile phone sales, and we can see actually offline sales is higher than online sales. For Xiaomi's 14 and offline sales has already overtaken online sales. I believe that the experience of our products could only happen in our flagship stores, and this is why we are very determined to implement this strategy, and I believe that these strategies will bring back very good returns to our business. Thank you very much, Mr. Liu. Thank you. We welcome the next question. Jeremy Lee from Goldman Sachs. Thank you, management team, for taking my question. I have two questions. The first one, in Q3, we can see that with the environment changing in mainland China, and we have seen you have done well in premiumization. I'd like to ask about the overseas market in Q3. In the main market, we have also seen very good recovery for Latin America, Africa, India, And Europe, what have you done in those areas to achieve such a good recovery? Second question, your Internet business. We can see that year on year in terms of the growth, we can see that it's speeding up, especially in our overseas business. And we have about over 30% of business growth. Can you please share with us what are the drivers behind this? Thank you. I'll take the first question. Second question I'll leave it for my colleague Alan to answer. So I have just come back from overseas. I've visited our overseas markets for three times in February and March I went to the Middle East and in May I went to Southeast Asia and this time I went to North America. as well as Europe. So after my business trips, we would have these summary meetings, and I talked to my colleagues about Xiaomi for overseas market. We definitely have a huge potential. You can take a look for our overseas market and U.S. market. We are not in there. And at the moment, about 16 to 17 percent market share. And in Q1, Q2, and Q3, our market share continued to improve. And in Q4, I believe that we can do even better. And in today, we can see that we are roughly about 16 to 17 percent of overseas market share. And in some markets, For instance, Spanish market, we have realized over 30%. In some market, we only have 5%. So globally speaking, we have a lot of potentials, and those are all opportunities for Xiaomi. So this is point one in business. We have a lot of opportunities. If we look at IoT business, and for the IoT business, We feel that for our overseas business, we have about five times of growth opportunities. So far for our tea business, it's still a very small percentage. We don't have a lot of categories, and the price is very expensive overseas again. So this shows great opportunities there. So this is on IoT. And in the past few years, in the overseas market, what have we done exactly? If we look at our overseas business, number one is that we have a lot of different categories, and we cover global markets very wide, ranging over 100 countries. In over 60 countries, we have representative offices. In 30 countries, we have companies established in the past few years. Global economy and environment is not great. We have the pandemic, et cetera. So it's a very complicated external environment. This means we have to build a very safe and highly efficient platform. It needs to be highly efficient to help us realize our global mission and vision. We have done a few things in the past few years, and the first one is that gradually, we can see that we are seeing good results in the past few years. And with the pandemic, it has brought some negative impacts. Some of the brands have left the market. And for Xiaomi, for the past few years, in terms of globalization, we continue to expand. So this is one point you can see. Very quick one example in Africa. From last year to this year, our market has doubled. Our Q3 versus last year Q3, our growth is 100% growth in Latin America. It's very far away from China. I flew about 50,000 kilometers, and we have realized about 40% growth. And in developed markets such as Europe, last Q3 and in last quarter we have also seen very good growth and in India people are concerned about the pressure but in Q3 versus Q2 we have seen very good rebound and in Q3 we have, Q2 we had 15% and Q3 we had 18% including Middle East and Southeast Asia. We have all realized very good growth and this is again thanks to our globalization strategy and this is the good results that we have harvested. In terms of Internet business, and I think number one, it is based on our overseas Mobile phone growth, and Mr. Du has talked about this, and our mobile businesses continue to grow, and you can also see our MAU users has already reached 623 million people. Our user base is becoming broader and broader, so the existing business and the users has brought us a lot of business. In the meantime, we have also done a lot of in-depth work So, for instance, in terms of partners, and we have done a lot of work. We have introduced a lot of new partners, and you may have also read the news. One month ago in Singapore, we have organized a partner conference inviting our global Internet partners to join us, and this would also help with more of our products collaborators, and they would be willing to place their advertisement with us and to carry out new services, et cetera. So this is number one, the number of users' growth. And second, our overseas business operation is becoming more and more mature. We are finding more partners to work with us to continue to serve with our global users together. Thank you, Mr. Lu and Mr. Lam for your answer. We now welcome the next question, Kenneth, from Citibank. Thank you, management team. Thank you, Mr. Lu. I have two questions to ask Mr. Lu. In the beginning, you talked about the company will continue to maintain stable operation in the mobile phone side, and we can see that the net margin has seen very good record high. And if we break this down, and what are the successful factors behind it? Is it because of the structure change, or cost down, or inventory change, or is it because some other factors? And for 2024, I'd like to ask, looking at the company in terms of the hardware, Will you have some new foundations? For instance, in the past, it's about 10% to 11% of growth margin. And we can see that right now, we have already built quite a good foundation, so in terms of stable development and what is the trajectory. And recently, we have also seen that MIIT, they have published about Xiaomi's EV Car of the information we have also seen the bugging and the debugging of your EV cars. And in terms of EV, can you let us know about your strategy in addition for the company's future? How do we work with the company? And can you give us some guidance? Thank you. Let me answer, and I will ask Emmy to respond. And I do feel that For this season, we have achieved some new highs, and there is a reason behind this, a comprehensive reason, and perhaps you worry about our inventory write-down. And for Q3, we can see that currently it has given us about a write-down of 600 shares. 600 million. And for this is mainly because of our portfolio changes. And of course, we also have some other management rules and tools, et cetera. And this is a very comprehensive process. And it's not just one single change. And in terms of operation strategies, and we continue to adhere to our strategies for a very long time internally. We have also asked ourselves, is it that actually those two are in conflict with each other in terms of scale and margin, but actually we can see that they're not exclusive of each other. With a good scale, you will have a good profit, and vice versa. The key is how to really find the best balance between those two factors. And in the past one to two years, we have been looking for these strategies. And these are also strategies that we will adhere to. We also see investors paying attention to our growth momentum and whether this can be kept. And when the external environment changes, how do we look at our operation for our management teams? We are very confident that we would be able to cope with the pressure from the external environment and cope with the fluctuation. This is something that we are very confident about. With respect to cars, you can already see that from the MIIT's website. You can already see this EV, and this is a sedan. In terms of the details of this vehicle, I'm not in a position to tell you much more. But I can tell you that we have this home, human, and car ecosystem. And this is very important for the vehicle in our ecology. And going forward, when customers purchase our products, it is not just purchasing simple one product. It's about a life solution. It is about a whole ecosystem. So we are moving towards the whole ecosystem. And secondly, you will also see that for vehicles together with our mobile phones and our 3C products, there will be a lot of synergies. And I believe that the synergies will also be shown. You have heard that for EVs. And this is a general integration with consumer electronics. In the meantime, with the integration with the consumer electronics, and there will be a lot of chemical reactions, and this will see and give us very good results in the future. So I pass on to my colleague, Alex. You can see that in Q3, in terms of our work this may have affected our margin for 0.8%. If you look at last year's Q3, it's a negative 0.8% impact. So adding together the inventory's impact and provisions impact would be 1.6%. I stated this. Our growth margin has increased by 6.1%. So with this in mind, as Mr. Lu has said, our product structure optimization, as well as the raw material cost coming down, and that this has helped. This is my explanation. Thank you. Thompson from UBS, please. Hello? Yeah, Thompson, we can hear you. Apology, I muted myself earlier. Thank you for your time and congratulations on the great quarter. So the two questions, one on growth margin. My question will be from another perspective and for the company for the growth margin you talked about from the domestic product portfolio. So in domestic market for the premiumization product versus the low end product, and what is the growth margin difference for high end product, and how much room is there for you to further improve the margin? So that's question one. And question two, this is relation to IoT and Smart EV. For the company, every year we will see the user's usage in Q3. This is roughly about 13 million. And I feel that these users are a very good target for your new EV. In terms of these users, in terms of their consumer's profile, do they purchase high-end or mid-end or low-end products for these consumers? And will they purchase all the functions and features? OK, great. Thank you. You asked about the growth margin difference between high-end and low-end and how we look at the future. Let me comment on this. The way I look at this is that our high-end product for right now, it is in the early investment. And if you look at our product, and actually for high-end and low-end, there is a huge difference. And I myself feel that going forward for high-end, we have very – deep potential, and we have not yet gone through from quantity to quality change. If we look at Apple for the whole year, and it's from, for instance, 220 million mobile phones, and they're all high-end. If we look at Samsung globally, we also compare with Samsung quite a lot compared with our high-end product. They have about 40 million. And for Xiaomi, we have about overall for mobile phones above 4,000 RMB, and there is still a difference and a gap. This is a challenge for Xiaomi. This is also a huge potential for Xiaomi, globally speaking, if our volume continues to grow and the quality that the that will be brought about and we will see this and you know that the raw material cost reduction is actually quite high and for our product and the price was lowered in the very early days. So for Xiaomi and once we have already seen the changes, And I think that we still need some time, but I believe that the potential is there. And for Xiaomi, we are very confident that we would be able to dig out this potential. You also talk about AIoT, as well as the number of the users. And this is actually about 20% higher than our users. And this is very stable. So we can see that going forward, we can expect that for our And of course, these are our main users. And through our observation, we can also see if a user has over five of Xiaomi's products. They are very sticky users. When they purchase a Xiaomi's product, they will not just buy one single product. They will purchase a whole solution. They will purchase a whole set of products. And this type of customers, they are very sticky. They really appreciate and well recognize Xiaomi's product, and utilizing this, we will continue to serve them very well. Okay, so this is what I have to say, Alan. Thank you. Thank you, Mr. Liu, for your explanation. We welcome the next question from Vin Cai-Ting from CICC. Okay, thank you, Mr. Liu and Mr. Allen. I have two small questions, and one is about our strategy. And you talked about offline is very important for your high-end product. We can see that Q3, more than half of the high-end product sales came from offline. So going forward for our premiumization, as well as for these whole products, complete a human car home ecosystem, and how do you look at the entire strategy? And I would also like to ask Mr. Lu and Mr. Lan for Q3. We have seen advertisement business has reached a new high, so for your Internet business going forward, how will you carry this, and what is your future direction for the Internet business? I will answer your new retail question, and for the internet business, I will ask Alan to answer. For the new retail after these years of development for Xiaomi's business and futures ecosystem development has played a very important role overall speaking. If we look at our single mobile phone, you can see that premiumization of our smartphone is very obvious. I don't know if you have also noticed that our tablet also grew very fast and wearables as well. So for Xiaomi's new retail, this is a very strong support. I remember that some people say that a lot of Xiaomi products, A lot of small friends or little kids would come to Xiaomi, and people joke that Xiaomi has become the new Internet bar. And if the kids want to come and play, we welcome them. We don't really disturb them, and they can enjoy our products. For our refrigerators, it has been sold by 100 times over growth. So this is also thanks to our customers. new retail developments. And not only that, this will support our premiumization. In the meantime, it also supports our ecosystem going forward. This is very important, especially with our EV being launched into the market going forward for the EV. This will be completely incorporated in our new retail. And going forward, there will be a lot of cars in a lot of the shops. not only that you will see our products, but also our cars. So this is something that I believe is of a very special value. Our human car home strategy and the new retail strategy, not only that we need a new retail to contribute to the human car and a home strategy and this can help us to close the loop and you can also see that perhaps one by one it's a silo strategy but overall it can be combined together and with all these strategies and this will be the special defensive unique advantage of Xiaomi so not only that you need to give as long as you give Xiaomi time and you will see that we will form a very strong defensive mode that nobody can attack us. And I believe that in the next three years, you can let your imagination fly and dream about our future. And I would like to very quickly to comment on the two points about our flying for our high-end mobile phone. And you can see that in Q3, it's about 55.5% for high-end mobile phones. So this is a new high. Secondly, if you look at the GMV of single shop compared with the last year, it has increased by 28% year-on-year. So this shows that in the offline business and the single shop GMV has increased significantly. significantly. So this is something that just to supplement to the first question. And your second question, you asked about in the future, how do we further improve our advertisement business? And of course, as we have heard from our overseas Internet business, and I will not repeat this, internally in China, very important for the high-end mobile phones and it's a percentage of our overall mobile phones that we have shown some data before for the whole life cycle. And for high-end mobile phones, it's about 10 times of our low-end mobile phones. And for high-end mobile phones, if we continue to improve our market share and our sales, we believe that, of course, the margin will continue to grow. And this is our plan as well. In the meantime, we are also looking at how to explore our operation capabilities, and in the meantime, commercialization of our users and to further solidify our sales. So those are the two parts. Okay, great. Thank you, Mr. Lu and Mr. Allen Lam. Okay, great. Thank you. Our next question is from the Thank You Management team. A great result. Just one question. And I noticed that, Mr. Liu, you often talked about human car and home. And we also want to know more about this for the company in terms of client as well as your development and how do you look at this. You talked about the design and in terms of, for instance, the client base and user base. Can you let us know more about this? Okay, the way I look at this is as follows. Actually, I feel that, well, let's talk about smartphone first and smartphone's ecosystem for today. We do not yet really see a very high level of integration in the industry. If we look at the Chinese market, whole year, even for the number one, player has not exceeded 20%, and the number five is not less than 15%. So it's in the region of 15% to 20%. So I believe that the market will continue to concentrate. There will be other brands that will exit from the market. So this is number one. Going forward, for any of the top brands, They will not only serve just one client base. It will be omnichannel. And if it is omnichannel, how do we meet for the omnichannel requirements? And you will see that today for Xiaomi, for instance, we have Xiaomi and Redmi. Within Xiaomi, we have Xiaomi's digital series and various different series of products. the product series classification to satisfy the different users' demand. And for human car and home, it is the same principle behind it, based on for the users, and we divided them into different groups, and looking at mobile phones and EVs that can drive our customers and to tell them more about our solutions and our user experience, and this is reliant on the whole set of the same operating system, and this is our commercial logic. I don't know whether I have explained this clearly. Very clear. Thank you, Mr. Lu, and thank you for your question. Thank you. In the interest of time, we welcome the last question. from , welcome. Thank you, Mr. Lu. And one question. PC, in the past, PC and mobile phones, they are quite separate. And two weeks ago, we have seen that Qualcomm with their new chips. And Mr. Lu, you have also made a speech in that conference. And how do you look at the PC market competition? And how does Xiaomi look at this sector? Well, PC. I feel that today this is the market for the PC business. Actually, if we look at our industry and the benchmark is obviously Apple. For Apple, for instance, with iPhone and wearable tablets and the PC, they have organized a great ecosystem, and this is what we feel that this is why Apple's stickiness is very strong. And for Windows, under this system, especially for Xiaomi or Huawei or Samsung and other players, if we want to connect all this, we really need to build Android and Windows. So at the moment, there are still some divide. And in terms of user experience versus Apple system, there is a difference. This is the current situation. So in this process, we ourselves are also thinking, PC is not our main business, and it's possible that there are some ways, and we have a few ways of looking at this. One is that we have, for instance, HyperOS, and in terms of our connected platform, if you look at our PC with our tablet and our mobile phones, there are already some of these connections, and I feel that we have already made some progress, and of course there is still a gap lagging behind from Apple. And secondly, in terms of today's Android plus Windows going forward, is it possible that with the WOS can build this through? It is possible to connect those two. For instance, based on Arm or based on some other products, there are some good samples and examples in terms of their performance. In the past, for Arm-based, there is a huge difference. But right now, we can see that the performance has improved. seeing great improvements, for instance, power utilization, ecosystem, et cetera. So those are the areas that we pay great attention to. And for I myself, I also believe and I'm very confident about this future, assuming that this direction is a good direction going forward for Xiaomi as well as for some ARM-based companies. And I think that this will be a great and a huge benefit, and this is a natural benefit to us And for Xiaomi, again, this is why we say that we adhere to this business. PC business is hard to do for us, but we continue to do this. It's because we believe that for PC, this terminal end in the home, car, and human ecosystem is something that cannot be ignored. This is why we can see that we have mobile phones, we have wearables. and our ear pods, and we have seen some major improvement in the tablets. We have seen very good shipment results, and it's already top three in China and top five in the world. our PC and so with our new product, the launch of our PC product, we have made great achievements as well as the large screen TVs, as well as our refrigerators and washing machines. All of these products for the whole Xiaomi ecosystem is very necessary and so we will also work our hardest to connect our ecosystem. Okay, great. Thank you. That's very clear. Thank you very much. Thank you. This is the end of today's conference. Thanks again for joining us, and thank you for your support. Thank you, everyone. You may now disconnect. Thank you, and see you next time.