Xiaomi Corp

2024 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. Ms. Anita Chen, Head of Investor Relations and Corporate Finance will be your host today. Good evening, ladies and gentlemen. Welcome to the investor conference call and audio webcast hosted by Xiaomi Corporation. Before we start, we want 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 reasons. Information about general market conditions comes 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 the company's financials prepared. Joining us, we have Mr. Louis Bing, Partner in President, Mr. Elaine Lam, VP and CFO of Xiaomi Corporation, Chairman of Airstar Digital Technology. To start, Mr. Louis will share strategies and business updates. And then Mr. Lam will review the company's financial performance in the third quarter. And following that, we'll turn over to Q&A. Mr. Liu, over to you. Good evening. Welcome to our third quarter resource announcement. At the beginning of the year when we made these changes, I have talked about fundamental changes to the capability building of Xiaomi in the recent years. We are now able to tackle uncertainties in the external environment. After three quarters, I can show you that our capabilities have been enhanced, showing good, very profit and premium. And we have very solid foundation to support future development. We're approaching the end of year. Earlier this year, you had some questions. What is happening to Xiaomi's automobiles? And what about premiumization strategies? What about profit level when the cost along the supply chain has increased? And also, can we sustain the big home appliance and also eco-chain profit level? I think you have seen the results today, so I will focus on these questions that I have just mentioned and also what we have done behind the scenes. In the third quarter, with fierce competition and higher cost along the supply chain, we have maintained stable growth. Total revenue of the group reached 92.5 billion yuan. The first quarter went beyond 90 billion, up 31%, handset IoT core business. Revenue 82.8 billion yuan, up 17% growth margin, 20.4%, which is above the healthy level of 20%. Growth margin for handset, 11.7%, smart e-car. And innovative business, 17.1%. After adjustment, total profit, 6.3 billion. And we have narrowed the losses for the innovative business, 1.5 billion. After restoration, 7.7 billion. and I will talk about our major strategy development. For premiumization, we invest heavily in tech, and we need a lot of tolerance and determination. HyperOS 2, behind this product, we have a team of more than 3,000 engineers, and we are able to provide high-end offerings. After accumulating our capability, Xiaomi 15's selling price increased from $4,000 to $4,499, but still it was selling faster compared to Xiaomi 14. The Pro version actually sold more quickly than a standardized version. The Xiaomi 15 series has shown our strong capability Other than the 15 series, we have other high-end handset products with very good results. For the premium price range between 3,000 to 6,000 in the Chinese market, our market share increased. For the 4,000 to 5,000 range, we are number one in mainland China. So we enjoyed 47.5 billion revenue for that segment, a growth of 13.9%. Secondly, It is about home appliance and IoT business. Total revenue, $26.1 billion, up by 20%. Because of the results behind our strategies of full ecology and industry capability, we are well supported by our capability and also our products. We have switched over to self-research. And we have synchronized our launch of products and continuously launch new products with IPT process. In October this year, we have shown some results for IoT products. In recent years, we have been invested very heavily in the core technologies for our home appliance offering. We offer younger appearance and smart experience, differentiating ourselves from our competitors. We've also realized product innovation in terms of our aircon and dryer washer. And we have gone beyond expected sales level, showing our user-driven R&D capability, proving that we still enjoy great room for further development. Concerning the fully connected ecology strategy, combining vehicles with handsets and other smart devices. So after accumulating our capability, we have identified a new starting point. We will continue to launch Sheik products and rely on IoT growth to support our future development. Globalization. We have launched our brand and also our model overseas. And we have done very good localized operations. we've completed the first step towards going global. In Q3, we continue to increase the level of brand influence, and we rank number three in terms of handset delivery, and we are number three in 52 countries in terms of handset delivery. And in September, we have achieved Total active number of users around the world, 686 million and those in China, 168 million. In October, we have been chosen to be one of the best brands around the world by Interbrand. We are one of the two Chinese brands listed on that. New retail model has created great support to our business and Our handset has enhanced its market share to 14.7% ranking number four by the end of September. Offline retail shops exceeded 13,000. By the end of the year, we expect to exceed 15,000 and reaching 20,000 next year. Overseas layout, we have already launched our models to the rest of the world. Our handset IoT products and also Vehicles about to be launched overseas will show our full chain advantage. With IoT products being launched overseas, we see this unprecedented potential in the international market. Our vehicle business, SU7 delivery volume at 40,000. We exceeded 20,000 units in October alone. October sales for sedans ranked number one. And on the 13th of November, we spent only 230 days to complete production of 100,000. Total delivery for 2024, the target is 130,000. The revenue 9.7 billion and net losses narrowed to 1.5 billion. We continue to enhance our network. Right now, we have 130 shops. And SU7 has performed very well in safety tests. And we're the only one receiving 3G plus and A-level grade of safety performance. In October, we have broken new record. with our Xiaomi SU7 Ultra. And we have pre-sold 114,000 units of SU7 Ultra in 10 minutes. We have exceeded 3,680 orders. They will be officially sold in March next year. So we have taken one step forward. Our success and also premiumization of our handsets are unprecedented. Finally, AI, which affects all walks of life. With AI empowerment, we are satisfying the needs of our users so that we are truly people-centered. And that is the ultimate direction to combine human vehicles and the homes. We need to allow fresh experience to penetrate the user's daily lives. AIOS is the soul of AI, full chain, and progression of the OS is necessary. But at the moment, OSs are not AIOS, and they have not yet realized sensing memory and inference programming and execution. According to the, in relation to the experience side, we should allow AI to become very supportive, and they will be able to help our users to finish all the small tasks in life. There is plenty of room for further development for AI. Finally, I would like to share three growth curves that have already been completed. The first one is about handset tablets and wearables. We have entered a mature stage, but still plenty of room for further development. aircon fridge and washers. They may be very traditional, but plenty of room for innovation. Third curve is about vehicles. Against great changes, there is plenty of room for imagination. And we have supported different types of products and around global markets to tackle external uncertainties. This is the unique business model around the world. In the past five years, we have continued strong momentum. We enhance our understanding. In 2000, we have completed our overall strategies. In 2023, we decided we are going to be the world leader in terms of tech. And we have the overall strategies to combine OS AI, new retail, and also leading capability and premiumization. In the past five years, we have enhanced our systems processes, information, digitalization, and also establishment of talents. So we expect a greater future for Xiaomi. And that's what I would like to share today. And over to you, Elaine. Thank you, Mr. Liu. Good evening. As Mr. Liu has said just now, we have clear strategy and guidance, and we have seen very good growth in revenue for Q3 this year, and also continuously increasing profit. Total revenue for Q3, 92.5 billion yuan, up 30.5%. With the stable growth of the vehicle business, Revenue for mainland China 56.6% overseas, portion 43.4%. Consolidated gross margin 20.4%, very satisfactory. Our handset AIoT segment in Q3 revenue was 82.8 billion, up 16.8%. Gross margin 20.8% at a healthy level. I will now provide segment breakdowns. Smart handset, revenue for the quarter, 47.5 billion yuan, which is 51.3% of the revenue, a growth of 13.9%. Delivery level for the 43.1 million sets, up by 3.1%. According to Canalist data, for 17 consecutive quarters, within ranking number three in terms of smart handset delivery. Market share 13.8%, among which in mainland China, our ranking has been enhanced to number four with obvious enhancement of market share to 14.7% up by 1.2 points, which is five consecutive quarters of enhancement. Despite certain impacts from the prices of components, we maintain healthy level of gross margin at 11.7%. At the same time, we have seen good results from premiumization strategy, continuous enhancement of capability of our products. According to third-party data, for the first nine months in mainland China, High-end smart handset delivery has taken up 21.3% among the overall figure, up by 3.9 percentage points. In terms of IoT, our revenue and gross margin presented good performance. For the third quarter, our IoT revenue sustained good growth to $26.1 billion, a growth of 26.3%. IoT growth margin in a quarter reached 20.8%, which is a historical high, up by 2.9 percentage points. In terms of offerings, our core IoT products maintain good growth and at the same time contribute substantially towards profit. In a quarter, smart home appliance segment had outstanding performance. Aircon delivery more than 1.7 million, up 55%. Fridges grew by 20% and washers up by more than 50%. Tablets sustained good growth, ranking number five around the world with 55% growth in terms of delivery volume. wearables sustain good growth as well. In October this year, we launched a new version of Xiaomi Watch S4 and Xiaomi bracelet 9 Pro. They are chic and they offer this much better experience for the users to support their healthy and sportive lifestyle. Internet service in September Global active user reached new heights to 686 million, up by 10%. Active users in mainland China reached 168 million, a growth of 10.6%. Segment revenue, 8.5 billion yuan, a record high, representing 9.1% growth. Offshore internet services revenue increased by 18.3% to 2.7 billion yuan, which takes up 32.5% of total internet service income. In this quarter, the revenue was 9.7 billion for innovative business, including smart vehicles. For smart vehicle sales revenue, 9.5 billion yuan, Others associated business, 200 million. 17.1% for gross margin for the vehicles segment, an increase of 1.7 percentage points. Xiaomi SU7 series, total delivery, 39,790 units. Average selling price at renminbi, 230,650. For this admin, the performance was satisfactory. We continue to exercise control in terms of expenses for the third quarter. Total expenses are $13.7 billion, taking out the newly injected expenses of $3.3 for new business. Our core business expenses for operation was $10.3 billion. at a ratio of 12.4%, which is a drop of 0.4 points. Net profit in the third quarter after adjustment, the level was 6.3 billion yuan, up 4.4%. Benefiting from the unexpectedly high growth margin for the vehicle business and high level of delivery for innovative business after adjustment net losses 1.5 billion RMB, a downward adjustment of 16.6%. Therefore, the core business profit level, 7.7 billion, and for the first three quarters, the accumulative level has gone beyond 24.4 billion yuan already. In terms of cash reserve, Up to the end of September, the level is 151.6 billion yuan, up 18.7%, a record high in terms of cash flow. After adjustment, the cash flow level was 9.6 billion RMB, with contribution coming from new business. We have been actively repaying our shareholders and the buyback for our stock has reached more than 3.71 billion Hong Kong dollars. We continue to enhance our ESG work in Q3 of the year. Because of our performance in terms of smart manufacturing and sustainability, we have been chosen to join the top ESG 50 in China Forbes 2024. We have also been selected as the best employer in China 2024 and most popular employer in China 2024. In October, because of the progress we have made in corporate governance and management of environmental risk, our rating has been upgraded from BB to BBB on MSCISG. And that is enhancement for two consecutive years. In October this year, we have organized a five-year anniversary forum for Xiaomi Foundation, which was set up with Xiaomi's donations in 2019. After five years of exploration and development, It has established three major directions, technological innovation, nurturing talents, and also providing assistance to those in need. Surrounding these three major themes, up to the end of September, they accumulated, donated 650 million renminbi by the foundation. The planned amount has reached 1.9 billion yuan. Thank you for your support. That's the content we would like to share with you today. And we can begin the Q&A. Thank you, Elaine. Let's proceed to Q&A to allow more people to ask questions. Please do not ask more than two questions. Thank you. We will start the Q&A session. To register your questions, please Press star one on your phone. If you wish to cancel, please press star two. First question from Governor Sachs, Timothy. Please go ahead. All right, Mr. Liu, Mr. Lam, thank you for taking my question. Congratulations on a Q3 performance. And many good surprises in the future. recent months. So about home appliances, can Mr. Liu share the way forward? What is the structure of your channels? What are your future plans? And then IOT growth margin was over 20%. And then about the automobile business, the gross margin continue to improve. What are the reasons? And what about SG&A and R&D expenses for this segment? What will be the level for 2025? What will be the trend for next year? The first question is about home appliances. The growth this year, very good, more than 50%. But such growth is just the beginning. In recent years, we have done a number of things. For example, the ODM format. I think you see our new air-con and dryer washer products. They are highly innovative. They bring very good premium. So we offer the best products. And in the next step, we need to strengthen R&D along the upstream. We have sophisticated technologies for our handsets and then sales channels. Actually, as you know, we have followed up on our original relationships with our customers to further develop into the home appliance arena. But I think this year we have achieved new breakthroughs. And we have very clear objectives. You can see our aircon offering. We have different models. and also washing machines and refrigerators. And they are all very energy conserving, well aligned with our green image. When you purchase Xiaomi products, you can purchase the entire collection. Many people will face the issues of installation. For example, it is difficult to dismantle and install air cons. So we combine all three steps together. We are the only one providing the whole chain of services to our buyers. that explains partially the good results. This is a traditional business, essentially. If you look at our washing machines, they are taking up less space. If you're in Beijing and Shanghai, Sometimes we are sacrificing too much space to washing machines. And very often in a flat, you only have one source of the water for each machine. So now we are combining dryer and washer together, which is conserving a lot of energy and resources for you. That is why we are so popular. And then a newly launched aircon, the air is coming from the top. So we are remodeling or reinventing the concept for special family needs. And we focus on energy conservation. And we only need space of two meters from your floor to your ceiling to accommodate our air cones. We have identified pain points and insufficiencies in other models in our innovation work Some companies, the same product, they will change the names five times. It's basically the same product. When it is sold online or offline, they have different names. We do not do anything like that. We object to that practice. I think we have a lot of room for further optimization. we have about slightly over 10% profit for such home appliances. Other people sell something at 20,000 yuan when it's only worth 3,000. So I think this industry, there's plenty of room for reform and restructuring. So Xiaomi experience is just taking off now. Our growth will continue to be very fast in 2025. You also talked about automobile business. It is growing very fast. And Q4 is expected to outperform Q3. The reasons are economies of scale, Even when you have scale, it doesn't mean you have economies of scale. You need high level of efficiency to enjoy the economies of scale. If you are selling 20,000 of your sedan model, you are already number one in the market. If we are operating at full capacity in our factory, we are at highest level of efficiency. So we can enhance the GPU margin. We have many technological capabilities being established. So if it's necessary, we will make investments we are moving forward so quickly because we have reliable professionals who have high level of capabilities for example we have the smart chases technology understand that you want us to make a good profit as quickly as possible. We do appreciate that, but we must establish a very strong foundation so that we can continue to move forward. Thank you. I want to provide some figures. Home appliances, we have more than 50% growth. In September, More than 45% year-on-year. Very substantial. At the same time, GP margin also improved by a few points. Compared to IoT GP margin, home appliances will perform better. Therefore, making very good contribution. to our overall GDP margin. Secondly, for new business, in previous three quarters, we've invested 8.8 billion, most going into R&D expenses. Therefore, this year, for new business, we have heavy investment again. With higher GDP margin, we will divert more resources into future R&D projects because GP margin has gone beyond expectations so we will spend more on our R&D capabilities. So next year the expenses will be even at a higher level and we expect better results. I want to add I just wanted to add these two points. Next question, Andy from Morgan Stanley. Thank you, moderator. Good evening, the two gentlemen. Congratulations on a good performance. Two questions. First, on handset. For 13 and 14 series after gaining success, This year, we see many competitors are trying to copy by launching small screen models. So more competition for such small screen products. But Xiaomi 15 still sustained very good sales. So can you tell us what is the logic behind that? What is the competitive layout? Second question about automobile business. while growing very rapidly. You need to identify points of sales and develop the network. So AIoT and handset offline retail has been successful in recent years. We can see offline shops may be expanded entering a new development stage. So can you share with us Mr. Lu about the network of sales and offline business expansion. What kind of synergy can be achieved? Thank you. All right. I will talk about Xiaomi 15 as small screen model. It's not just about shrinking the screen. That is a huge misunderstanding. Some competitors have rushed to create small screen devices. It's actually when you shrink things or downsize certain devices, it's even more difficult compared to enlarging the components. You really need very good techniques. And we understand what needs to be done in the creation of such small screens. If you look at our products, the edges of the screens are very good. Battery storage capability is outstanding. So our product, we also have IPT. There are no shortcomings. Thirdly, we care about the feel to your touch. Compared to iPhone, our product is obviously superior. Sometimes when you hold a handset in your hand, you feel that the edges are scratching on your skin. If you hold Xiaomi phone, you will feel very different. It's particularly comfortable. And we focus a lot of our energy on the details. And things are very refined. So it's not just about downsizing the screen. It is about enhancing at the same time user experience. And Xiaomi Pro is selling so well. Why? Because they have bigger screens. And it is similarly not just about enlarging things. And for the battery storage capability, it is very outstanding. The pro version is very popular. People continue to upgrade their handsets. For example, they start from $3,000 something and then upgrade it to $5,000 something. And we are accumulating more users. inside the range of $3,000 to $4,000 so that later on they will be able to upgrade to more premium offerings. We attract different customer groups, we retain them with the outstanding performance of our products, and then they will upgrade the products ultimately. And about Synergy today, if you have Xiaomi vehicles, Perhaps the pacing of development will be slower compared to home appliances. We have 130 shops. And let's say, doing the math, that is per shop, we're talking about 150 vehicles. And that is very high level of productivity. There is another brand, each shop is only selling like 30 vehicles. So our synergy is well achieved. And you can go to 4S Vehicle Cities to purchase our products. And our delivery capability remains almost the same, unaffected. And we also have physical shops. We started from 50 square meters with four vehicles at the moment. We have been expanding very quickly. In traditional shopping malls, car brands are withdrawing. They are leaving shopping malls. This trend is very obvious. And location of our shops are very premium. And we are offering bigger and bigger shops. So in shopping mall, you can see who is the winner. We take at least 50 square meters of space. We bring traffic to the malls. So our rental enjoys a very good concession. So our cost is actually much lower compared to traditional vehicle brands. So our model. Other brands would want to copy us, but they can't because we have multiple products driving sales in all directions. We are still very differentiated, and you can all be our witnesses. There will be more and more shops. We have examined many different locations and our shop in Huangdao, it will be the biggest one when you enter the shopping mall next year. People will be pleasantly surprised. Thank you, Mr. Liu. Next question, Tina from City. Please go ahead. Thank you, Mr. Liu, Mr. Lam. Thank you for this opportunity. Congratulations on our good performance. I have a follow-up question. For automobile business, we can see Q3 ASP improvement year-on-year, is it because of product structure change or other reasons? Looking forward for automobiles, the ASP, what will be the momentum of improvement? Because you have fridges and chairs, The options have been enhanced over time, so your product structure should continue to improve. And what about the construction momentum for the production lines for automobiles? When will they start contributing to the company? Any room for advancing the dates? Concerning ASP, I think ultimately it is about product mix. And we are looking at delivery data. On the PPT, we are presenting figures excluding Q3. So, for example, the ASP has been growing because of different ratios in terms of contributions from different versions of our products. I think with the launch of new products, our ASP will further increase. We'll continue to release more capacity at our factories so that we can shorten the delivery cycle for our customers. Moderator, next question from Hua Chai. Li Ping, you may start. I want to ask you about handsets. We can see market share continuously improving. So the difference is about 10,000. If we want to enhance productivity around the world, where would be your focus? Well, this year, for the full year, Last year was 146 million, this year 170 million or so. If you look at the difference or the growth, both have been growing for any region. I think there is room for growth. For the Chinese market, I know it very well. Every year, we want to sustain growth of one percentage point. I think there is still good room for further improvement. For example, in the African market, 11 points. Latin America, 16 or 17 points with our brand influencers. We want to have improvement of 20% in all these markets. I think that is achievable. Other than sales, we also look at the growth in premium offering in our product structure. We believe we will continue to enjoy growth in the future. Thank you. Next question. Please go ahead. Thank you for taking my question. I would like to ask about Chinese handset market. I can see in the third quarter, very good delivery growth, especially because of premiumization performance. So combining our automobile business, can you say in the future, for the whole chain operation, do you think there will be benefits created to the handset side? Well, I think this year we have good growth for handset in Chinese market. First, we enhance competitiveness, brand influence, and organic growth of Xiaomi. I think Xiaomi vehicles are making good contribution to branding influence and also new retail trends, all creating very positive impact on our performance and development. Our customer base are also benefiting we attract customers at a more fundamental level and then slowly convert them. So I think we are very effective in creating foot traffic. And in contrast, our handsets Customers may be converted to purchase other items. Someone who starts from Xiaomi handset may end up with buying a Xiaomi vehicle. So such cross influence is really showing its impact and it's getting stronger and stronger. Thank you, Mr. Liu. Thank you. Next question, UBS Zoe. Thank you, management, for taking my question. Very quickly, I want to ask about premiumization. This year, you have achieved more than 1 million sales figure, even with a higher ASP. So do you think the market will continue to be able to show the highest And what about overseas premiumization? How is that going to be realized? Are you going to launch overseas? Or in terms of your markets, you'll be more selective? Well, if you look at different brands, Some brands are not increasing the prices, some increasing by 100, some 200, some 300. In terms of competitiveness and the sales projection upon price increase would be very different. For Xiaomi 15, after price increase, it is still selling very fast or even faster. because they are so popular. They understand why we're selling for more. So they find it more acceptable. We have the best offering, but the chips prices have gone up affecting our overall price as well. Overseas premiumization, I think At MWC, annually we make announcements. We also do some introduction overseas. Although in terms of timing, they do lag behind slightly compared to the launch domestically. At the moment, For Xiaomi 14 series, it did very well, but the latest series is doing even better. So global influence is still quite significant. We want to focus on Europe, Southeast Asia, Middle East and Latin America, and also Africa. But of course, there will be more pressure. on higher end handsets. I hope I have answered your questions. It's very clear. Thank you. Thank you. Next question. from ZTE. Thank you, two leaders. I am concerned about Xiaomi Home. In Shandong, you have set up many shops and you have enhanced the target to 15,000 and you want to open 500 extra large shops. So I'm wondering, in terms of strategy update and also the target for the coming year, and enhancement of Fluffstream do have higher, more ambitious targets. At the beginning of the year, we set some new targets. We wanted to add 3,000 shops. And then we started to expedite the progress without the market Good shoulder. More shops. So by the end of the year, 15,000 shops. By 2026, 20,000 shops. By 2025, 20,000 shops. I've gone to places like . And Lanning, with a population of just slightly more than 1 million, they are quite lower tier places. But the profit level for these lower tier shops have been very strong. So we don't come in waves. You look at Xiaomi. We have products on the best sellers list for the whole year. Can you really sell them for a long time and sell well for a long time? Ultimately, it depends on how good your products are and that is what ultimately supporting your JP margin. aim at selling well for one month or two months, but around a year. And 40% is coming from home appliances. For other brands, they launch something new and things will go up and then it will come down very quickly. there are major fluctuations. But for Xiaomi, we don't see such ups and downs. We are very stable. This year, we will open really big shops covering more than 50,000 square meters, selling our cars. And we will have 120 such ultra large shops by the end of this year and they will be in the best locations inside shopping malls but at the same time we get concessionary rental shopping malls love us they want us to divert traffic to their mall in a city there may be 100 xiaomi homes people see our brand everywhere And for one single Xiaomi shop, we can attract 5,000 per day. And that is a very shocking number. For some much bigger shopping malls, they don't have that number for their visitors on a daily basis. So we have seen growth for all our shops. Our next step. Xiaomi homes in major cities, they are doing very well. In Beijing, Shanghai, our market shares are very high. And we have already started penetrating into more rural places. So I'm not worried about our performance in major cities at all. Apple, Xiaomi, Huawei are basically the three main brands. But we have to handle the next tier. But I think our direction is very clear and we'll continue to expand our network. We will have very positive development in 2025 at the prefecture level. And in 26, 27, in prefecture level large malls and good malls, you will find Xiaomi's ultra large shops. We have unlimited potential. Thank you. Due to time constraints, this is the end of today's conference. Thank you for your time and thank you for your future support. Thank you.