After reducing inventory and losing market share, what's next for XIAOMI-W?

XIAOMI-W (1810.HK) released its Q1 2023 financial report (ending in March 2023) after the Dolphin Hong Kong stock market on the evening of May 24, 2023, with the following highlights:

1. Overall performance: Revenue & gross profit margin both met expectations. $ XIAOMI-W.HK Total revenue for this quarter was 59.5 billion yuan, a year-on-year decrease of 18.9%. The company's revenue declined this quarter, mainly due to the drag of its smartphone and IoT hardware businesses. XIAOMI-W's gross profit margin for this quarter was 19.5%, a year-on-year increase of 2.2 percentage points, which is basically in line with market expectations (19.6%). The increase in gross profit margin benefited from the rebound in the hardware gross profit margin of smartphones and IoT this quarter;

2. Smartphone business: Sales volume is difficult to open, and business is difficult to recover. XIAOMI-W's smartphone business achieved revenue of 35 billion yuan this quarter, a year-on-year decrease of 23.6%. XIAOMI-W's global smartphone shipments decreased by more than 8 million units year-on-year, and Dolphin Analyst estimated that the Chinese market decreased by more than 2 million units year-on-year, and the Indian market also decreased by about 3 million units year-on-year. XIAOMI-W's average selling price of smartphones this quarter was 1,150 yuan, a year-on-year decrease of 3.2%;

3. IoT business: Although major appliances are strong, they cannot stop the decline. XIAOMI-W's IoT business achieved revenue of 16.8 billion yuan this quarter, a year-on-year decrease of 13.6%. The IoT business continued to decline this quarter, mainly due to the decline in TV, notebook, and other IoT businesses. Even though the smart home appliance business grew by 60% year-on-year, it could not stop the decline;

4. Internet services: A stable terminal entrance. XIAOMI-W's Internet service business achieved revenue of 7 billion yuan this quarter, a year-on-year decrease of 1.2%. The quarterly revenue and gross profit margin of the Internet business can be stabilized at 70 and 70%, respectively. Dolphin Analyst estimated that XIAOMI-W's ARPU value for domestic users this quarter was 35.76 yuan (a year-on-year decrease of 12%), while the ARPU value for overseas users was 4.01 yuan (a year-on-year decrease of 1.3%).

Overall, XIAOMI-W's Q1 report met market expectations.

This quarter, XIAOMI-W's revenue and gross profit margin basically met market expectations. The unexpected reduction in operating expenses was directly reflected in profits. In the end, the company's profit slightly exceeded market expectations. XIAOMI-W's inventory decreased significantly this quarter, from 50.4 billion in the previous quarter to 42.6 billion this quarter. From the structure of inventory, the decrease in XIAOMI-W's inventory mainly comes from products and finished goods projects. This indicates that the company's inventory turnover has achieved significant results through these quarters of efforts.

What is the current level of inventory? This is the lowest value for XIAOMI-W in nearly 9 quarters. In other words, the company's inventory has returned to a reasonable level.

With inventory returning to a reasonable level, it also means that the company may gradually increase its shipping efforts starting next quarter. However, one risk cannot be ignored, which is that XIAOMI-W lost a lot of market share in markets such as India and China this quarter. The loss of market share will affect XIAOMI-W's medium and long-term expectations.

Dolphin Analyst believes that based solely on XIAOMI-W's financial data this time, it is neutral preference. However, the situation of market share loss reflected in the first quarter will also have a certain constraint on the company's stock price. Accelerating inventory turnover can benefit the repair of the entire industry chain. However, the acquisition of market share also depends on the company's own product strength and management ability.

The following is Longbridge's specific analysis of XIAOMI-W's financial report:

I. Overall Performance: Revenue & Gross Margin, Both Meet Expectations

1.1 Revenue

XIAOMI-W's total revenue in the first quarter of 2023 was 59.5 billion yuan, a year-on-year decrease of 18.9%, which is in line with market expectations (65.3 billion yuan). The company's revenue this quarter was mainly affected by the weak demand for electronic products such as mobile phones. In particular, mobile phone and IoT business both declined by 23.6% and 13.6% respectively this quarter.

Among XIAOMI-W's major businesses this quarter, the revenue of smartphones, IoT, and Internet services accounted for 58.8%, 28.3%, and 11.8%, respectively. The mobile phone business is still XIAOMI-W's largest source of revenue, but due to the continued decline in the mobile phone business, its proportion in the company's total revenue has also decreased significantly.

1.2 Gross Margin

XIAOMI-W's gross margin in the first quarter of 2023 was 19.5%, a year-on-year increase of 2.2 percentage points, which is basically in line with market expectations (19.6%).

As XIAOMI-W's hardware revenue accounts for nearly 90%, the company's gross margin is mainly affected by hardware products. The increase in gross margin is mainly due to the increase in the gross margin of mobile phones and IoT this quarter. Hardware gross margin still lower than overall gross margin, software gross margin still maintained above 70%.

II. Mobile phone business: sales cannot be opened, business is difficult to recover

In the first quarter of 2023, XIAOMI-W's smartphone business achieved revenue of 35 billion yuan, a year-on-year decrease of 23.6%. The company's mobile phone business in this quarter mainly suffered from a significant decline in shipments, and the shipment volume of XIAOMI-W phones both domestically and internationally declined by double digits.

Dolphin Analyst has conducted a volume-price split of XIAOMI-W's smartphone business:

Volume: In the first quarter of 2023, XIAOMI-W's smartphone shipments were 30.4 million units, a year-on-year decrease of 21%.

In terms of market segmentation in the first quarter, the demand for XIAOMI-W both domestically and overseas was not optimistic, and the market share also declined to varying degrees;

Price: In the first quarter of 2023, the average selling price of XIAOMI-W's smartphones was 1,151 yuan, a year-on-year decrease of 3.2%.

Under XIAOMI-W's high-end strategy, the company's mobile phone average selling price has stabilized at around 1,100 yuan. The year-on-year decline in the average selling price is partly due to the impact of the company's handling of old products.

In the first quarter of 2023, XIAOMI-W's smartphone business gross profit was 3.9 billion yuan, a year-on-year decrease of 13%. It accounted for 33.9% of the company's gross profit.

The gross profit margin of the smartphone business this quarter was 11.2%, a year-on-year increase of 1.3 percentage points. After the traditional promotion factors in the fourth quarter, the gross profit margin in the first quarter itself will have a certain rebound. The decline in prices of components such as mobile phone displays has also boosted the gross profit margin.

In addition, Dolphin Analyst believes that,

III. IoT business: Although major appliances are strong, they cannot stop the decline. 2023 Q1 XIAOMI-W IoT Business Achieves Revenue of 16.8 Billion Yuan, Down 13.6% YoY. The decline in IoT business is mainly due to the decline in products such as smart TVs and laptops.

XIAOMI-W's main IoT products mainly cover TVs and laptops. In Q1 2023, the main IoT products achieved revenue of 4.7 billion yuan, a YoY decrease of 24.2%, mainly due to the decrease in shipment volume and average price of smart TVs and laptops.

In Q1 2023, XIAOMI-W's other IoT products achieved revenue of 12.1 billion yuan, a YoY decrease of 8.6%. Although the growth rate of the smart home appliance business exceeded 60% this quarter, the weak demand for other IoT products ultimately led to a decline in business.

In Q1 2023, XIAOMI-W's IoT business gross profit was 2.65 billion yuan, a YoY decrease of 13%.

The gross profit margin of the IoT business this quarter was 15.7%, a YoY increase of 0.1pct. The price of components such as displays has decreased, which has improved the gross profit margin.

4. Internet Services: A Stable Terminal Entry

In Q1 2023, XIAOMI-W's Internet services achieved revenue of 7 billion yuan, a YoY decrease of 1.2%, accounting for 11.8% of the company's total revenue.

Specifically, the breakdown of XIAOMI-W's Internet services is as follows:

① Advertising services: the largest component of the company's Internet services. In Q1, XIAOMI-W's advertising services achieved revenue of 4.4 billion yuan, a YoY decrease of 2.2%. The company's overseas effects and brand advertising reached a new high in a single quarter, while the YoY decline was mainly affected by mainland China;

② Game revenue: continues to grow. In Q1 2023, XIAOMI-W's game revenue was 1.3 billion yuan, a YoY increase of 16.3%. This is mainly due to the growth of the company's active game users and stickiness, and the penetration rate of paying users is also constantly improving. As a hardware entry point, the company's products have a strong voice. ③Other Value-Added Services: XIAOMI-W's other value-added services revenue was RMB 1.3 billion this quarter, and its fintech business continued to shrink.

Dolphin Analyst has split XIAOMI-W's internet service business by volume and price:

MIUI Users: As of March 2023, the monthly active users of MIUI reached 595 million, a year-on-year increase of 12.4%. This quarter, the growth rate of MIUI users continued to decline. Although the internet continued to decline this quarter, the number of users still maintained a double-digit expansion rate.

ARPU Value: Based on the number of MIUI users, the ARPU value for a single quarter is calculated. This quarter, XIAOMI-W's internet service ARPU value was RMB 11.8, a year-on-year decrease of 12%. The reason for the decrease in XIAOMI-W's ARPU value this quarter is due to...

In the first quarter of 2023, XIAOMI-W's internet service business gross profit was RMB 5.08 billion, a year-on-year increase of 0.9%. This quarter, the internet gross profit margin increased by 1.5pct year-on-year.

V. Overseas Markets: India Lost, and Market Share Was Lost Too

In the first quarter of 2023, XIAOMI-W's overseas revenue was RMB 27 billion, a year-on-year decrease of 28%, and revenue accounted for a decline to 45.4%.

Among them, XIAOMI-W's overseas internet revenue still achieved 16.4% growth this quarter. The two-digit decline in the company's overseas revenue this quarter mainly came from its hardware business. In the environment of global macroeconomic instability this quarter, it directly affected XIAOMI-W's exports of mobile phones and IoT products.

Part of XIAOMI-W's success comes from globalization, and currently nearly half of its revenue comes from overseas markets. Although the "globalization strategy" can to some extent diversify XIAOMI-W's risks, instability in multiple regions directly affects XIAOMI-W's business development. This quarter, XIAOMI-W's global shipments were down year-on-year, including ①China Mainland Market: XIAOMI-W's mobile phones decreased year-on-year this quarter, mainly due to the weak domestic market and the year-on-year decline in market share. ② Indian Market: XIAOMI-W's year-on-year decline this quarter is mainly due to government regulation and the company's declining market share in India; ③ Other Markets: Looking at the Chinese and Indian markets together, XIAOMI-W's sales in other overseas markets decreased by about 3 million units this quarter. Overall, XIAOMI-W experienced a comprehensive decline in the global market this quarter.

Due to XIAOMI-W's business philosophy of "hardware + software", although overseas mobile phones have experienced a double-digit decline, the number of overseas users on the software side is still growing (the number of new purchases is greater than the number of replacements). From the distribution of MIUI users, XIAOMI-W had 595 million MIUI users by the end of this quarter, of which 450 million came from overseas markets. In other words, although XIAOMI-W is based in mainland China, overseas users now account for three-quarters of the company.

Due to the significant differences in users at home and abroad, XIAOMI-W's ARPU value for Internet services this quarter was 11.8 yuan, a year-on-year decrease of 12%. The main reason for this is.

VI. Expenses and Performance: Effective Cost Control

In the first quarter of 2023, XIAOMI-W's three expenses totaled 9.35 billion yuan, a year-on-year decrease of 6.4%. The company's expense side this quarter was mainly controlled by sales expenses. In terms of personnel,.

① R&D expenses: 4.11 billion yuan this quarter, a year-on-year increase of 17.7%, accounting for 6.9% of revenue. The continuous increase in R&D expenses is mainly due to the increase in R&D expenses related to innovative businesses such as smart cars. This quarter, the company's innovative business expenses such as automobiles reached 1.1 billion yuan, increasing the overall R&D investment;

② Sales expenses: 4.1 billion yuan this quarter, a year-on-year decrease of 21.9%, accounting for 6.9% of revenue. In the case of a sluggish market, the company made significant cuts to sales expenses this quarter. The reduction in sales expenses has had a certain impact on market share, but it has also brought about an increase in profits;

③ Management expenses: 1.14 billion yuan this quarter, a year-on-year decrease of 8.8%, accounting for 1.9% of revenue. Administrative expenses have decreased, mainly due to the reduction in administrative staff salaries under cost control.

Adjusted net profit for Q1 2023 was RMB 3.2 billion, slightly exceeding market expectations of RMB 3 billion. From the perspective of the company's operating performance (excluding fair value changes in investments), although the company's shipments were still low this quarter, the average selling price and gross profit margin have stabilized. After controlling expenses, the profit margin has rebounded.

Dolphin XIAOMI-W historical articles review:

Earnings Season

March 25, 2023 Conference Call: "Inventory turnover is effective, but demand has not yet recovered (XIAOMI-W 22Q4 Conference Call)"

March 24, 2023 Earnings Review: "XIAOMI-W: Falling to the bottom, when will it stand up again?"

November 23, 2022 Conference Call: "Inventory begins to digest, supply and demand are moving towards balance (XIAOMI-W 22Q3 Conference Call)"

November 23, 2022 Earnings Review: "XIAOMI-W has been lying down for too long, and finally sees the "light""

August 19, 2022 Conference Call: "After the comprehensive decline in earnings, how does management explain? (XIAOMI-W 22Q2 Conference Call)"

August 19, 2022 Earnings Review: "Layoffs cannot save XIAOMI-W from its heavy predicament"

May 19, 2022 Conference Call: "XIAOMI-W, which is trapped inside and outside, what does management say? (XIAOMI-W 22Q1 Conference Call)"

May 19, 2022 Earnings Review: "With internal and external troubles, XIAOMI-W is not the best choice"

March 22, 2022 Conference Call: "XIAOMI-W: After an unremarkable earnings report, what does management say? (Conference call summary)" 2022 March 22 Financial Report Review "XIAOMI-W: Tasteless but a Pity to Waste"

November 30, 2021 Telephone Conference "What Does Ideal Auto Rely on to Compete with XIAOMI-W, Which Released Pure Electric Vehicles Before and After XIAOMI-W? (Meeting Minutes)"

November 23, 2021 Telephone Conference "Does Shortage Cause the Decline of Mobile Phones? Listen to What XIAOMI-W Management Says (XIAOMI-W Telephone Conference)"

November 23, 2021 Financial Report Review "Where Is XIAOMI-W Heading with Its Ups and Downs?"

August 26, 2021 Telephone Conference "After the Beautiful Report Card, What Did XIAOMI-W Management Talk About?"

August 25, 2021 Financial Report Review "Don't Doubt It Anymore, XIAOMI-W Is Back on the "Altar""

May 26, 2021 Financial Report Review "With Impressive Performance, Will XIAOMI-W Enter the Davis Double Click?"

March 25, 2021 Telephone Conference "How Did XIAOMI-W Respond to the Shortage of Chips, Slow Internet of Things, and Car Manufacturing?"

March 24, 2021 Financial Report Review "What's Wrong with XIAOMI-W That the Expectations Are So Low?"

Depth

December 1, 2022 "XIAOMI-W: The "Three Arrows" of Reversing the Dilemma"

June 17, 2022 "Consumer Electronics "Ripe", Apple Tough, XIAOMI-W Endures" 2021 年 12 月 1 日"Honour of Kings, XIAOMI-W once again faces a 'life and death crisis'" (https://longbridgeapp.com/news/51240042)

2021 年 11 月 24 日"What went wrong behind the sharp decline of XIAOMI-W?" (https://longbridgeapp.com/topics/1370347?invite-code=032064)

2021 年 6 月 11 日"2021, XIAOMI-W 'reborn'" | Dolphin Analyst (https://longbridgeapp.com/news/37872830)

2021 年 3 月 16 日"Dolphin Analyst | A turn for the better, is XIAOMI-W finally shaking off its bad luck?" (https://longbridgeapp.com/news/31271114)

Live Broadcast

2022 年 8 月 19 日"XIAOMI-W-W (01810.HK) 2022 Q2 Earnings Conference Call" (https://longbridgeapp.com/lives/115331?channel=n115331)

2022 年 5 月 19 日"XIAOMI-W-W (01810.HK) 2022 Q1 Earnings Conference Call" (https://longbridgeapp.com/lives/12511?channel=nl12511&invite-code=FRQWBJ)

2022 年 3 月 22 日"XIAOMI-W (1810.HK) 2021 Q4 and Full Year Earnings Release" (https://longbridgeapp.com/lives/9065?channel=n9065)

2021 年 12 月 28 日"Lei Jun X Su Bingtian · XIAOMI-W New Year Live Broadcast" (https://longbridgeapp.com/lives/6099?channel=n6099)

2021 年 11 月 23 日"XIAOMI-W (1810.HK) 2021 Q3 Earnings Conference Call" (https://longbridgeapp.com/lives/4894)

2021 年 9 月 15 日"Let the Magic Begin - XIAOMI-W New Product Launch" (https://longbridgeapp.com/lives/2481)

2021 年 8 月 25 日"XIAOMI-W-W (01810.HK) 2021 Interim Results Announcement" (https://longbridgeapp.com/lives/1890?channel=nl1890&invite-code=032064) 2021 年 8 月 10 日《2021 雷军年度演讲》

2021 年 5 月 26 日《XIAOMI-W (1810.HK) 2021 年第一季度业绩电话会》

2021 年 3 月 30 日《XIAOMI-W 春季新品发布会 DAY2》

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