Strong Smartphone Growth Drives 70% Q2 Revenue Increase For Xiaomi

Despite pressure om the share price and questions being raised by its long-term business model, expectation beating second-quarter earnings was reported by Chinese electronics giant Xiaomi.

Following its initial public offering in July, this is the first occasion that the company has issued its results publicly.

The newly public company reported revenues of 45.24 billion yuan ($6.60 billion) against market expectations of 39.18 billion yuan which is a 63 per cent rise year-on-year. It also reported operating profit of 7.5 billion yuan and a net profit of 14.63 billion yuan compared to a net loss of 7.03 billion yuan in the first quarter of 2018.

There has been a 4 per cent increase in the shares of the firm since its IPO in July.

Despite a decline in the overall shipment in the industry, the company generated 30.5 billion yuan in revenue from its smartphone business in the second quarter noting a 58.7 per cent increase compared to same period last year. There was also a rise in the average selling price of smartphones, Xiaomi said. Currently there is a “period of recalibration” in the Chinese smartphone market but the company aims to target the high-end segment, Xiaomi said in its earning statement.

Developing mid-to-low-priced devices with high specs has been the growth strategy for Xiaomi. But in order to increase revenues, the company now intends to venture into the high-end market as well.

“We believe our strategic focus to further penetrate the high-end smartphone market by optimizing our product portfolio in 2018 will lay the groundwork for further shipment unit growth in China in 2019,” Xiaomi said in a release.

There is a concern among analysts that because the hardware market is a low margin one, therefore Xiaomi needs to diversify which can be a struggle for the company. about 70 per cent of revenues of the company is accounted for by smartphones. Only about 20 per cent account for its other products such as TVs. Its internet services business which include its music streaming product accounts for under 10 per cent of total revenues.

Chinese players like Oppo, Vivo and Huawei are offering very tough competition to Xiaomi which is still the amongst the biggest smartphone makers in the world. the rivals of Xiaomi are offering higher quality at low prices. There can be pressure from Apple in the high-end segment.

There was 104.3 percent year-on-year growth in some of the emerging business areas including internet of things and lifestyle product segment for Xiaomi in the second quarter. The revenue generated amounted to 10.4 billion yuan for the period. This unit includes TVs and the company’s virtual reality headsets.

There was a 63.6 per cent year-on-year rise in revenues from its internet services at 4 billion yuan.

The company also reported a 151.7 percent year-on-year international revenue growth at 16.4 billion yuan even though traditionally it has depended on China for its revenues. International revenues accounted for 36.3 per cent of the total revenue of the company for the second quarter.

(Adapted from CNBC.com)

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