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pww.comXiaomi Corporation, Q2 2020 Earnings Call, Aug 26, 2020 - SEHK:1810

SEHK:1810

Steve Lin [Former Joint Company Secretary] 💬

During the Xiaomi Corporation Q2 2020 Earnings Call, Steve Lin, the Former Joint Company Secretary, made the following statements:

  1. Opening Remarks:

    • Welcomed participants to the investor conference call regarding the company's 2020 interim results.
    • Introduced himself as Steve Lin, Director of Board Finance and Company Secretary.

  2. Forward-Looking Statements Reminder:

    • Reminded attendees that the call might include forward-looking statements subject to risks and uncertainties.
    • Noted that information about general market conditions comes from sources outside Xiaomi.

  3. Non-IFRS Financial Measures Disclosure:

    • Mentioned that the presentation contained unaudited non-IFRS financial measures that should be considered alongside IFRS financials.

  4. Introduction of Xiang Wang:

    • Handed the call over to Xiang Wang, the President, to share strategic initiatives and discuss business segments and financial performance.

  5. Closing Remarks:

    • Indicated that due to time constraints, the last question would be taken.
    • Thanked everyone for joining the call and concluded the session.

These are the specific points that Steve Lin addressed during the call.

Xiang Wang [Former President & Partner] 💬

Xiang Wang, the Former President & Partner of Xiaomi Corporation, discussed various aspects of the company’s performance and strategies during the Q2 2020 Earnings Call. Below is a detailed summary of his statements:

Business Performance Overview

  • Total Revenue: Reached RMB 103.2 billion in H1 2020, up 8% YoY.
  • Adjusted Net Profit: Achieved RMB 5.7 billion in H1 2020.
  • Q2 Total Revenue: RMB 53.5 billion, up 3% YoY.
  • IFRS Net Income: CNY 4.5 billion in Q2 2020.
  • Adjusted Net Profit: CNY 3.4 billion in Q2 2020, up 47% QoQ.

Impact of COVID-19

  • April and May: Several key markets implemented strict lockdown measures, impacting sales.
  • Recovery: Sales volume has recovered as business restrictions were lifted.
  • Smartphone Activations:
    • Overseas: Surpassed pre-pandemic levels in July.
    • India: Returned to 72% of pre-pandemic levels in July.
  • Market Performance:
    • Europe: Ranked top 3 with a 17% market share and 65% YoY growth in shipments.
    • India: Maintained the #1 position for 12 consecutive quarters.

Technological Innovation

  • Mi 10 Ultra Launch: Features 120x AI super zoom, 120 Hz refresh rate, 120W wired and 50W wireless charging.
  • Global Recognition:
    • Ranked 422nd on the Fortune 500 list.
    • Ranked 24th on BCG’s 50 Most Innovative Companies of 2020.
    • Included in Derwent Top 100 Global Innovators 2020 list.

Smartphone Business

  • Revenue: Reached RMB 31.6 billion in Q2 2020, down 1.2% YoY but up 4% QoQ.
  • Shipments: Totaled 28.3 million units.
  • ASP Increase: Up 12% YoY and 7.5% QoQ.
  • Product Line:
    • Premium Smartphones:
      • Well-received in China, e.g., Mi 10 and Redmi K30 Pro.
      • Popular overseas, e.g., Mi 10, Mi 10 Pro, Mi Note 10, and Mi 10 Lite.
    • 5G Technology:
      • Introduced Redmi 10X series in May, priced at RMB 1,500.
    • Entry-Level Smartphones:
      • Launched Redmi 9A series, priced at RMB 499.

IoT and Lifestyle Products

  • Revenue: RMB 15.3 billion in Q2 2020, up 2% YoY and 18% QoQ.
  • Connected IoT Devices: Grew to 271 million units as of June 30, 2020, up 38% YoY.
  • Users with 5+ Devices: Reached 5.1 million, up 64% YoY.
  • AI Assistant MAU: 78.4 million in June 2020, up 57%.
  • Mi Home App MAU: 40.8 million in June 2020, up 34%.

Internet Services

  • Revenue: Reached RMB 5.9 billion in Q2 2020, up 29% YoY.
  • Advertising Revenue: Reached RMB 3.1 billion, up 23% YoY and 16% QoQ.
  • User Base Growth:
    • Global MIUI MAU: Increased by 23% to 343.5 million in July.
    • Mainland China MIUI MAU: 109.7 million.
    • Smart TV and TV Box MAU: Increased by 42% to 32 million.

Overseas Business

  • Revenue: RMB 24 billion in Q2 2020, up 10% YoY, contributing to 45% of total revenue.
  • Market Share:
    • Top 5 in 50 countries and regions.
    • Top 3 in 25 markets.
    • Spain: Ranked #1 for 2 quarters.
    • Poland: Ranked #1.
    • France: Ranked #2.
    • Netherlands: Ranked #4.
    • Western Europe: Ranked top 4 with a 12.4% market share and 116% YoY growth.
    • India: Market leader with a 30.7% share in Q2 2020.

Financials

  • Gross Margin:
    • Overall: Increased from 14% in Q2 2019 to 14.4% in Q2 2020.
    • Smartphone: 7.2% in Q2 2020.
    • IoT and Lifestyle Products: 11.4% in Q2 2020.
    • Internet Services: 60.3% in Q2 2020.
  • Operating Expense Ratio: Grew from 8.8% in Q2 2019 to 11.2% in Q2 2020.
  • Cash Resources: Reached RMB 64.4 billion as of June 30, 2020.
  • Net Cash Generated from Operating Activities: RMB 4.3 billion in Q2 2020.
  • Investments:
    • Book value of investments: RMB 36.8 billion as of June 30, 2020.
    • Invested in over 20 upstream supply chain companies in H2 2020.

Strategy and Outlook

  • 3 Guiding Principles:
    1. Never cease to explore and innovate.
    2. Continue to offer products with the best price-to-performance ratio.
    3. Always make the coolest product.

Response to Questions

  • Impact of Recent Restrictions:
    • No change in strategy; will continue to execute the dual-engine strategy of investing in 5G and AIoT technology and growing business in key markets.
  • Indian Market:
    • Facing challenges due to the pandemic and production disruptions.
    • Activations are at 72% of January 2020 levels.
    • Expect opportunities during the Diwali festival.
  • European Market:
    • Established partnerships with traditional offline channels and carriers.
    • Strong growth from carrier channels.
    • Brand recognition is growing in Western European markets.
  • Internet Service Revenue:
    • Challenges in the Internet financial Fintech business due to the pandemic.
    • Diversification of Internet revenue sources, including TV content and overseas Internet services.
  • Distribution Network in China:
    • Building off-line channels through Xiaomi stores and authorized stores.
    • Strengthening partnerships with carrier partners.
  • IoT Business:
    • Slower growth in Q2 2020 due to the pandemic.
    • Recovery in progress, but uncertainties remain.
  • Smartphone Gross Margin:

    • Aim to maintain a high single-digit gross margin.

    • Aggressive marketing and cost reduction for 5G smartphones.

    • Entry-level devices, like the Redmi 9A, will impact gross margins.

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