Xiaomi reports second straight profitable quarter on smartphone, IoT and lifestyle products boost

  • Beijing-based company enters into exclusive, 30-year global licensing deal with smartphone and selfie app provider Meitu
PUBLISHED : Monday, 19 November, 2018, 6:16pm
UPDATED : Monday, 19 November, 2018, 10:55pm

Xiaomi Corp, the world’s fourth largest smartphone supplier, reported a profit for the second consecutive quarter in the three months ended September 30, helping allay concerns about China’s saturated mobile phone market and slowing economy.

The Beijing-based company on Monday posted a third-quarter net profit of 2.5 billion yuan (US$360 million), rebounding from a loss of 11 billion yuan in the same period last year, driven by strong smartphone shipments overseas and its growing internet of things (IoT) and lifestyle products segments.

Revenue grew 49 per cent to 50.8 billion yuan from 34 billion yuan a year ago.

“The results are in line with internal expectations, but exceed market expectations,” said Xiaomi chief financial officer Chew Shou Zi in a conference call after the market close in Hong Kong.

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The upbeat earnings report marked a solid result for Xiaomi’s sharpened focus on international markets, where it aims to derive more than half of its annual revenue. Xiaomi shipped 34.3 million smartphones last quarter for a global market share of 9.7 per cent, which is a new high for the company, according to technology research firm IDC.

Xiaomi’s Hong Kong-traded shares, which had seen sluggish performance since the company’s initial public offering in July, were up 5.1 per cent to HK$13.60 at the close of trading on Monday.

International markets accounted for 43.9 per cent, or 28.5 billion yuan, of total revenue last quarter, according to Xiaomi’s regulatory filing.

Smartphones, which made up 75.4 per cent of total revenue, grew 69 per cent to 34.9 billion yuan on the back of higher average selling prices, improved presence in the mid- to high-end handset segments, and increased shipments to western Europe and India.

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IoT and lifestyle products segments accounted for 16.7 per cent, or 10.8 billion yuan, of total revenue on the back of higher smart television and laptop computer sales.

The internet services business segment made up 7.5 per cent, or 4.7 billion yuan, of total revenue because of greater advertising income.

Despite the growth recorded by all its business segments, Xiaomi’s Chew said currency volatility remained an issue.

“The fluctuations of the renminbi and the Indian rupee’s exchange rate against the US dollar have affected us a lot, as renminbi depreciated 6.9 per cent and rupee depreciated by 14.2 per cent,” he said. “A great deal of our revenue came in renminbi and rupee.”

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India, where Xiaomi is the leading smartphone supplier, represents the company’s biggest source of overseas revenue, according to a recent report by China Renaissance analysts Jason Sun and Tu Yuxi, who gave the tech firm a “buy” rating.

They estimated that more than 60 per cent of Xiaomi’s smartphone bill of materials is priced in US dollars, which made the company vulnerable to the US currency’s appreciation against the rupee.

Other analysts remained concerned about China’s slowing economy, tepid domestic demand for smartphones and headwinds in China’s internet industry as a whole.

“[Despite] some company-specific offsets, we expect an industry slowdown to impact Xiaomi,” JP Morgan analysts said in a report, giving it a “hold” rating. Those offsets included Xiaomi’s rising smart TV sales and online advertising revenue.

While Xiaomi chief executive Lei Jun’s promise of building a high-growth internet company is still a work in progress, the firm has continued to bolster its smartphone operations through its multi-brand strategy.

Chew said Xiaomi on Monday entered into a strategic collaboration with smartphone and software provider Meitu, which agreed to license its brand, certain technologies and domain names. Under the 30-year deal, Xiaomi will develop smartphones targeting female users, he said.

In August, Xiaomi introduced a separate smartphone brand, Poco, to take on industry leaders Samsung Electronics and Huawei Technologies in the premium segment of the global Android handset market.

That strategy has Xiaomi looking at further expanding its international reach. “We’re paying attention to the US market and actively preparing for it,” Chew said.