Tencent technology, November 23 – Xiaomi group (HKEx Code: 1810) released its third quarter financial statements as of September 30, 2021 on Tuesday. According to the financial report, Xiaomi’s total revenue was 78.063 billion yuan, a year-on-year increase of 8.2%; The adjusted net profit was RMB 5.176 billion, a year-on-year increase of 25.4%.
After the release of the financial report, Wang Xiang, partner and President of Xiaomi group, Lin Shiwei, vice president and chief financial officer, attended the financial report teleconference and answered analysts’ questions on the spot.
The following is the record of the earnings conference call:
Analyst: as for the Internet business, we have seen a strong performance in the advertising business, the game business is getting better, and the proportion of overseas business has also increased, with a month on month increase of more than 100%. Can the management talk about the outlook of Internet business in the fourth quarter and next year? Because the performance of global business is also very important, and the monthly activity has reached a certain level, it will contribute to Internet business in the future.
In addition, I would like to ask questions about smart phones. We know that there is a shortage of chips. Is there any improvement in the fourth quarter? Will it affect your annual shipment? Your previous target of 190 million shipments? In 2022, with the improvement of the chip environment, what are your goals?
Lin Shiwei: Although we now have wider Internet revenue, there are several reasons. One is that we have a wider user base around the world. The third quarter’s monthly living rate reached 486 million, while the month’s activity increased by one hundred million in 2021, while the Chinese mainland increased by 16 million in the first three quarters, because our user base increased and the volume of shipments increased. This is the biggest driving force for our Internet service revenue. Second, the proportion of high-end smartphone users has increased, which promotes the revenue of game unit users and pre installed app, while more Xiaomi high-end smartphones will also promote the advertising revenue of Internet services.
Third, with regard to game revenue, we have changed some supplier contract terms in the past four quarters. The third quarter of this year is the first time that we can make a more objective and fair comparison. We are very satisfied with the revenue growth of the game. Fourth, with regard to the overseas market, we mentioned the growth of overseas monthly activities and the revenue growth of overseas search. We think they will continue to contribute to the total revenue and net profit. Finally, in the area of TV, we mentioned the monthly life of TV. The contribution of Internet TV to revenue has also increased significantly, which is due to the growth of members. We will remain optimistic in the future. Despite many regulatory headwinds, our peers will also encounter the same situation. In view of our ultra-high shipments, a large user base of Xiaomi platform and the number of high-end Xiaomi mobile phone users, we believe we will continue to improve user experience and customer service, and we hope to continue to promote the healthy development of Internet business.
Wang Xiang: as we all know, we are facing the problem of supply shortage throughout 2021. In fact, the challenge in the second half of 2021 is even greater. Even in the case of severe supply shortage, our shipment reached an all-time high. In the first three quarters of this year, the total shipment exceeded 146 million units, which is comparable to that of the whole year of last year, which is a very satisfactory result.
As I mentioned earlier, the challenge of supply shortage in the third and fourth quarters is greater, but we will work closely with our suppliers to try to obtain more parts. I think 190 million is a good figure, but we want to reach a higher level. Next year, the momentum will be stronger. Unfortunately, we will still encounter structural challenges in the first half of next year, but overall, the supply situation will improve a lot in 2022. In the first half of next year, we will make a lot of efforts to get enough supply, especially 4G equipment. At present, we are involved in more than 100 countries and markets. Consumers have a great demand for 4G mobile phones, even in developed countries, such as Europe.
Lin Shiwei: if you pay attention to the sales of mobile phones in the first three quarters of this year, in fact, it has exceeded the performance of the whole year in 2020. We are very excited that we have maintained strong growth despite the weak trend of global shipments. In addition, despite our supply challenges, we were able to maintain a very healthy gross profit margin, which reached 12.8% in the third quarter, almost the same as that in the first quarter. I just want to emphasize these values.
Analyst: with regard to the aiot business, the profit margin decreased slightly month on month. Will Xiaomi raise the price of aiot products to ease the pressure on costs? With regard to smart phones, you mentioned two mobile phones, Xiaomi civi and Hongmi note 11 series, and mentioned very positive user feedback. Compared with earlier models, what improvements have been made in the performance of these two mobile phones? What aspects of performance do you want to focus on in the future? In addition, can you share which of the offline channels sells better? Why? Do you have any ideas about offline marketing?
Wang Xiang: throughout 2021, in fact, we still face supply challenges. However, in terms of aiot business, another challenge is logistics. The logistics cost is very high, especially in the international market, and the profit margin will be affected. The shortage of supply will further increase the pressure on the cost of aiot business, and not only the profit margin will be affected, but also the revenue.
Lin Shiwei: due to the rise of logistics costs, some of our orders for products sold overseas have been delayed or cancelled. In addition, the overseas and domestic product mix has also changed. The domestic market is mainly dominated by white appliances, such as notebook computers and televisions. The prices of these products are high, but the profit margin is relatively low. With the gradual decline of logistics costs, this will contribute to the improvement of our gross profit margin in the future.
About Xiaomi civi, we launched civi to attract another user group we have never touched, that is, fashionable women. According to our estimation, female consumers will account for about half. Of course, some men buy it for their girlfriend or wife. We don’t know exactly, but the proportion of female users will be higher. According to the data, we do touch such a group. In addition, we use civi offline to attract more users, which is our first attempt to attract consumers from different channels with different products. We are encouraged. We will slowly attract high-end users and new people through high-end products. We hope the new civi collection will be much more competitive.
As for the red rice note 11 series, while improving its performance, we also raised the price, which is much higher than that of the previous version. With this, we hope to expand the audience of Xiaomi. As for offline channels, we have opened many new stores this year, totaling more than 10000. A large number of stores have not been open for 3 to 6 months. In the next short-term stage, we need to focus on improving the efficiency and productivity of these stores.
Analyst: can you talk about why we should vigorously increase the number of stores? How about offline feedback, such as market share? In addition, you have begun to enter the high-end market. Do you have a higher proportion of high-end models or other models? Have you learned anything from expanding retail? Compared with high-end models, will the quality of smartphones change in general? How many people have started working in the electric vehicle business? How many people have applied for the job? What is the cost level? Where will the future develop?
Lin Shiwei: as for the expansion of stores, compared with our competitors, such as vivo and oppo, our number of stores is very low. They may have 20000 sales points in the mainland. However, we believe we can be more efficient. We don’t need so many stores to occupy a certain market share. At present, our market share is higher than that of vivo and oppo.
One of the lessons learned is that these stores need time to improve their performance. If a store has to have a store manager, 10000 stores are 10000 counter salespeople, which puts a certain pressure on personnel training, speeding up their speed and getting familiar with the sales process. We have conducted a lot of training to teach them Xiaomi culture Style and sales skills. In the coming months, we will invest a lot of efforts to improve the productivity of these stores.
We are encouraged that many stores are not our own, but our partners. Only when they make money will they open more stores with us. In the first mock exam, we believe that this model is feasible, and the number of stores opened by each partner is on average. At first, each partner opened about 3 stores. Now they open more than 5 stores on average.
In terms of the cost of electric vehicles, in fact, this business is still very small compared with other businesses of the group, which is why we won’t talk about it. Finally, we find that the sales volume of high-end models in offline stores accounts for a higher proportion.