Xiaomi’s Earnings Review: Only by Maintaining Competitiveness Can the Company Wait Until the Spring

In 22Q4, Xiaomi’s revenue was 66.047 billion yuan, a year-on-year decrease of 22.8%, mainly due to the decline in sales of hardware products such as mobile phones. The adjusted net profit was 1.461 billion yuan, a year-on-year decrease of 67.34%, which was the quarter with the largest drop in net profit in the past year, mainly due to the decline in sales and destocking.

In terms of cost control, there is no obvious effect of cost reduction on the whole, and the company's operating costs are relatively rigid, and there is not much room for subsequent decline. Specifically, the sales expenses in 22Q4 were 5.852 billion yuan, a year-on-year decrease of only 6.43%. The original sales volume dropped a lot and the sales expenses should also drop significantly. However, the company’s destocking may have led to an increase in some consumption expenses, so the overall sales expenses did not obviously decrease. Considering that the competition in the smartphone market is still fierce, after the inventory is stabilized, the room for the decline in sales expenses is relatively limited. The research and development expenses increased by 21.99% year-on-year to 4.7 billion yuan, mainly due to the increase in automobile research and development expenses, so the research and development expenses are relatively rigid in the short to medium term.

Smartphones are now at the bottom of the cycle, and there is limited room for sales to decline, but the inflection point of demand recovery has not yet been seen. From the perspective of specific business segments, the company's smartphone business revenue in 22Q4 fell by 27.3% to 36.7 billion yuan, mainly due to the decline in mobile phone sales. 22Q4 smartphone sales fell 25.9% to 32.7 million units, the largest drop in nearly a year. Judging from the data of global smartphone shipments, mobile phone shipments in 22Q4 still fell by 11.3% year-on-year, and the inflection point has not yet been seen. Among them, the sales of mobile phones in mainland China fell by 19.73%, and the decline in overseas markets was even more obvious, with a drop of 26.07%. What is certain is that smartphones are now at the bottom of the cycle, and there is limited room for sales to decline, but the inflection point of demand recovery has not yet been seen. Although the probability of economic recovery this year is high and residents' income is expected to increase, spending on discretionary consumption is still uncertain. At the same time, due to insufficient innovation, the overall replacement cycle has also been extended. Overall, smartphones may bottom out, but the uncertainty of demand recovery is still high.

The inventory situation also needs attention. Judging from the data, the company is still in the stage of destocking. Inventory buildup and some promotional activities to destock can have a negative impact on company profits. In 22Q4, the average selling price ASP of the company's mobile phones fell by 2% year-on-year to 1121 yuan, mainly due to the company's efforts to clear inventory in overseas markets. From the perspective of inventory scale, the company's inventory dropped to 50.4 billion yuan in 22Q4. From the perspective of the average inventory turnover days, the inventory turnover days of the company in 22Q4 was 80.73, YoY+27%, and the chain also increased, indicating that the company is still dealing with the backlog of inventory. It is expected that as the inventory is gradually cleared in the future, the company's gross profit is expected to further increase.

In addition to the weakness of the entire consumer electronics market, it is also worthy of attention whether the competitiveness of the company's brand itself in the global market has declined. According to IDC data, we can find that the company's market share in 22Q4 dropped from 12.4% in 21Q4 to 11%, and the lost market share was mainly taken by Apple and Samsung. At the same time, we tracked the market share of Xiaomi in overseas market segments and found that in 22Q4, except for the increase in the market share of the Latin American market, the market share of all other markets (including mainland China, Europe, India, Asia Pacific, the Middle East, and Africa) The decline in market share is due to political factors on the one hand and fierce competition on the other, which has a greater impact on Xiaomi. Looking at the Chinese mainland market, the decline in Xiaomi's market share in 22Q4 was the most obvious, from 15.8% in 21Q4 to 11.6% in 22Q4, while the growth of vivo and Honor was relatively obvious; in terms of shipments, all manufacturers' shipments declined. However, Xiaomi's shipments fell the most by 35.5%. Therefore, the more worrisome issue for Xiaomi now lies in the competitiveness of the brand. If the decline in mobile phone shipments is due to weak demand in the market, but the market share has increased, then when the demand picks up, the company's performance will also be rapid. Recovery, such as Apple, but now Xiaomi may face the problem of weak demand and the decline of its own brand competitiveness.

From the perspective of the entire Xiaomi ecosystem, benefiting from the accumulation of the entire hardware installation base, the number of MIUI monthly active users (MAU) increased from 508.9 million in December 2021 to 582.1 million in December 2022, an increase of 14.4%. The users are mainly from overseas users. However, because the ARPU value of overseas users is much lower than that in China, the overall ARPU value has been lowered. But in the long run, as long as the ecology is built well, it is only a matter of time before the single user contribution value increases. In terms of IoT, the number of IoT connections is 589 million (+35.8% year-on-year), the number of users of more than 5 IoT devices is 11.6 million (32.5% year-on-year), the MAU of Xiaoai Assistant is 115 million (+7% year-on-year), and the MAU of Mijia APP is 75.8 million (YoY +18.6%).