Caixin
May 21, 2020 06:38 PM
BUSINESS & TECH

Xiaomi’s Strong First Quarter, Recent Uncertainty Ring Up Mixed Investor Reaction

Xiaomi has been trying to move up the value chain by selling pricier smartphones that typically carry fatter profit margins and are also a segment of the market where competition isn’t as fierce.
Xiaomi has been trying to move up the value chain by selling pricier smartphones that typically carry fatter profit margins and are also a segment of the market where competition isn’t as fierce.

Shares of Xiaomi Corp. turned in a mixed performance Thursday, after an early rally sparked by a strong first-quarter ran out of steam over concerns about the company’s forecast for a looming slowdown due to the global pandemic.

Xiaomi has benefitted from a globalization drive that saw it earn about half of its revenue from countries outside its home China market in the first quarter. By comparison, other major rivals like Huawei are still highly dependent for their sales on China — the world’s biggest smartphone market. That difference played to Xiaomi’s advantage during the first quarter, since most of the world outside China didn’t feel the major impact from the global pandemic until March or later.

“For the first time, our overseas revenue contributed to half of our total revenue,” Xiaomi said in a statement accompanying its results. “We experienced remarkable growth in major overseas markets.”

Xiaomi’s revenue rose 13.6% in the first quarter from a year earlier to 49.7 billion yuan ($7 billion), though its profit plunged 32.3% to 2.16 billion yuan, according to its latest quarterly report released on Wednesday after markets closed in Hong Kong. The company’s smartphone business, accounting for about 60% of its total sales, rose 12.3% in revenue terms and by a smaller 4.7% in terms of units sold during the quarter, indicating it was getting more money for each smartphone.

Xiaomi has been trying to move up the value chain by selling pricier smartphones that typically carry fatter profit margins and are also a segment of the market where competition isn’t as fierce. The company’s latest average selling price of 1,038 yuan reflects Xiaomi’s roots in the lower end of the market. But the company also pointed out that its latest average price was about 7.2% higher than a year earlier.

The generally upbeat report came as Xiaomi was one of the few major global brands that was able to post unit sales growth during the first quarter, largely owing to its diversified geography. China smartphone sales plunged 18% during the quarter as the pandemic reached its peak there in February and March, according to IDC.

But the rest of the world remained relatively stable for most of that period, with global smartphone sales down 11.7% for the quarter, much of that due to the steep Chinese drop. That meant Xiaomi’s non-China sales weren’t as strongly affected.

As a result, Xiaomi was one of only two vendors in the global top five to report unit sales growth in the first quarter, according to IDC. By comparison, global leaders Samsung and Huawei saw their sales fall 18.9% and 17.1% for the quarter, respectively. But Xiaomi cautioned it’s likely to take a hit in the current quarter, since much of the rest of the world has been under various forms of lockdown for most of that period as the pandemic spread beyond China.

“The different levels of lockdown measures adopted in overseas markets are expected to affect our performance in the second quarter of 2020, Xiaomi said. “As the impact of the pandemic subsides, we look forward to life returning to normal, and the continued implementation of our business strategy to drive further growth in our markets.”

Xiaomi’s stock initially rose as much as 3.6% in Hong Kong in Thursday morning trade as investors applauded the relatively strong first-quarter performance despite the pandemic. But they later gave back those gains and closed down 0.8% on the day.

Contact reporter Yang Ge (geyang@caixin.com)

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