- Successes in the Indian and European markets amid a slowdown in the native Chinese market.
- Revenue growth turned out to be lower than analysts' expectations - stock prices immediately went down.
- Expansion into global markets will continue, and new smartphones will become more expensive.
Progress amid slowing Chinese smartphone market
The Chinese manufacturer of smartphones and other electronics Xiaomi reported its latest quarter (for the third time since its IPO in Hong Kong). The company's results beat profit forecasts thanks to the company's dominance in the fast-growing Indian market and growth in sales of relatively expensive devices in Western Europe. The company's net profit for the fourth quarter of the reporting year more than tripled to 1,85 billion yuan (about $275,6 million), exceeding the average analyst estimate of 1,7 billion yuan.
Xiaomi's quarterly results show that the company is coping quite well with slowing demand in China by gradually refocusing on international markets. Last year, the company generated about 60% of its total revenue in China, up from 72% in 2017. This policy makes sense - in 2018, China's economy showed its lowest level of growth in three decades.
The company's shipments to China during the reporting quarter fell by more than a third compared to the same period a year earlier - to 10,3 million smartphones, while over the year the company's share in its home market decreased by almost 4 points to 10% ( according to research company IDC).
Falling prices due to insufficient income
However, the stock fell as revenue came in below expectations. Xiaomi's revenue for the quarter rose an impressive 27% (compared to the same period in 2017) to 44,4 billion yuan (about $6,5 billion), but it fell short of analysts' average expectations of 47,4 billion yuan. As a result, the company's share price fell by 5%. Moreover, since the beginning of 2019, it has grown by almost 30%, although quotes are still significantly lower than in July 2018.
"If you look at quarterly phone revenues, they were slightly lower in the fourth quarter than they were in the third," said Morningstar analyst Dan Baker. “I think it probably took people by surprise.” "Success in this market is more variable than people believed."
According to Xiaomi, revenue from smartphone sales during this period increased by 7% to 25 billion yuan (about $3,7 billion) compared to a year ago, with almost a third of this amount coming from phones costing around $300. For comparison, in the third quarter of 2018, smartphone revenue was almost 35 billion yuan.
Expansion into global markets and updated product portfolio
Since launching an active expansion into European markets in early 2018, the company has become the fourth largest handset supplier in the region. In India, the successes were even more impressive: the Chinese manufacturer turned out to be the leader in smartphone sales for four quarters in a row, even surpassing Samsung Electronics.
“We continue to explore global markets and strive to replicate the successes in India in other key regions like Indonesia and Western Europe,” Xiaomi CFO Shou Zi Chew said in a phone call with reporters. “We will also enter new international markets in 2019.”
Xiaomi said in a report that it recently revamped its smartphone portfolio, aiming to increase product costs to improve profitability. In February, after the launch of the new flagship phone Xiaomi Mi 9 (if you're interested, you can read our review), company founder Lei Jun said that the device would be Xiaomi's latest flagship phone priced under 3000 yuan (~$447).
It is worth noting that in 2018, the average price of smartphones sold by Xiaomi was only $143. For comparison: Apple’s figure is now about $793. But Xiaomi is correcting the situation: over the past year in China the average price of the company’s devices increased by 17%, and in international markets by 10%.
Smartphones play a key role in the business of the Chinese company, which produces a wide variety of equipment, including washing machines. In the fourth quarter, smartphone shipments accounted for nearly two-thirds of Xiaomi's total revenue. Sales of other equipment accounted for another quarter, and the rest came from Internet services.
Source: 3dnews.ru
