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Source/Technology News (ID: kejixinzhi)
The entire mobile phone industry is in a downturn this year.
According to market research firm Canalys, in the first quarter of 2022, global smartphone shipments fell by 11% year-on-year, and mainland China dropped by 18% year-on-year.
As one of the drivers of the history of China’s smartphone industry, Xiaomi’s mobile phone sales fell 22% year-on-year to 3,850 units in the first quarter, a decline that exceeded the market average. The founder Lei Jun has to face a practical problem: when the mobile phone business declines, there is still no other business within the group that can support it.
Affected by the decline in the mobile phone business and the substantial spending on the innovation business of car manufacturing, even though Xiaomi’s other two main businesses, Internet advertising and IoT, both increased year-on-year in the first quarter, they failed to give the group financial bottom line in the cold winter of the industry.
The latest financial report shows that Xiaomi Group’s net profit fell by 52.9% year-on-year, with a loss of 530 million during the financial report period, and the overall gross profit margin of the group’s revenue was lower than market expectations. This is the first time that Xiaomi has seen both revenue and net profit in a single quarter since its listing in 2018.
According to this performance, after 11 years of growth, Xiaomi still has not grown into the all-round new species that Lei Jun said at the beginning of its listing, and it will still be turbulent due to the sales of mobile phone hardware business within a quarter.
Not only that, in terms of business model, Xiaomi with mobile phones + AIoT should be more cold-resistant than most mobile phone manufacturers, but the current market value performance of Xiaomi does not seem to prove that it has the ability to cross the industry cycle.
Judging from the market situation, when the overall mobile phone market is stagnant, as a new species of Zeng Jin, Xiaomi’s proud “Triathlon” does not seem to be able to outperform.
stay away from the internet
In Xiaomi’s discourse system, it has always been committed to becoming an Internet company or a new species enterprise. Because in Lei Jun’s view, a distinctive business model is Xiaomi’s core competitiveness.
“At the end of 2011, the product entered the market, and it took less than 3 years to become the number one in China and the number three in the world. We pondered over and over again, what is behind the miracle, which means that Xiaomi has an excellent entrepreneurial team and leading business Model.” Lei Jun once said when he was campaigning for the IPO in 2018.
At the same time, on the occasion of the listing, Lei Jun once again publicly explained whether Xiaomi is a hardware company or an Internet company.
Lei Jun believes that Xiaomi has a unique feature, that is, Xiaomi is a rare comprehensive company in the world that can not only do hardware, but also have deep Internet genes and e-commerce genes. Xiaomi is the only comprehensive and comprehensive new species company among the global Internet companies, including Tencent, Alibaba, Facebook and other large companies.
However, after 5 years of listing, Xiaomi, which claims to have many labels, is getting farther and farther away from the Internet company.
Even if the net profit of hardware does not exceed 5%, the Xiaomi mobile phone business, which is small in profit but quick in sales, is still the largest increase in the group’s profits in the past 11 years, thanks to the extremely cost-effective volume shipments.
One side evidence is that in the first quarter of 2021, while Xiaomi became the third largest smartphone manufacturer in the world, its revenue also increased by 55% year-on-year, and its adjusted net profit increased by 164% year-on-year, creating a single-quarter record high. Among them, the mobile phone business accounted for nearly half of the gross profit with 66% of the gross profit, becoming the largest increase in the quarter.
The profit contribution of the Internet business with a higher gross profit margin has been hovering around 30%-40%, and it has never become the main business accounting for more than half. Therefore, even with many labels, the mobile phone is still the basic disk of Xiaomi.
If the mobile phone business is good, the group will be good as a whole; if the mobile phone business is bad, the group will be poor as a whole. However, the net profit space of hardware does not exceed 5%, which also makes it difficult for Xiaomi to open up the market value imagination even as a hardware company. Since its listing, more and more declines have become the norm for Xiaomi’s stock price.
Not only that, Xiaomi, which is becoming more and more hardware-based, may be more sensitive to the impact of the decline in the replacement cycle of mobile phones. Some upstream suppliers believe that for Xiaomi, which is known for its cost-effectiveness, the main profit of hardware comes from the scale effect, which generates bargaining power to the upstream through huge shipments.
When the replacement cycle of mobile phones is prolonged and shipments are declining, compared with the mainstream model of making money from hardware and buying one to earn one, Xiaomi’s cost-effective strategy of scale effect may also face greater pressure than other mainstream manufacturers to stock up.
chasing pig
Maybe because of the open Android ecosystem, Xiaomi initially wanted to benchmark the “software + hardware” model established by Apple, but it didn’t work out.
After the story of the listing, in the 2019 annual report, Xiaomi’s “triathlon” became “5G+AI+IoT”, which replaced new retail + Internet with 5G+AI. Coincidentally, both the former and the latter were the hottest outlet concepts of the year.
Strategic transformation chasing the wind is in line with the “pig on the wind” theory put forward by Lei Jun, who is known for his investment. But in less than a year, Xiaomi has transformed its business strategy again.
In the annual report released in August 2020, Xiaomi believes that “We have established a new strategy for the next decade – mobile phone x AIoT. Under the guidance of this strategic thinking, we once again clarified the core position of the smartphone business, AIoT. The business will build a smart life around the core business of mobile phones and be an amplifier of Xiaomi’s value.”
This year with the mobile phone business as the core is also the year when the market generally believes that Xiaomi can grab the most market cake left by Huawei. It was also this year that Xiaomi started the road of “three-year impact on the global mobile phone market”.
After several twists and turns, Xiaomi has finally become a smart hardware manufacturing company with mobile phones as its core.
The reason is that, on the one hand, it is based on the open ecosystem of Android. The so-called Internet services are mainly based on advertising revenue. However, when the price of hardware rises, consumers’ tolerance for hardware advertisements decreases, and the sustainability will decline.
On the other hand, traditional Internet payment services, whether it is video content or e-commerce platform, compared with the main players in these tracks, Xiaomi’s Internet services are difficult to become the head of the segment, and can only act as a hardware channel provider. play a supporting role.
However, when it is positioned as a smart hardware manufacturing company of mobile phone x AIoT, when Xiaomi smartphones are affected by the overall market and fall into a downward trend, as a value amplifier of mobile phones, AIoT cannot make the group more stable from radiation.
According to the technology adoption life cycle theory of products, commercial and government will be the most important adopters of IoT. The adoption of IoT by individual consumers will lag behind enterprises and governments, and what Xiaomi is doing is precisely To C’s home IoT.
Not only that, even if all the smart hardware of Xiaomi ecology is used, the linkage effect will be better, but the DIY attribute of To C compared to To B’s smart home system also determines the layout of Xiaomi’s home smart ecology to a certain extent. A consumer behavior of fans.
Although individual consumers will still purchase a large number of smart devices, the retail characteristics of To C determine that Xiaomi smart hardware cannot be exclusive. In this context, Xiaomi’s AIoT business can be an amplifier for Xiaomi’s mobile phones, and it can also be an amplifier for other brands of mobile phones. There is always a crack in the business closed loop.
Building a car determines the future
When the business strategy was inseparable from hardware manufacturing after several turnovers, Lei Jun also decided to gamble on the last entrepreneurial opportunity and bet on the smart car business.
In Xiaomi’s first-quarter financial report, President Wang Xiang said: At present, there is not much progress for Xiaomi Auto to announce. Xiaomi is continuing to invest resources in core technology research and development. . This means that the rhythm of the smart car business has not been affected, and it is expected to be launched for the first time in 2024.
As a hardware company in the field of intelligent manufacturing, if you want to make up the last piece of the ecological landscape of hardware consumption, the smart car brick is obviously not to be missed, but it will not be cheap.
According to Xiaomi’s financial report for this quarter, the cost of innovative businesses such as new energy vehicles is 425 million yuan; if this cost is added back for adjustment, the decline in net profit will be narrowed.
According to market forecasts, the impact of new energy vehicles and SoC chips on Xiaomi Group’s annual adjusted net profit in 2022 will be 3.5-4 billion yuan. Judging from the data disclosed in the first quarter, Xiaomi’s expenses in the second quarter will likely increase significantly, because on April 20, Xiaomi won the bid for industrial land in Yizhuang for 610 million yuan for the construction of an automobile production plant.
Not only that, the auto business is not yet clear. When the mobile phone market as a whole enters a cold winter and the main business declines, the pressure on Xiaomi to spend money will inevitably increase. Under the circumstance that the prospect is difficult to determine, in the recent collective rally of Chinese concept stocks, Xiaomi has maintained a stable range of 11-12 yuan per share as always.
In order to support the car, after the release of the first quarter financial report, Xiaomi’s new retail business has also accelerated its entry into the same city retail, in order to cover more store costs and improve the efficiency of retail stores.
After the launch of Redmi’s new products at the end of May, consumers can place orders through the Xiaomi Mall App and Xiaomi Mini Program. As long as you choose in-store delivery, you can enjoy the shopping experience of delivery from stores within 3 kilometers and SF Express’s high-speed door-to-door delivery in the same city.
In early May, Xiaomi also cooperated with Meituan to launch the same-city flash delivery. After placing an order through Xiaomi’s own channels, a variety of Xiaomi products, including new products, can be delivered to consumers quickly, safely and without worry, enabling “an average of 1 hour” to purchase immediately. That’s it.
When Xiaomi was listed before, Lei Jun once said, “A good company often considers profit first, and a great company first considers people’s hearts and what users think. I hope Xiaomi will become a great company in the future.”
It’s just that in the process of transforming from an excellent company to a great enterprise, while keeping consumers’ hearts and minds, Xiaomi should also show more profit cards to support the confidence of retail investors in the secondary market.
This article is reproduced from: http://finance.sina.com.cn/tech/csj/2022-06-01/doc-imizmscu4601436.shtml
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