Xiaomi Group (HK: 1810) today released its financial report for the second quarter ended June 30, 2022. According to the financial report, Xiaomi’s revenue in the second quarter was 70.17 billion yuan, down 20.1% year-on-year, and estimated at 69.86 billion yuan; net profit was 1.39 billion yuan, estimated at 1.5 billion yuan; adjusted net profit was 2.08 billion yuan, down 67.1% year-on-year. Estimated at 1.99 billion yuan.
After the financial report was released, Wang Xiang, partner and president of Xiaomi Group, and Lin Shiwei, vice president, CFO and CEO of Tianxing Digital Technology, attended the two subsequent financial report conference calls to interpret the main points of the financial report and answered questions from several reporters and analysts.
Wang Xiang: First of all , I think the main reason for the decline in revenue and profit is the weakening of the global consumer market . Due to the recurrence of the epidemic, there have been difficulties and weakness in the Chinese market demand. The weakness of the global market is mainly due to the increase in fuel prices and food prices. In fact, the increase in fuel prices and food prices has occurred in many countries around the world. Coupled with inflation and changes in exchange rates, this has resulted in the weakening of global market demand and also led to difficulties and challenges in our revenue growth.
And speaking of profit, we launched a lot of promotions in the second quarter, including "618" and so on. Due to the lack of market demand, we will definitely take more measures to clear the inventory, which has also caused a decline in profit growth, in other words, a decline in profits. This is a question about second-quarter profit versus revenue.
Indian market. We are still shipping low-end mobile phones in the Indian market, and there is no problem in selling them, but there is a problem with the rhythm of product supply. Last year and even for quite some time this year, our low-end chips were out of stock, which caused some trouble for our sales in the Indian market. On low-end products, we also had supply issues with some of our chip suppliers' major chips, which also affected us.
Other aspects, including our tax issues in India, discussions and disputes with the government, etc., we are still actively working on it. Xiaomi is a listed company. We strictly abide by local laws and regulations and various tax regulations. All planning of our Indian company is implemented in strict accordance with laws and business guidelines, including the payment of intellectual property fees. Currently, we are actively communicating with relevant Indian authorities and the judicial system.
The following is a transcript of the Q&A session with analysts and reporters on the conference call:
Xinhuanet: I have two questions. First of all, the profit of Xiaomi Group declined year-on-year in this quarter. Can you ask the management to analyze the reasons behind this? My second question is about Xiaomi's overseas market. How is the Indian market doing now? Can you share the progress with us? Will Xiaomi's low-end product line be available in the Indian market?
Wang Xiang: First of all , I think the main reason for the decline in revenue and profit is the weakening of the global consumer market . Due to the recurrence of the epidemic, there have been difficulties and weakness in the Chinese market demand. The weakness of the global market is mainly due to the increase in fuel prices and food prices. In fact, the increase in fuel prices and food prices has occurred in many countries around the world. Coupled with inflation and changes in exchange rates, this has resulted in the weakening of global market demand and also led to difficulties and challenges in our revenue growth.
And speaking of profit, we launched a lot of promotions in the second quarter, including "618" and so on. Due to the lack of market demand, we will definitely take more measures to clear the inventory, which has also caused a decline in profit growth, in other words, a decline in profits. This is a question about second-quarter profit versus revenue.
Indian market. We are still shipping low-end mobile phones in the Indian market, and there is no problem in selling them, but there is a problem with the rhythm of product supply. Last year and even for quite some time this year, our low-end chips were out of stock, which caused some trouble for our sales in the Indian market. On low-end products, we also had supply issues with some of our chip suppliers' major chips, which also affected us.
Other aspects, including our tax issues in India, discussions and disputes with the government, etc., we are still actively working on it. Xiaomi is a listed company. We strictly abide by local laws and regulations and various tax regulations. All planning of our Indian company is implemented in strict accordance with laws and business guidelines, including the payment of intellectual property fees. Currently, we are actively communicating with relevant Indian authorities and the judicial system.
Lin Shiwei: On the issue of profit margins. In this quarter's earnings report, we also highlighted Xiaomi's expenses on new businesses. Our investment in new businesses has also continued to grow. We have invested about 610 million in the development of new businesses such as electric vehicles. Here we will focus on analysis.
As for the low-end mobile phone market in India, we have also seen relevant news reports, but we have not seen any public government information so far.
Wang Xiang: Everyone may have paid attention to Xiaomi's taxation in India. At present, through the judgment of India's judicial system, we have released about 725 million US dollars of funds frozen. At present, in accordance with India's administrative reconsideration rules, we are still negotiating with relevant government departments on relevant issues.
Economic Daily reporter: The first question is about shipments. We saw that in the second quarter, global mobile phone shipments also declined significantly. Will this downward trend continue in the second half of the year? Or will it show a rebound trend? Which regions are likely to have a better rebound momentum? Will we be able to see a sequential uptick in the European or Indian markets in the second half?
The second question is about destocking. It can be seen that the "618" promotion in the second quarter also had an impact on the gross profit margin of mobile phones. I would like to ask the management, will the gross profit margin trend in the second half of this year remain at the current level?
Wang Xiang: Speaking of the whole year, we expect the second half to perform slightly better than the first half . As you can see, our mobile phone shipments in the second quarter, although not much increased, compared to the first quarter, the mobile phone shipments in the second quarter showed an increasing trend. Therefore, we hope that the growth trend will continue, because there are still some good products in the third and fourth quarters , and in the international market, there are also many promotional festivals in the fourth quarter, such as "Black Friday" and Christmas. sales season. To sum up, with the gradual control and stabilization of the epidemic in China, coupled with the good products and promotion mechanisms we have released in the global market, we hope to achieve a gradual recovery.
In general, we also mentioned in the briefing that according to the data analysis of third-party companies, the global smartphone market, including China's smartphone market, has declined to varying degrees this year, about 10%. Compared with the first half of the year, the overall expectation for the second half of this year is slightly better. However, due to the existence of many uncertainties, we remain cautious and slightly optimistic about the second half of the year.
inventory. Our current inventory levels are generally healthy, and while inventory is still high, we will take advantage of opportunities to clear our inventory.
Lin Shiwei: Let me add a few more points. During the "618" promotion, we hope to use this opportunity to clear some old products, and the final result is also very good. You also mentioned just now that this may have some impact on gross margins, but in general, it is good for us to restore the overall inventory, especially the inventory in mainland China, to a very normal level. Globally, there may still be a certain amount of channel inventory, but the more dangerous ones are actually not many. They are all categories that we think can be disposed of.
We also mentioned that the international uncertainty of the future gross profit margin is still quite strong, and the appreciation of the US dollar will actually have a certain impact on our gross profit margin, so we will continue to observe the trend of the US dollar. At the same time, Xiaomi did not launch many new products in the first half of this year. In July and August of the second half of the year, we launched a series of high-end products, including Xiaomi Mi 12S and K50, which are now on pre-sale. The introduction of these high-end mobile phones will help the gross profit margin to some extent.
Wang Xiang: Let me add one more point about the formation of international inventories. In fact, the entire industry has not anticipated the changes in the international economic situation and the international political situation, and their impact on the economy has exceeded everyone's expectations. Therefore, last year, there was a phenomenon that semiconductors went from out of stock to oversupply: everyone was reducing demand, and in this process, the supply chain was partially lagging, which resulted in an increase in the inventory of finished products or raw materials. I think this is normal. Phenomenon. Therefore, we still maintain a relatively positive view.
The Paper: At the recent Xiaomi conference, Xiaomi released the first full-scale humanoid bionic robot CyberOne, which has attracted widespread attention in the industry and was released earlier than Tesla. May I ask the management, can you share with us Xiaomi's forecast on the commercial potential of the smart robot market? What follow-up strategies will Xiaomi have in the smart robot market in the future?
Wang Xiang: Intelligent robots are still a new, multi-disciplinary category with relatively complex technologies. I think starting from the first generation of CyberDog, we are actually doing an open platform, hoping to inspire the power of society to conduct cutting-edge discussions. The humanoid robot CyberOne is more complex than CyberDog, and we are also exploring the future, hoping to put the technology we have invested in over the years into use . I think in the future, there will be many application scenarios for bipedal robots. Of course, the current product is still in the early stage, and we will continue to invest in the category of robots, and make early and prophetic explorations in the open source community and surrounding industries. In the future, it can truly support smart factories, and it can also perform human-replacement services. But there is also a lot of technology involved. This is a multi-category, multi-span technology research and development, including AI, artificial joints, etc. So, for us, CyberOne is still laying the groundwork for future products.
Lin Shiwei: At the press conference that day, Mr. Lei (Lei Jun) also mentioned that the current cost of robots is still very high and has not yet reached the stage of mass production. We established a robotics lab last year, and we also hope to continue to explore at the front end to see if we have the opportunity to make breakthroughs in this area. Although the current robot has not yet reached the stage of mass production, Mr. Lei also mentioned that there are many technologies that we can use in other directions. For example, last year's CyberDog technology was used in our "everything tracking" lens technology this year. . Therefore, while we are exploring these new products, we are also looking at whether these technologies have other application opportunities and whether they can be applied to our entire ecological chain.
Wang Xiang: These technologies include modules driven by high power density, large dynamic and high-burst foot vision motion control algorithms, many AI algorithms, and algorithms that integrate intelligent perception and decision-making of robots. These algorithms can be used in many in the field. For example, as I mentioned just now, it is possible to replace people on the production line. Many countries and regions are already exploring and trying in this area, and in China, a complete system has also been formed in the field of robotics. According to incomplete statistics, there are more than 80 million people employed in this field. As you can see, this is a big industry.
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