Xiaomi grows in Q1, but Q2 is where the danger lies

Xiaomi has reported revenue and profit rises through to March 31, but let’s not forget this does not include the period of extensive lockdowns in European markets.

With total revenues coming in at roughly $7 billion, a year-on-year increase of 13.6%, profits grew by 10.6% to approximately $320 million. Considering the backdrop of COVID-19, this would be considered a healthy performance through the three-months, though investors will have to brace for the impact of societal lockdowns during April and May in Western Europe, a growth region to Xiaomi.

“Although the industry is facing severe challenges, the Group still experienced growth in all segments despite the market downturn, which fully reflects the flexibility, resilience and competitiveness of Xiaomi’s business model,” said Xiaomi CEO Lei Jun.

“We believe a crisis is the ultimate litmus test for a company’s value, business model and growth potential. As the impact of the pandemic starts to ease, we will continue to focus on the ‘5G + AIoT’ strategy and strengthen our scale of investment, in order to let everyone in the world enjoy a better life through innovative technology.”

Jun might be positive, but it is dampened success in comparison to previous quarters,

Xiaomi year-on-year financial performance for 2019
Period Revenue Profit
Q4 +27.1% +34.8%
Q3 +5.5% +20.3%
Q2 +20.2% +49.8%
Q1 +27.2% +34.7%

Source: Xiaomi corporate blog, Mi Global

Although there was a dip in performance during the third quarter, which could be attributed to a slowdown in smartphone shipments in its Chinese domestic market, Xiaomi is a company which has been on the rise. Success has been in the international markets primarily, and the executive team will hope the dampened success will only be temporary as the world begins to open-up again.

The issue is April and May, which will show up in the next quarterly earnings report. International revenues have been a significant driver for Xiaomi in recent years, and this quarter saw 50% of revenues attributed to the overseas markets.

Over the first three months of 2020, IDC attributed 31.2% of shipments in India to Xiaomi, while Canalys estimated Xiaomi’s smartphone shipments grew by 58.3% year-on-year in the European markets, accounting for 14.3% market share. In Italy, France and Germany it ranked it the top four smartphone manufacturers, while it claims to be number one in Spain. The growth numbers in LATAM, the Middle East and Africa were even more impressive.

Unfortunately, the majority of markets where Xiaomi is seeing success are the ones where lockdown has been severely impacting smartphone sales. In Europe, IDC said smartphone revenues could be down 10% optimistically, but worst case scenario could see sales slashed by as much as 47%.

Xiaomi has estimated that as of mid-May, the weekly number of smartphone activations in the European market had returned to over 90% of the average weekly level in January. Sales are gradually beginning to recover, but they are still not at the levels which would have been expected and more than half of this quarter has already passed. It is not a good sign, but these are certainly extenuating circumstances.

Investors have not exactly been thrilled with the news either. Xiaomi share price, on the Hong Kong stock exchange, is down 2% at the time of writing having started the day with a brief surge.

The saving grace for Xiaomi is diversification, however.

One business unit is leveraging the Xiaomi brand and existing customer base to drive sales in IoT and lifestyle products segment. The IOT platform now has 252 million connected IoT devices on it (not including smartphones and laptops), while there have also been progress in selling TVs, wireless earphones, electric scooters, robot vacuums and wifi routers. The business seems to be passionately and aggressively embracing diversification.

The second important area of diversification is Xiaomi’s internet services. With revenues of $830 million, a year-on-year increase of 38.6%, the division accounts for 11.6% of total revenues, up from 10.1% in Q4 2020 and 9.9% in Q3 2020. This division is slowly becoming more prominent but most importantly, this is recurring cash, the holy grail in the digital economy.

Xiaomi is another Chinese company which has been embraced by the international markets in recent years, a critical driver of revenue growth, but this progress might prove to be the source of great pain during the second period of 2020.

Xiaomi denies snooping claims

It was of course never going to admit it has been spying on customers, so Xiaomi has hit back at a Forbes article which suggests the smartphone manufacturer is eavesdropping.

The report, which was written in conjunction with security researcher Gabi Cirlig, suggests Xiaomi is collecting data on internet browsing and smartphone usage, even when incognito mode is selected, or privacy-focused browsers such as DuckDuckGo are used. The data could be traced back to servers located in Russia and Singapore, though the domain names have been registered in China.

Although Xiaomi and other smartphone manufacturers collect data on how smartphones are being used to improve performance and inform future design decisions, the report suggests the firm goes way beyond what would be deemed acceptable.

All data should be anonymised and aggregated, to protect user privacy, while explicit consent should be sought from the user before any data is collected. It is claimed Xiaomi has not held up its own end of the bargain, though collecting data from incognito mode or privacy-focused browsers breaks numerous privacy principles and rules.

The security claims paint a gloomy picture of deception, a story which sounds very familiar; US politicians have continuously stated Chinese firms should not be trusted.

Xiaomi’s response to the allegations is as what many would expect.

“At Xiaomi, our users’ privacy and security are of top priority,” a statement reads. “We strictly follow and are fully compliant with user privacy protection laws and regulations in the countries and regions we operate in.”

The firm has stated it only collects data when permissions have been granted and it complies with all local data protection and privacy laws. It has released several updates to close any loopholes or oversights which might compromise security or privacy.

In short, Xiaomi contests all allegations which have been made in the article.

It is hardly unusual for Chinese companies to be at the centre of a privacy scandal, but Xiaomi has managed to avoid attention from US authorities to date, something it will surely like to continue.

Global smartphone shipments fall by 17% coz of coronavirus

The latest smartphone shipment numbers from Strategy Analytics reveal an unprecedented drop that can only be due to the COVID-19 pandemic.

Total shipments of 274.8 million units in the first quarter of this year represent a 16.8% decline on the year-ago total. No vendors were spared the austerity, bar Xiaomi, which at least managed to tread water thanks to its Indian presence. Apple declined the least out of the big three, so has gained a chunk of global market share compared to Q1 2019.

“As expected, the global smartphone market delivered its worst performance since records began,” said Linda Sui of SA. “Demand for smartphones slammed to a halt in the quarter, as the Covid-19 virus scare shut down major economies like China and shoppers placed their spending plans on hold.”

“This was Samsung’s lowest quarterly smartphone shipments for eight years,” said Neil Mawston of SA. “Despite a strong line-up of A, S and Note series models, Samsung was unable to escape the virus-led plunge in smartphone demand. Despite US-China trade wars and the Covid-19 virus scare, Huawei was able to maintain its global smartphone share at a respectable 18 percent during the quarter. China remains Huawei’s core region and most of its sales take place there.”

“Apple’s global smartphone market share has risen from 13 percent to 14 percent in the past year,” said Woody Oh of SA. “Apple’s new iPhone SE model with lower pricing and larger presence in emerging markets like India will give volumes a further bump in the coming months.”

If the production forecast is anything to go by, the global smartphone numbers could be even worse next quarter. Supply chains are disrupted and discretionary consumer spend has gone down the toilet, while everyone sits tight and waits to see how things will play out. As with so many other industries, the smartphone sector will have its fingers crossed for an explosion of pent-up demand in the second half of this year.

Incidentally, other analyst firms are increasingly publishing their numbers on the same day as SA, which we use as our primary source. It’s interesting to see how their estimates vary, so we’ve copied the Omdia and IDC tables below too.

MediaTek defends itself after benchmark cheating accusations

After reports emerged suggesting MediaTek has been cheating the benchmarking system, the chipset manufacturer has vehemently defending its position.

It has been alleged in AnandTech that MediaTek has been cheating the mobile enthusiasts with some clever code. In the firmware files, references were found tying benchmark apps to a so-called ‘sports mode’. When triggered (if a benchmark app has been initiated), features on the phone were ramped up to give the impression of better performance.

AnandTech claims the cheating was brought to light thanks to testing two different OPPO Reno 3 devices. The Reno 3 Pro (the European version) beat the Reno 3 (the Chinese version) in the PCMark benchmark utility, despite its Helio P95’s Cortex-A75 CPU cores being two generations older than the Dimensity 1000L’s Cortex-A77 CPU cores. And not only did the Reno 3 Pro has older MediaSet chipsets than the Reno 3 devices, it had half as many.

The difference in the test results were slightly unusual, though when a ‘stealth’ benchmark apps were used, the lower results were confirmed.

Why those in the industry feel it is necessary to cheat benchmarking tests is anybody’s guess. The negatives of being caught far outweigh the gains of impressing a few hyper-geeks, and the cheaters eventually get caught. It is embarrassing and some might ask whether they are a reliable partner. The chipsets in questions have been used in OPPO, Vivo, Xiaomi and Sony devices.

Following the original statement, which you can see at the foot of the article, an expanded blog post was offered to the industry.

“We do find it interesting that AnandTech has called into question the benchmarking optimizations on MediaTek powered devices, when these types of configurations are widely practiced across the industry,” MediaTek said. “If they were to review other devices, they would see, as we have, that our key competitor has chipsets that operate in the exact same way – what AnandTech has deemed cheating on device benchmarking tests.”

Although this is a very reasonable explanation, it is still a bit fishy. It is perfectly understandable for performance to be ramped up for some applications, but the fact the ‘sports mode’ has been linked to the initiation of a benchmarking app as well as other functions (gaming for instance) suggests the aim is to fool the tests. Most reasonable individuals would assume these tests are performed in ‘normal’ mode.

Whether this is an adequate explanation, we’ll let the court of public opinion decide, but it is somewhat of a flimsy excuse.

Original MediaTek statement:

MediaTek follows accepted industry standards and is confident that benchmarking tests accurately represent the capabilities of our chipsets. We work closely with global device makers when it comes to testing and benchmarking devices powered by our chipsets, but ultimately brands have the flexibility to configure their own devices as they see fit. Many companies design devices to run on the highest possible performance levels when benchmarking tests are running in order to show the full capabilities of the chipset. This reveals what the upper end of performance capabilities are on any given chipset.

Of course, in real world scenarios there are a multitude of factors that will determine how chipsets perform. MediaTek’s chipsets are designed to optimize power and performance to provide the best user experience possible while maximizing battery life. If someone is running a compute-intensive program like a demanding game, the chipset will intelligently adapt to computing patterns to deliver sustained performance. This means that a user will see different levels of performance from different apps as the chipset dynamically manages the CPU, GPU and memory resources according to the power and performance that is required for a great user experience. Additionally, some brands have different types of modes turned on in different regions so device performance can vary based on regional market requirements.

We believe that showcasing the full capabilities of a chipset in benchmarking tests is in line with the practices of other companies and gives consumers an accurate picture of device performance.

Xiaomi’s overseas growth engine threatened by pandemic

Other Chinese companies might be facing difficulties in this aggressive political climate, but Xiaomi seems to be getting on just fine if 2019’s numbers are anything to go by.

What is worth noting is this is the financial period prior to the disruptions caused by coronavirus, running through to December 31. Xiaomi noted there was certainly an impact to offline sales and manufacturing capabilities are only running at 80-90% of capacity, but it seems to have weathered the storm quite well. However, the most promising growth is coming in the markets where COVID-19 is causing chaos today.

As you can see from the numbers below, Xiaomi had a very good 12 months.

Q4 2019 Year-on-year FY 2019 Year-on-year
Revenue 7,956 +27.1% 29,001 +17.7%
Gross profit 1,105 +38.5 4,023 +28.7%
Smartphone 4,339 +22% 15,968 +6%
IoT and lifestyle 2,746 +30% 7768 +40%
Internet services 802 +41% 985 +23%
Others 68 +31% 255 +85%

Figures in millions (US$)

Xiaomi is of course primarily a smartphone business, but ventures into parallel segments are starting to look very successful. The IoT and lifestyle segment is an obvious move, these are hardware products which are increasingly based in the connectivity world, though internet services are an interesting one. Few companies have been successful when attempting to wrestle profits from internet giants, though Xiaomi seems to be gathering momentum.

In the internet services business, Xiaomi is pushing very aggressively into multiple segments. News services, advertising, gaming, the Youpin e-commerce platform, fintech and TV internet services are just some of the areas. Naturally, some of these efforts will fail, but Xiaomi only needs a few to succeed to gain a foothold in the software and services world. These successes will allow Xiaomi to build credibility, the critical foundation for expansion and diversification.

And while these numbers are very promising for a business which has seen rapid growth over the last few years, much of this has been fuelled by the international markets. This could present a problem for those shareholders who might expect the same results in 2020.

Over the course of 2019, the overseas markets accounted for 46.8% of group revenues. At any other time, having the international business unit as the growth engine would be a very positive thing, but at a time where COVID-19 is set to take a considerable bite out of industry profits, the domestic business unit will have to accelerate to pick up the slack.

Western Europe, India and LATAM are three areas where Xiaomi has seen considerable success in recent memory, though these are all the markets which are facing the prospect of a coronavirus encouraged recession. Looking at the individual markets in the final three months of 2019, Xiaomi was the leading smartphone brand collecting 28% market share, the second largest in Spain were 65.7% year-on-year growth made 22.8% market share, while it ranked fourth in both France and Italy where shipments increased 69.9% and 206.2% respectively.

The Chinese domestic market is a very interesting one. Although this is a country where 5G got off to a sluggish start compared to some, the deployment of 5G base stations from the three major MNOs is accelerating at an unprecedented pace and consumers have seemingly bought into the craze; China Mobile recently said it has secured 15 million 5G subscriptions. This momentum will force China through a smartphone refreshment cycle, and with Xiaomi owning roughly 9% of market share, this could prove to be a very profitable period, even more so if success in the overseas markets can be brought to China.

With reports in China suggesting society is resisting a second wave from the pandemic, consumer spending might well recover adequately, though whether this is enough to compensate from what would appear to be a downturn in Xiaomi’s international markets remains to be seen. Western Europe and India are important growth engines for the ambitious firm, though these are two regions where the risk of COVID-19 is significant.

Benign brother has got your back: China launches coronavirus app

China’s government bodies and businesses have jointly launched a mobile app to help detect if people have been in close contact with those suspected of carrying the novel coronavirus.

The app has access to multiple official holders of private data. By registering with his or her name and Chinese ID number, a smartphone user can use the app, called “Close Contact Detector” to check if he or she has been in proximity of those who are later either confirmed or suspected to have the virus. Such close contacts include travelling in the same train carriage or sitting within three rows on the same flight with those carrying the virus.

One registered user can check the status of up to three users by inputting their ID numbers and names. One ID number is limited to one check per day. The app will then return an assessment of which category the individual in question falls into: Confirmed case, Suspected case, Close contact, Normal. Xinhua, one of the major official propaganda outlets, reported that over 105 million checks have been made by users three days after the app was launched.

The app development was led by the government organisations responsible for health which was joined by China Electronics Technology Group, one of the country’s largest state-owned enterprises, as well as the leading smartphone makers Huawei, Xiaomi, OPPO, and Vivo. The backend data comes out of the National Health Commission, the Ministry of Transport, China State Railway Group Company, the state owned enterprise that operates all the rail transport in China, and the Civil Aviation Administration, the aviation regulator.

The fact that private travel data is made readily available to business entities without explicit consent from the individuals involved may raise plenty of eyebrows in places like Europe, but the attitude in China is different. “From a Chinese perspective this is a really useful service for people… It’s a really powerful tool that really shows the power of data being used for good,” Carolyn Bigg, a Hong Kong-based lawyer, told the BBC.

“Close Contact Detector” has been pushed out by the smartphone brands as a priority app to their users in China. It is unclear how or if promoting to users of other smartphone brands, iOS users, or non-smartphone users, will be conducted. Nor is it clear if there are plans to extend the coverage to residents without a Chinese ID number, such as foreign nationals staying in China.

Telecoms.com has learned that over the last few weeks there have been other online tools to help concerned users check if they had unknowingly come into contact with confirmed victims of the new coronavirus. The key difference from the new contact detector is that, in the earlier attempts, backend data was crowdsourced from publicly available information including the flight and train numbers of the confirmed cases published in the media.

Neither is contact detector the only use case where user data is playing a role. A recent video clip making rounds on social media shows a drone flying a blown-up QR code that drivers can scan to register before they enter Shenzhen after the long Chinese New Year break. The method is deployed presumably to prevent cars and drivers registered to the major disease hit regions from going through, as well as reduce human-to-human interaction. Xinhua reported that the Shenzhen Police, which is responsible for managing the local traffic and owns the automobile and driver data, is behind this measure.

Xiaomi makes big noises with $7bn 5G, AI and IOT plan

In an open letter from its CEO, Xiaomi has promised to increase its R&D investments in 5G, AI and IOT to $7.18 billion.

In years gone, Xiaomi was a backwater Chinese brand which hoovered up the scraps of mid- and low-tier smartphone shipments. But such is the momentum the Chinese technology industry is generating, Xiaomi is now a major force across the world, and this investment is further evidence of the success.

“2019 was significant year for our global expansion, our overseas revenue now accounts for almost half of our total group revenue,” CEO Lei Jun said in the letter.

“Xiaomi is now truly global technology leader. Our internet business also became more diversified and our AIoT business retained its global leadership. Xiaomi is now widely known as a ‘true AIoT leader’ in the industry.”

The Xiaomi strategy has been focused acutely on the convergence of 5G, AI and IOT. All of the components mean something important to somebody individually, but with Xiaomi’s broad portfolio of consumer products, it is in an interesting position. From smartphones, to home appliances, security products and scooters, if Xiaomi can nail the ‘AIoT’ proposition it can enter into an entirely new world, moving into the ‘software and services’ segments.

For many, AI and IOT are two technologies which work hand-in-hand. They can of course work separately, but the greatest value is achieved together. The consumer world is where Xiaomi can slip into naturally, but the emerging segment of Industry 4.0 is also open to the ambitious Chinese OEM.

What is worth noting is this is not a new investment but supercharging an existing one. Xiaomi had already committed $1.43 billion over the next five years, though this has now been aggressively pushed up to the $7.18 billion over the same period. Throwing cash at an opportunity is no guarantee of success, but it does certainly shift the odds.

Xiaomi, Oppo and Vivo create ‘Peer-to-Peer Transmission Alliance’

Three Chinese smartphone vendors have created a cross-brand alliance to enable wireless file transfer without needing the internet.

The tie-up between the three brands will ensure WiFi Direct is supported on all devices moving forward, effectively allowed smartphones to pair to enable the transfer of files, including photos, videos and music, without being online.

“This expansion of the Peer-to-Peer Transmission Alliance to global users all the more underlines Xiaomi’s longstanding commitment of bringing innovation to everyone,” said Chew Shou Zi, SVP of Xiaomi.

“By joining hands with Vivo and Oppo, two industry leaders that have a strong user base, we are expecting to benefit smartphone users globally. Xiaomi will continue to bring more strategic partnerships of this sort to our users and Mi Fans.”

The idea of WiFi Direct is relatively simple. Two compatible devices simply connect to each other, creating an ‘ad hoc network’ and cutting out the middle-man; the internet. Users can simply turn on the feature, select the desired device, before transferring whatever content they want. This could be useful down the pub, but equally when transferring documents to a printer or displaying a video on a TV screen.

This is not necessarily a new idea, but it is a useful one. Numerous companies, including Xiaomi, have introduced such features though they are contained within their own ecosystem. Xiaomi devices could link-up to other Xiaomi devices, though this alliance between the three OEMs is a positive step towards expanding the ecosystem and usefulness of the feature.

Xiaomi still growing as Christmas spending sprees approach

Chinese smartphone vendor Xiaomi has reported another quarter of year-on-year growth, and while it might not be as aggressive as previous quarters, the Holiday season is upon us.

The Christmas period might be profitable time of year for many, but Xiaomi might have more reason to cheer than many. 5G networks are being switched-on, and its smartphones are adorning the shelves. Huawei might be stealing market share in the Chinese domestic market, but Xiaomi has a significant advantage in the international markets; it doesn’t have a White House propaganda campaign of hate to counter.

Revenues over the last three months accounted for approximately $7.64 billion, a year-on-year increase of 5.5%. This might be down on previous quarters, though it always worth bearing in mind the company is still growing, thanks mainly to diversification. Xiaomi is primarily known as a smartphone manufacturer, but the team is sweating the brand into numerous different market segments.

That said, the smartphone business still accounts for the lion’s share of revenues.

Chinese market share European market share
Company Market share Company Market share
Huawei 42.4% Samsung 35.7%
Vivo 17.5% Huawei 22.2%
Oppo 17.4% Apple 18.6%
Xiaomi 9% Xiaomi 10.5%
Apple 5.2% HMD Global 1.8%

Q3 2019 Market share statistics courtesy of Canalys

The on-going US aggression has had two very contradictory impacts on the Huawei business, which are having contradictory impacts on Xiaomi. In Europe, Huawei devices are becoming less attractive to the consumer, which benefits Xiaomi sales, but there seems to be a doubling-down of efforts in China, which is eroding Xiaomi market share.

Revenues for the Xiaomi smartphone business were recorded at roughly $4.6 billion, down 7.8% year-on-year, though in shipping 32.1 million units (down 3%) across the period it is sat in fourth position for market share rankings, with 9.2%.

The next financial earnings from Xiaomi will certainly be more telling on the success of the Xiaomi smartphone business, as this three-month period will include the Christmas spending sprees; a solid performance from Xiaomi could see the brand be cemented as a mainstay in the Western markets. However, it will have to fund some aggressive marketing campaigns if it is to reverse the year-on-year shipments decline for this period.

Ultimately, the Xiaomi smartphone business is not in a bad position, though when you look at the wider portfolio there are some ambitious plans underway.

Alongside the smartphones and laptops, Xiaomi has an IOT business which incorporates the team’s virtual assistant, it has now sold 213 million units to date, while there are also various different smart home appliances. Xiaomi’s TV shipments in mainland China during the period led the market, while it also sells air conditioners, refrigerators and washing machines.

Outside the hardware segments of the technology world, Xiaomi is also nurturing an Internet services business. This unit includes advertising and gaming from mainland China smartphones, as well smart TV and Mi Box subscriptions, bringing in approximately $750 million for the quarter.

The smartphone business is the core business for Xiaomi, but the team is doing a very good job at sweating the brand in associated hardware and software segments. This is a Chinese company which is flying under the White House’s radar, but it does seem to be making the right moves.

Xiaomi goes Suomi for camera research

The Chinese smartphone maker Xiaomi has set up in Finland its largest R&D centre outside of China for imaging technologies.

Xiaomi announced today that it has opened an R&D centre in Tampere, west Finland, to focus on smartphone camera technologies, including camera algorithms, machine learning, signal processing, and image and video processing. This will be Xiaomi’s largest Camera R&D team outside of China, the company says.

“The setup of this R&D team in Finnish city Tampere is a milestone in our global expansion journey. In this journey, not only do we consolidate ourselves in operations and business, but also work with local talents to further improve our products with highly innovative technologies,” said Wang Xiang, Senior Vice President of Xiaomi, adding that “this move all the more highlights our longstanding commitment of ‘innovation for everyone’.”

First reported by the website Suomimobiili.fi, Xiaomi’s local business entity, Xiaomi Finland Oy, was incorporated in May, and has rented an office space for around two-dozen employees at the Hermia Technology Park (Hermia-teknologiapuisto), not far from the University of Tampere’s technology campus, which is rated as one of the leading facilities in imaging related research.

Tampere used to be a key R&D centre for Nokia, giving the Finnish phone maker the leadership in camera phones. As Xiaomi’s press releases acknowledged, Tampere “has been greatly contributing to camera and imaging related innovations of leading smartphone brands since the 1990s.” That legacy is not lost. According to an earlier report by the local newspaper, Aamulehit, Nokia entered into a significant patent licensing agreement with Xiaomi two years ago.

Jarno Nikkanen, one of Xiaomi’s first Finnish employees and the Head of Xiaomi Finland R&D, was a Nokia veteran, with a PhD in signal processing from the Tampere University of Technology (now merged with the University of Tampere). He started his current role in June, according to his LinkedIn profile. “Xiaomi’s philosophy has been innovative and highly engaging. It’s all about empowering the teams and individuals to find solutions on their own. What we’re developing in Tampere will end up in the hands of hundreds of millions of users and Mi Fans around the world. That is really motivating,” said Nikkanen in the press release.

Xiaomi was not the first smartphone company to tap into local talents in Finland following the capitulation of Nokia’s phone business. Huawei set up its first R&D centre in Helsinki in 2012, to conduct new technology research for mobile devices, then a new facility in Tampere in 2016, to focus on camera, audio and imaging technologies for consumer electronics.