Xiaomi Smartphone Sales Slowing Down But Shift to Services Could Alter Revenue Growth Trend

Xiaomi’s whirlwind growth might be losing some momentum, indicated its latest Quarterly Earnings Report. The Chinese smartphone maker, which also makes several unique and niche products, has openly claimed that the slowing growth is primarily due to China’s slight decline in consumption. Moreover, the company has been actively trying to diversify into the services segment to maintain or even increase revenue. Interestingly, analysts appeared to have been quite accurate about the predictions of Xiaomi’s growth trend, and hence the faith in the company hasn’t been heavily impacted.

Xiaomi is currently the fourth-largest smartphone maker in the world. The company, on Wednesday, reported a 3.3% revenue growth (QoQ) in the quarter that ended in September. Although accurately predicted and expected by trade analysts, Xiaomi is actively diversifying into the services segment to cover the negative impact of slowing smartphone sales. Incidentally, the sales or purchase of smartphones continues to grow worldwide, but the growth has slowed down significantly. This strongly indicates some changing purchase patterns and consumer behavior in regards to smartphones.

Xiaomi’s Slowdown In Line With Global Trends, And China’s Economic Slowdown?

Xiaomi reported its Q3 revenue stood at 53.7 billion yuan, or $7.65 billion. Incidentally, this is certainly a Quarter-Over-Quarter increase. Just a quarter earlier, Xiaomi’s revenue stood at 51.95 billion yuan ($7.39 billion). Moreover, the earnings are certainly better than last’s year Q3 revenue. Xiaomi’s Q3 2019 revenue was up by 5.5% as compared to the same period last year.

Xiaomi noted its adjusted profit in the Q3 2019 was 3.5 billion yuan ($500 million). This is substantially higher than about 2.5 billion yuan a year ago. Gross profit was up 25.2 percent, which is enviable in any industry segment. However, Xiaomi’s smartphone business revenue during Q3 was 32.3 billion yuan ($4.6 billion). This about 7.8 percent in the negative than last year. The company which makes attractively priced smartphones in every price segment, shipped a total of 32.1 million smartphone units in the time period.

It is quite apparent that Xiaomi’s slight decline in smartphone sales and revenue from the business is in direct correlation to China’s current scenario. According to multiple reports, China’s smartphone market shrunk by about 3 percent in Q3 2019. Despite the country’s slightly sluggish growth, Xiaomi claimed its gross profit margin of the smartphone segment had climbed to 9%. This is impressively up from 8.1% and 3.3% in the Q2 and Q1 of 2019 respectively.

The only company that seems to continually defy odds and market patterns is Huawei. Although direct sales of hardware haven’t been as good as expected, Xiaomi continually reminds analysts about the company’s diversification. Continually optimizing ad delivery and selling additional internet-based services on its devices have been priorities of Xiaomi. Incidentally, Xiaomi’s internet services business grew by 12.3% year-on-year. It stood at a healthy sum of 5.3 billion yuan ($750 million).

Xiaomi Diversifying Into Services But hardware Sales Forms The Majority Of Its Revenue:

Xiaomi rose to fame with its steadfast commitment to a “5 Percent Profit Only” commitment. The philosophy to offer the most optimum value for money to customers has allowed Xiaomi to scale up and grow at an exponential pace. However, the company’s extensive reliance on hardware sales, and a rather sluggish pick up of internet services, reflect in Xiaomi’s quarterly earnings.

Some of the most prominent software-hardware combo segments that contribute to Xiaomi’s revenue include the company’s Android-based MIUI software. MIUI, which is currently on version MIUI 11, now has close to 300 million monthly active users. Meanwhile, the Xiaomi Smart TVs as well as the Mi Box, which is an Android Set Top Box with OTT features, has more than 3.2 million paying subscribers. Incidentally, revenue from the company’s recently launched fintech platform, Mi Pay, has already reached 1 billion yuan ($140 million).

Despite the positive news, hardware sales account for close to 50 percent of Xiaomi’s revenue, and that has been rather sluggish. Still, Xiaomi is quite confident about a resurgence due to the rapid deployment of next-gen 5G mobile connectivity. Interestingly, Xiaomi has about 10 upcoming smartphones with an inbuilt 5G modem, which is a clear indicator of the company’s confidence in the next evolutionary leap in mobile connectivity and wireless, high-speed internet technology.


Close