Sina Technology News On the evening of August 26, millet The Group released its financial report for the second quarter of 2020, with revenue of 53.54 billion yuan in the second quarter and market expectation of 51.4 billion yuan, compared with 51.951 billion yuan in the same period last year. In the second quarter of 2020, the net profit was 3.37 billion yuan, 3.635 billion yuan in the same period last year, down 7.2% year on year. The financial report shows that as of June 30, 2020, the revenue of Xiaomi Group in the first half of the year was 103.24 billion yuan, and the adjusted net profit was 5.67 billion yuan, a year-on-year decrease of 0.7%.
After the release of the financial report, Xiaomi President and Acting CFO Wang Xiang, Vice President of Finance Wang Yonghua and other senior executives first held a press Q&A meeting.
The following are the main contents of the press question and answer meeting:
Sina Reporter: Hello, Mr. Wang, I want to ask you something. I see that our adjusted net profit in the second quarter declined, and our mobile phone revenue in the second quarter also declined. I want to ask you how do you think these two data are declining at the same time? The second is the impact of the epidemic. I want to ask about the relevant strategies for the next 5G mobile phone. The second question is that as of the end of June, Xiaomi Group has invested more than 300 companies, and then the book value has reached 36.8 billion yuan, a year-on-year increase of 28.4%. What will be the focus of Xiaomi's foreign investment? How about the investment of advanced enterprises? How to balance investment, because we should also consider mobile phones and so on when investing. thank you.
Wang Xiang: OK, thank you for your question. First of all, in the second quarter, as I said at the beginning, the outbreak of the epidemic in the international market and countries in the world in the second quarter was very serious. Since the end of March, throughout April, the world has been fighting against the COVID-19 epidemic. Then our market may recover gradually from the end of April to May. Under such difficult circumstances, we still maintained a net profit of 3.4 billion yuan in the quarter, so I think it is still a very important performance. At the same time, we also achieved a 46.6% month on month growth, which means that our net profit growth in the second quarter increased by 46%, nearly 47%, compared with the first quarter. Then we think that this growth is very healthy and lays a foundation for future development. Of course, all these increases are the result of the joint efforts of the whole group, including our partners, and have overcome many difficulties, including logistics difficulties, production difficulties, suppliers' difficulties, and so on. We have overcome a lot of difficulties and achieved this result, which is still very proud.
Just now you talked about another problem, that is, you paid close attention to the progress of our investment. Let me report to you briefly. From the first day of Xiaomi's entrepreneurship, Xiaomi has attached great importance to the building of our ecological chain. We are probably familiar with the early construction of ecological chain, that is, through strategic investment and incubation, we have invested more than 100 enterprises. Then there are many enterprises that not only provide products for Xiaomi, but also promote their own development. Many enterprises are listed in different capital markets around the world, including NASDAQ , Hong Kong and many other places. At the same time, we are also very happy that Stone Technology (the enterprise we invested in) was also listed in China at the beginning of this year. In this way, we have promoted the development of the entire industry, not our own development, but the development of the industry. Two and a half years ago, we set up a fund, a joint fund, mainly to invest in the upstream technology and production of our industry. After two and a half to three years of efforts in this field, we have also invested more than 60-70 enterprises and achieved good results. Our core purpose is to promote the development of the whole industry. We should not only promote the progress and investment of Xiaomi technology, but also support the common development of our entire surrounding industries. In the future, I believe that I will continue to invest in this area, develop with our partners, further improve the efficiency of our products and R&D, and also help our partners to improve the efficiency of our upstream production R&D and technological progress.
Reporter: Hello, management. I want to ask whether the US sanctions against Huawei will affect Xiaomi? Previously, some investment banks believed that if Huawei's supply chain was broken, it would help Xiaomi's shipments in China. I would like to know your views on this aspect. Will Xiaomi's chip supply chain also be affected, and will there be some plans, such as what is the chip supply chain like? On the other hand, it is about the gross profit rate. I saw that the gross profit rate of Internet business has declined. I wonder what the reason is, and will it continue in the second half of the year? In addition, we also see that there is a devalued currency in the financial technology business. We want to know what is the reason for this, and whether it will happen in the future? thank you.
Wang Xiang: First of all, we are already a global enterprise. Xiaomi's international development speed is very fast. Our globalization may have started three or four years ago. Then, we are expanding our global business, including China, according to our established strategies and methods. Therefore, we will implement our established policies and strategies. For example, we will resolutely implement our dual engine strategy, now called 5G smart phone x Internet of Things (IoT), to further promote the development of 5G and the entire smart home and IoT ecology. Therefore, the implementation of this strategy will take time. Now we have seen preliminary results. So in the next few years, we will see a great opportunity for rapid growth, which is due to the accumulation of the past few years and the continuous adherence to our strategy. We believe that regardless of the overall economic situation or the development of the epidemic, we will adhere to this direction of development. I think we are very confident about the future. So we will stick to our own methods. We will pay attention to the development of the situation, but we are more concerned about the formulation and implementation of our own strategy.
The second question you asked is that the gross profit margin of our Internet business has declined. I think there are several points I can share. First of all, due to the epidemic, the Internet financial business was indeed affected to some extent, which also affected the gross profit margin of our Internet business. I think this may be the main reason.
Lin Guanmen: The gross margin of our Internet business was 60.3% in the second quarter. Compared with the same period last year, it is indeed lower. As President Xiang mentioned just now, under the influence of the epidemic and the slightly unstable financial environment, we made more emergency provisions for our financial business this year to be conservative. This also happened in the first quarter. In fact, we also shared such things in the first quarter. However, as you can see, our gross profit rate in this quarter has actually risen month on month. We will continue to strengthen risk control in financial business, and we are optimistic about the long-term potential of finance. But in the short term, it is true that the epidemic will have some impact.
Bloomberg News: Mr. Xiang is good. There are two problems here. The first problem is that we saw that Xiaomi had some good performances in high-end mobile phones in the last quarter. I want to know how Xiaomi will compete with some Chinese manufacturers, including Huawei, in high-end categories in the future? The other is about the Indian market. Because in the Indian market, Xiaomi still maintained its first position last quarter. I wonder if Xiaomi will have some more conservative views on the Indian mobile phone market in the future?
Wang Xiang: First of all, your first question is about the competition of high-end products. As I mentioned just now, the successful launch of high-end products has given us great confidence in the past six months, especially in the past two quarters. The core of high-end market competition still stems from our investment in high-end market and technology in the past. Then the main reason why Xiaomi 10, Xiaomi 10 Pro and MIX Alpha (the supreme version of Xiaomi 10), the three mobile phones with more than 4000 yuan, have won a very good reputation and success, I think, is the product strength of this product itself. First, we concentrated all our strength to conquer two technical points. One is the quality of the camera. We continue to refresh the technical indicators of camera quality. This is also the second time to win the first place in DXOMARK, reaching 130 points, which is one point. Another technical point, for Xiaomi, is our charging technology which has been continuously invested in the past few years. We continue to refresh the indicators of charging technology. I believe that our charging technology indicators are among the best in the world. I believe it is in the first place, if compared globally. Then these two fields, together with the whole industrial design, appearance design and the overall comprehensive user experience level, including the improvement of the system level, etc. This investment is a very important basis for occupying the high-end brand market, and the rest is to make breakthroughs in marketing. That is, how to make high-end consumers better understand our products and brands. There are also various channels for efforts. We are also making continuous efforts in these aspects. In the first step, we really achieved the highest level in technology. At the same time, the market has verified that we can sell products worth 4000 yuan or more. For the rest, we will strengthen the development of channel brands while investing in technology. This is a high-end market, and we are very confident. In China's high-end market, and in the global high-end market, this is the first problem.
Second, you mentioned the Indian market. We are in the Indian market. At present, Xiaomi is the first brand in Indian smart phones and many categories. We have won the first place in the Indian market in the 12th quarter. Indian consumers are very satisfied with Xiaomi's products. We will continue to provide moving and affordable products in the Indian market. And our company attaches great importance to cooperation with Indian partners. We have also done a good job in promoting, and we have been committed to promoting mutual understanding and trust between the people of China and India. Most of our employees are our colleagues in India, and they are confident in our development in India.
Reporter: Hello, I want to ask Xiaomi's management. We have seen that Xiaomi has been included in the constituent stocks of the HSI recently, and the stock price has also performed well. So investors are very curious about the new profit growth points in the future. Can you introduce the situation of Xiaomi Intelligent Factory and its future contribution to the business?
Wang Xiang: Thank you for your question. I think I may answer the question of our Xiaomi Intelligent Factory first. We do have an intelligent factory in Yizhuang. For now, I'm not sure. On the one hand, we regard intelligent factories as the first step to promote intelligent manufacturing. At present, this intelligent factory can achieve a production capacity of 1 million, that is, 1 million per year. The main technical part of the intelligent factory here, and many of the equipment are built by Xiaomi itself or its partners. I am also very happy to tell you that the transparent version of Xiaomi 10 Premium, which was launched two weeks ago, was produced in this smart factory. We also welcome journalists to visit there when they have time and convenience. Our core purpose is to promote the development of intelligent manufacturing industry, find a faster and better way to produce higher quality products and bring more efficient manufacturing technology. This is the core purpose of our factory. In the future, we will continue to invest, and will increase or rebuild a larger production line. At present, all these efforts or the current construction of these production lines are mainly aimed at R&D and testing.
Lin Guanmen: The question of the HSI should be about the inclusion of the HSI, and then take a comparative look at some future growth points. Xiaomi said that if we are looking forward to the future, first of all, thank HKEx very much. When we look at the future, we think that each business has good growth potential. That is to say, under our mobile phone x Internet of Things strategy, we can see the rapid growth of mobile phones overseas. Although in the second quarter of this year, we may notice that we were affected by a serious epidemic overseas, but under the impact of the serious epidemic, our sales in many markets, including Europe, can still grow 60% year on year, which means that our overseas expansion is very fast. We have seen many opportunities under the development of 5G in China. On the one hand, we are stable in the high-end, and on the other hand, we use the efficiency advantage of Xiaomi to continuously popularize 5G technology. We are more optimistic about the opportunities when 5G technology is further popularized next year. In the whole AIoT, mobile phone+AIoT actually has an underwriting effect, so we can see from many data that mobile phone and AIoT actually complement each other.
Although our whole AIoT was affected by the epidemic in the second quarter, its growth rate was also relatively slow. But when we look at the long term, there are several growth points. One is the continuous expansion and deepening of categories. In fact, we are still in the early stage of many categories, such as many household appliances. In addition, overseas growth seems to be a great opportunity in AIoT. At present, our AIoT business is mainly in China. In addition, it means the Internet opportunities brought by the growth of mobile phones and AIoT. In the second quarter, the year-on-year growth rate of the Internet has reached 29% under the epidemic situation. With the growth of hardware business, we will feel that the growth potential of the Internet in the future is also huge.
Reporter: Good management. I want to ask about the sales of mobile phones. Could you tell me whether the situation in July and August has recovered or not? Can you introduce this situation? Also, in terms of 5G, Xiaomi will have many 5G phones. What is your share of 5G mobile phones in the mainland? What will be the strategy for this year's Chinese market? Is it possible to increase the share?
Wang Xiang: Speaking of 5G strategy. First of all, we formulated a strategy to fully promote 5G development last year. The development of 5G is still in a very early stage. Because I remember at the last performance report meeting, I also shared with you that the launch of any new technology, especially the launch of wireless communication technology, has several most important challenges. The first is network coverage, right? 5G coverage is a rather complex process, which requires a lot of investment. This is the problem of 5G coverage. The second is the price of smart phone terminals. The third is the so-called application popularization. Xiaomi is committed to developing 5G products, which means that we should try our best to make the price of 5G products popular. After the introduction of a new technology, the price of 5G smart phones is very expensive. Only when the market price of 5G smart phones reaches a mass market price level can we achieve real explosive growth. Xiaomi has just entered the middle and high-end market. We also hope to promote 5G in the middle and high-end market, as well as the entry-level 5G products at the middle and low prices.
Then, from last year to this year, we have successively launched a large number of cost-effective 5G mobile phones. For example, the Redmi K30 5G version launched at the beginning of this year is the first 5G mobile phone in the world with a price of 1999 yuan, and then launched the K30 Pro product. We continue to launch such products. I think Xiaomi's 5G market share will continue to grow in the future. At the same time, the penetration rate of 5G smart phones in China and the world will also have an explosive growth. Of course, it is still climbing.
tencent Reporter: The growth rate of the Internet and the reasons.
Wang Xiang: In the second quarter, our Internet grew well. There are several main aspects. One is the growth of advertising business. Just now I also briefly introduced several reasons for the growth of advertising business. One is that the consumer market in China is gradually recovering, and more and more stores are opening, which makes the advertiser's advertising budget gradually increase. The growth of advertising business is mainly due to these trends. Of course, there will be some growth in the game business in the process of stable growth. The rest is other Internet businesses. Other Internet businesses include our product e-commerce and the growth of our TV business. TV We also launched the new MIUI TV operating system version 3.0. Our children's channel has also been recognized by more and more users. We also opened some TV related members, which also saw a good growth, which promoted the growth of the entire Internet business in the second quarter. Of course, our Internet business also faces some challenges. The first point just mentioned is the Internet financial business. Due to the epidemic, the small loan business is greatly affected. So in order to ensure safety, we made provisions in advance.
I just talked about domestic growth. In fact, our Internet business continues to diversify. Therefore, in addition to China's smartphone based Internet business, in fact, the overseas Internet business, due to the growth of overseas smartphone business market share, has also brought about the growth of our overseas Internet business. Therefore, the superposition of these two aspects led to the growth of the entire Internet in the second quarter.
Economic Daily: Hello, I have two questions. The first is mainly about the Indian market. Because it was mentioned just now that the Indian market recovered to about 72% before the epidemic last quarter, do you expect to say when the production capacity and demand will recover to a normal level? And now because of the problem of China India relations, will Xiaomi's overall development strategy in India be adjusted accordingly? The second question is, because the global smartphone shipments are still in a downward trend, when do you think the smartphone shipments will pick up? Then, in terms of the future competition pattern, does Xiaomi have confidence to improve in the market? thank you.
Wang Xiang: Thank you for your question. First came back to the Indian market. At present, the epidemic situation in the Indian market is relatively serious, but when the isolation measures in various cities are lifted, we can see that the market has now recovered 72%. However, production is not normal and has not yet recovered to the normal level. Because once there is an epidemic, the factory needs to be closed. The efficiency of the entire transportation system and logistics distribution system will be affected. But generally speaking, there will be several important opportunities in the second half of the year. One is the most important festival in India, called Diwali, in the third quarter, usually in September and October of the third quarter. Diwali is an important festival, which is equivalent to the Chinese Spring Festival. But the core feature of this festival is shopping, which is a very important consumption season. So we think there should be a relatively rapid growth during Diwali Festival. However, it is difficult to judge the epidemic situation. We certainly hope that the global epidemic can be gradually controlled in the second half of the year, and that vaccines can be developed as soon as possible to control the epidemic. It is difficult for us to make any judgment on the epidemic situation. But as I just said in the second half of the year, because there is a very important festival, it is also a peak of sales or the whole market. This is the situation in the Indian market.
So it is true that the overall shipments of smart phones in the world this year will decline in general according to different markets. Different markets may experience different declines. However, from the performance of the previous two quarters, we still maintained growth. But we will keep a very close eye on the dynamics of the whole global market. The core is to do our own thing well. First of all, we should continue to put R&D and investment into place. After all, the epidemic is a short-term problem. Moreover, this year is also a relatively difficult market environment. However, we will continue to do a good job in the basic work to lay a better foundation for future development. We are still very confident in the overall market.
