Xiaomi Corp.’s quarterly revenue fell nearly 10% as it struggled with the declining global smartphone market and weak domestic consumer demand.
Mobile device sales fell 11%, leading the declines in business segments covering smart electronics and internet services. The Beijing-based company reported sales of 70.5 billion yuan ($9.9 billion), slightly above estimates. However, it reported a surprise net loss of 1.5 billion yuan ($209 million) in the quarter through September, reflecting a decrease of approximately 3 billion yuan ($418 million) in items such as investment losses. Non-one-off adjusted net income exceeded analysts’ estimates.
China’s Covid Zero policy has put economic activity under pressure, wreaking havoc on the country’s tech industry and supply chains. At the same time, demand for electronics is declining as shoppers react to high inflation and slowing economic growth. Global smartphone shipments are at their lowest in years due to declining demand, but Xiaomi has managed to gain market share in Europe, executives told reporters on a conference call.
“The challenge in China is covid, the pandemic situation remains volatile,” said Chairman Wang Xiang. There is still room for growth in foreign markets,” he said.
Global smartphone sales will drop 2.9% next year, after a 12.2% drop in 2022, according to Jefferies’ forecast this month. Jefferies predicts that Xiaomi’s unit sales will decline this year and in 2024 before recovering a bit.
Jefferies analysts, including Edison Lee and Nick Cheng, say in a September 9 note that this is partly because phones sold in recent years have been solidly built and consumers have had little need to buy new phones. And they said they are adding some innovations to the new models.
“Structural weakness is worse than expected,” analysts wrote. The challenges are “complicated by a weak economy.”
What Does Bloomberg Intelligence Say?
The decline in smartphone sales in China could extend into 2023, although the fall in shipments eased in September. It may be a one-off after the iPhone 14 launch, and the Android weakness looks set to become huge in the coming months. Persistent declines in corporate computer shipments suggest that business remains cautious after the lockdown.
— Steven Tseng and Sean Chen, BI analysts
Xiaomi reported its first sales drop in the first quarter, followed by a 20% drop in sales in the June quarter.
Even world leaders were not spared. Samsung Electronics Co., the world’s largest manufacturer of phones, displays and memory, said falling mobile phone sales in China were a stumbling block to its component business. People familiar with its plans say Apple Inc. expects to produce at least 3 million fewer iPhone 14 phones this year than originally planned, mainly due to reduced demand for cheaper versions of the model.
Xiaomi shares lost half of their value last year, leaving the electronics giant with a market cap of around $31 billion. Still, it outperformed some of its domestic phone maker rivals like Oppo and Vivo, thanks to its wider international presence and distribution.
Co-founder and CEO Lei Jun has made electric vehicles the lodestar for Xiaomi’s future growth by promising a $10 billion investment and establishing a separate company for the venture. Wang said that Xiaomi has made progress in this area and did not go into details.
However, this project will take years to materialize, leaving the company dependent on a recovery in consumer electronics spending to boost its waning wealth. Android phone sales, where Xiaomi is struggling with Samsung in international markets, are not expected to increase anytime soon, especially in China.
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