Winter is getting farther and farther away, people are good with spring, and everything can be expected. After experiencing many uncertain challenges, Xiaomi Group ran out of profit in 2022, and it is likely to usher in another wave of upside in 2023.
On March 24th, Xiaomi Group released its annual financial report for 2022. The financial report shows that in 2022, Xiaomi achieved a total revenue of RMB 280 billion and an adjusted net profit of RMB 8.5 billion. Innovative business expenses such as smart electric vehicles are RMB 3.1 billion, and R&D expenditure in 2022 increased by 23% year-on-year.
The macroeconomic downturn, global inflation, the impact of the epidemic, consumer demand has been seriously challenged. IDC, an international data company, reported that in 2022, China’s smartphone market shipped about 286 million units, down 13.2% year-on-year, the biggest drop ever. After a lapse of 10 years, the shipments of smart phones in China once again fell to the market below 300 million yuan.
In the face of extremely difficult market environment, Xiaomi has enhanced its brand competitiveness with high-end strategy in the past three years, and the promotion of high-end strategy has achieved initial results. According to the financial report, Xiaomi’s global smartphone shipments remained the third, reaching 150 million units, and smartphone ASP achieved three consecutive years of growth. The monthly active users of Xiaomi’s global smartphones also ushered in a record high. As of December 2022, the number of monthly active users of MIUI worldwide increased by 14.4% year-on-year to 582 million, and the sustained growth momentum presented and promoted the company’s resilient development.
At the beginning of this year, Lei Jun, the founder of Xiaomi, recently issued an internal letter saying that 2023 is a year for Xiaomi to start a new development cycle, and it is also the time for a series of profound changes to enter the deep water area. The group is at the starting line of a new stage.
According to the data released by the National Bureau of Statistics, many economic indicators showed positive changes, and the economic recovery started. Guosheng Securities believes that consumer electronics will experience a weak demand side in 2022 and is expected to usher in a replacement cycle repair in the next two years. This year, Xiaomi Group launched a new business strategy of "paying equal attention to scale and profit", and built up a strengthened system capability, laying a solid foundation for the long-term development in the next 5-10 years, and fully preparing for a new round of outbreaks in the next 2-3 years.
High-end strategy has achieved initial results
With the low-end market share, China brand has occupied more than half of the global mobile phone market, which on the one hand makes the market scale, on the other hand makes the brand face the dilemma of positioning and profit, and seriously limits its innovation ability. Standing at an important turning point of high-quality economic development, high-end layout has become the general trend of the transformation and upgrading of China brands and China manufacturing.
In 2022, the average selling price (ASP) of Xiaomi’s global smartphones reached a record high, reaching RMB 1111. At the same time, in the fourth quarter of 2022, the smartphone ASP in Xiaomi mainland increased by over 14% year-on-year, and the shipment of high-end smartphones (RMB3,000 and above) accounted for 6.8 percentage points year-on-year. According to third-party data, in the fourth quarter of 2022, the sales volume of Xiaomi smartphones in Chinese mainland market ranked first in the price range of RMB 3,000-4,000, and second in the price range of RMB 4,000-5,000.
In view of the trend of younger and more entertaining consumption and the increase of female users, in July 2022, Xiaomi launched the first Xiaomi 12S Ultra equipped with two self-developed chips, namely, 澎湃 G1 and 澎湃 P1, to realize the combination of one-inch outsole and Leica image aesthetics, and to provide a brand-new mobile image experience for image lovers. In August 2022, Xiaomi launched a new generation of folding screen flagship Xiaomi MIX Fold 2 to help Xiaomi open the ultra-high-end market of folding screen. The "high-end stable price" strategy maintained by these two high-end models during their life cycle has effectively promoted the rise of Xiaomi ASP, and is also conducive to Xiaomi’s further promotion of high-end strategy.
At the end of 2022, Xiaomi teamed up with Leica to build the Xiaomi 13 series with self-developed chips, and with the new MIUI14 system, the smooth experience was improved by 60%. Under the blessing of aesthetics and algorithms, the image experience was even better. It is reported that the Xiaomi 13 series has been ranked first in the price range of RMB 4,000-6,000 in the Android camp in Chinese mainland market for 7 consecutive weeks. As of January 12th, 2023, the favorable rate of this series in JD.COM was over 99%, which attracted loyal powder and iron powder, and will also witness and promote Xiaomi to grow into a high-end brand.
Dare to invest in the long run
Since 2007, smart phones in China have developed for nearly 16 years. Being a brand lies in the morning and evening, and so does being a high-end brand. Long-term activists should lay out the present based on the future.
High-end products depend on high-end technology. It can also be seen from the financial report that even under the pressure of internal and external pressure in 2022, Xiaomi still attaches importance to research and development and dares to invest. In 2022, Xiaomi Group’s R&D expenditure was RMB 16 billion, up by 23% year-on-year, with a five-year compound growth rate of 38.4%. Xiaomi estimates that the total R&D investment in five years (2022 -2026) will exceed RMB 100 billion. By December 2022, the proportion of Xiaomi R&D personnel in the total staff has increased to nearly 50%, accumulating human resources for continuous development and innovation.
The technological innovation in the intelligent era is a multi-dimensional integration of cross-industry, cross-scene and cross-region. Xiaomi actively deploys smart phones, smart cars, robots and other fields. It is estimated that the total R&D investment will exceed RMB 100 billion in five years (2022 -2026), and a perfect talent incentive mechanism will be established. By the end of 2022, Xiaomi’s R&D personnel accounted for nearly half, and held a million-dollar technology award for four consecutive years.
China brand has enjoyed the dividend of digital development, but the appearance of high-end final results still needs to go through many tests. Firmly believe and persist in investment, there will be accumulation and opportunities.
Going to overseas differentiation strategic market
"The macro environment will gradually improve, and it will still take some time for a full recovery." Lu Weibing, president of Xiaomi Group, attended the telephone call for the first time, and said that 2022 will be a year in which Xiaomi’s ability will be reborn. Looking forward to 2023, Xiaomi will still have to "cross the cycle". Crossing the cycle is not an easy task. The high-end strategy promotes Xiaomi products and brands to leap upwards, go overseas and seek a bigger world in a wider and higher place.
According to Xiaomi Group’s financial report, 75% of the global shipments of smartphones in 2022 came from overseas markets. "Focus on steady operation and differentiate our strategic market", Lu Weibing stressed at the telephone conference that Xiaomi will promote high-end brand in key markets around the world. At present, China mobile phone manufacturers still rely on low-end models to achieve "scale" overseas. It is reported that the international version of Xiaomi 13 series has been released in March this year. Whether the high-end flagship of Xiaomi it represents can really "profit" overseas, I believe the market will give an answer soon.
In addition to mobile phone products, Xiaomi’s overseas Internet business grew strongly in 2022, and its total annual revenue increased by 35.2% year-on-year to RMB 6.8 billion. In the fourth quarter of 2022, Xiaomi’s overseas Internet service revenue increased by 19.4% year-on-year, reaching RMB 1.9 billion, a record high, and its proportion in the overall Internet service revenue increased to 26.1%. As an important advantage of Xiaomi, the scale effect of intelligent hardware and digital ecological operation give Xiaomi the growth through different cycles.
Intelligent ecology strengthens core values
Based on the huge hardware installation base, Xiaomi has put high-quality, cost-effective and other rich product combinations into different life scenes through artificial intelligence technology and the Internet of Things, linking thousands of active users, stimulating the stickiness of high-frequency consumption, and building a smart ecosystem of Xiaomi, which has always been the core value of Xiaomi.
The product-side force leads to the user experience. In the financial report, it is directly reflected in the corresponding data growth. In 2022, the global shipment of Xiaomi Smart TV reached 12.4 million units, and the annual revenue of smart home appliances increased by over 40% year-on-year. In the fields of office and family entertainment, the annual shipments of Xiaomi tablet increased by over 160% year-on-year, and the shipments in Chinese mainland in the fourth quarter reached a single-season high. According to Canalys data, in 2022, the market share of Xiaomi tablet in Chinese mainland increased to the third place, and its leading edge continued to be released.
The synergy between channel layout and product structure has been further deepened. In 2022, the GMV of channel AIoT products under Xiaomi line increased by over 27% year-on-year, maintaining a good growth trend.
The financial report shows that in 2022, Xiaomi’s revenue from IoT and consumer products reached RMB 79.8 billion, of which the revenue in the fourth quarter was RMB 21.4 billion, achieving a 12.5% month-on-month increase. As of December 31, 2022, the number of connected devices (excluding smartphones, tablets and laptops) on Xiaomi AIoT platform increased by 35.8% year-on-year to 589 million; In December 2022, the number of monthly users of Xiaoai and Mijia APP increased by 7.1% and 18.6% respectively, reaching 115 million and 75.8 million.
Large-scale ecological creation tests the R&D and manufacturing capabilities behind the products, but ultimately depends on the improvement of efficiency and benefits brought by digitalization. This year, Xiaomi put forward the business idea of "paying equal attention to scale and profit" for the first time. At the same time, the Group Management Committee and the Group Human Resources Committee were established to coordinate and optimize the strategic structure, operation management and resource allocation, focus on improving quality and efficiency, and promote the construction of professional long-term management system.
It is foreseeable that the headwind factors brought by the macro-environment are gradually easing, and consumer demand and the vitality of scientific and technological innovation continue to be released. However, Lu Weibing stressed that Xiaomi should be cautiously optimistic about the market in 2023, "strengthen risk management and pay attention to steady operation." He hopes that by improving the internal efficiency of Xiaomi, the profit target will be finely managed at the executive level.
With caution and optimism, it remains to be seen how Xiaomi will perform in the new year as the company promotes innovative business, continues to tackle key scientific and technological problems and improve its management model.