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Xiaomi Profit Misses Estimates on Smartphone Business Slump

·3 min read

(Bloomberg) -- Xiaomi Corp.’s profit fell more than expected after the global smartphone slump wiped out growth at the Chinese mobile giant.

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Net income fell 83% to 1.39 billion yuan ($204 million) in the three months ended June, versus estimates for 1.5 billion yuan. Revenue slid 20% to 70.2 billion yuan, compared with an average projection for about 70 billion yuan.

Once China’s biggest smartphone brand, Xiaomi has ceded ground to local rival brands like Honor and Vivo, who’ve won over young and tech-savvy consumers with sleek designs and aggressive marketing. Xiaomi’s efforts to expand into the premium segment, where Apple Inc.’s iPhones maintain a strong position, have also progressed slowly.

Inflation, recession fears and the war in Ukraine have squeezed Xiaomi’s smartphone business. Its global device shipments tumbled by more than a fourth in the second quarter, the heaviest decline among the world’s top five vendors, IDC said. In China, shipments of Xiaomi devices plunged 22% in the June quarter, faster than the average market decline of 14.7%, according to research firm IDC.

India is also seeking to restrict Chinese smartphone makers from selling devices cheaper than $150, dealing a blow to brands including Xiaomi.

The reported policy change is yet to affect the company’s business in India, Xiaomi President Wang Xiang said in a call with the media Friday. “We are still shipping low-end phones in India,” he said, adding the company is in active contact with local authorities on various issues.

Read more: The World’s Biggest Smartphone Market Is In Trouble

What Bloomberg Intelligence Says

Xiaomi’s free cash flow could recover in 2022 and 2023, in our scenario, despite margin pressure from flagging smartphone demand. Inventory may decline from 2021’s record, which should help working capital. Cash flow may also get a boost from anticipated lower capital investment amid the market downturn.

- Steven Tseng and Sean Chen, analysts

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Marketwide discounts offered during a major online sales promotion in the period also hurt Xiaomi’s profitability, Bloomberg Intelligence analysts Tseng and Nathan Naidu wrote in a note ahead of the earnings release.

Wang said he’s “lightly optimistic” about the smartphone business in the second half, as new products and holiday season propel sales. But he also warned uncertainties including inflation and Covid outbreaks in China could further dent demand.

Billionaire co-founder Lei Jun is on a mission to transform his 12-year-old company into an innovation-driven juggernaut that makes everything a family can use -- from dishwashers to luggage and surveillance cameras. Its biggest endeavor is a $10 billion electric vehicle project led by Lei himself. But Xiaomi is having trouble getting approval from Chinese regulators, Bloomberg News reported in July. Lei said at a company event last week he’s still committed to the car project.

(Updates with president’s comments.)

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