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Xiaomi CFO: New brand strategy weighed on Q2 revenue growth

China's Xiaomi Corp. reported a 14.8% year-over-year growth in revenue for second quarter ended June 30, a 12.4 percentage point drop, compared to the yearly growth rate of 27.2% in the first quarter, due to the restructuring of handsets brands and preparation for upcoming 5G products.

Xiaomi posted revenue of 51.95 billion yuan in the reported quarter, compared to 45.24 billion yuan in the same quarter of 2018. Smartphone revenue accounted for 61.6% of total revenue, representing yearly growth of 5% to 32.02 billion yuan. In the first quarter, the annual growth rate of the handset revenue was 16.2%.

Speaking during an Aug. 20 earnings call, Xiaomi CFO Chew Shou Zi attributed the revenue slowdown, especially in the handset sector, to the company's newly adopted multi-brand strategy, under which the Redmi sub-brand will cover cheaper devices and the flagship Xiaomi brand will focus on mid- and high-end products.

Chew said Xiaomi needs time to adjust to the new brand strategy and to adopt a new strategy to prepare for 5G.

"The 5G era is coming, and adopting a cautious strategy helps Xiaomi with a smooth transition for our users," Chew said.

Xiaomi will debut its second 5G handset in the second half of 2019 in China, following the release of its first 5G phone, the Mi MIX 3 5G, which has been available in Europe since early 2019.

The company is investing aggressively and strategically to build a supply-chain ecosystem in China, according to Chew. He pointed that out of the 273 companies that Xiaomi has invested in over the years, 12 are supply-chain firms.

"Xiaomi aims to strengthen partnerships with key component suppliers and to enhance their abilities in advanced technology sourcing and manufacturing," Chew said. "We will keep investing into Chinese technology supply chains despite the external uncertainties."

Xiaomi recently invested in chipmaker VeriSilicon Microelectronics (Shanghai) Co. Ltd. to boost its internet of things business.

The net profit attributable to the owners of Xiaomi was 1.95 billion yuan, or 7.9 Chinese fen, in the second quarter, compared to 14.65 billion yuan, or a loss of 37.7 fen, in the year-ago period. The S&P Global Market Intelligence consensus EPS estimate was 11 fen on a GAAP basis.

As of Aug. 19, US$1 was equivalent to 7.05 Chinese yuan.