Xiaomi Swings to Net Profit in Q3 on Robust Sales in India, Europe

Chinese smartphone maker Xiaomi said on Monday it swung to a net profit in the third quarter, beating analyst estimates, driven by robust sales in India and Europe.

Profit for the three months through September reached CNY 2.48 billion ($357.23 million or around Rs. 2,560 crores), versus an CNY 11 billion (roughly Rs. 11,300 crores) loss in the same period a year earlier. That compared with a CNY 1.92 billion (about Rs. 1,980 crores) average of five analyst estimates compiled by Refinitiv Eikon.

Xiaomi also said operating profit sank 38.4 percent to CNY 3.59 billion (approximately Rs. 3,700 crores) in the third quarter. Revenue rose 49.1 percent to CNY 50.85 billion (around Rs. 52,400 crores).

The mixed results come amid a slowdown in smartphone purchases both in China, where Xiaomi once was the top-selling handset brand, and overseas.

Nevertheless Xiaomi, along with fellow low-cost handset makers Oppo and Vivo, accounted for around a quarter of the global smartphone market in the first half of 2018, showed data from researcher IDC.

Xiaomi's fastest-growing markets are India, where it has had success with its budget Redmi phone series, and Europe, where it entered in 2017 with launches in Russia and Spain. Earlier this month it released its flagship Mi 8 Pro device in Britain.

But to weather the global market slowdown, analysts said Xiaomi needs to expand to new markets and also sell more higher-priced devices with wider profit margins.

The firm has been adding new brands to its smartphone portfolio to target niche consumers. Concurrent with today's earnings, it announced a partnership with Meitu Inc, a maker of a photo app popular with young women, to sell phones under its brand. Earlier this year it launched Black Shark, a phone targeted at gamers, and Poco F1, a value-for-money device aimed at India.

Mo Jia, who tracks China's smartphone makers at research firm Canalys, said attempts to sell more expensive devices requires changing its brand perception.

"It's still very hard for Xiaomi to change its perception of being a low-end device manufacturer as the majority of its smartphone shipments are the Redmi series."

Xiaomi also aims to transform itself from a smartphone firm into a software company. As the firm prepared for its IPO, founder Lei Jun touted internet services - namely advertisements placed on the firm's in-house apps - as its future and key differentiator from other handset brands.

In the third quarter, Xiaomi's smartphone division grew revenue by 36.1 percent while its internet service division grew 85.5 percent. But phones made up 64.6 percent of total sales, while internet services made up 9.3 percent.

The results are the second set released by Xiaomi since the smartphone maker raised $4.72 billion (roughly Rs. 33,800 crores) in an initial public offering (IPO) in June, valuing the firm at about $54 billion (about Rs. 3.86 lakh crores) - around half of some earlier industry estimates of $100 billion (approximately Rs. 7.16 lakh crores).

Its shares have fallen roughly 20 percent since they started trading in July amid a broader Chinese stock market sell-off and concern about a slowdown in China's tech industry.

© Thomson Reuters 2018