Earnings call: Xiaomi Reports Strong Q3 2023 Results, Aims for Integrated Ecosystem

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Earnings call: Xiaomi Reports Strong Q3 2023 Results, Aims for Integrated Ecosystem
Credit: © Reuters.

Chinese multinational electronics company, Xiaomi (OTC: XIACF ) Corporation (OTC:XIACF), reported significant year-over-year revenue growth for the first time in six quarters in Q3 2023. The company's high-end strategy, particularly the Xiaomi 14 product, has yielded strong results in the Mainland Chinese market. Xiaomi's total revenue for the quarter was RMB 70.9 billion, with a net margin of RMB 6 billion, marking a 183% year-on-year growth. The company's internationalization strategy has also been fruitful, with positive growth in smartphone shipments in various regions.

Key takeaways from the earnings call include:

  • Xiaomi's global smartphone shipments exceeded 40 million units in the third quarter of 2023.
  • The company achieved year-on-year growth in its IoT, Internet, advertising, and gaming businesses.
  • Xiaomi's CEO, Lu Weibing, emphasized the company's focus on innovation and the successful implementation of their HyperOS system.
  • Xiaomi is planning to launch EV cars in both domestic and overseas markets as part of their ecosystem strategy.
  • The company's IoT business saw significant growth, driven by an increase in users and partnerships with global Internet partners.
  • Xiaomi's management is confident in handling external pressures and market fluctuations and is optimistic about the integration of their vehicles with their existing mobile phones and other consumer electronics products.

During the earnings call, CEO Lu Weibing discussed the company's performance and future plans. He emphasized the importance of innovation, attracting users with innovative products, and highlighted the success of their HyperOS system. He also underscored the company's Human x Car x Home strategy and ecosystem, which covers a wide range of devices.

Lu believes that the seamless connection between devices and the use of AI will reduce the frequency of users changing their mobile phones. He also mentioned the focus on premiumization, expanding offline sales, and pushing forward with new retail. In terms of overseas markets, Lu noted the potential for growth and highlighted the success in various regions, including Africa, Latin America, and Europe.

The company's IoT business has seen significant growth, driven by an increase in users and partnerships with global Internet partners. Regarding gross margin, the company saw improvement due to product structure optimization and lower raw material costs. Finally, Lu briefly mentioned Xiaomi's EV car, stating that it is part of their ecosystem strategy and will benefit from synergies with their consumer electronics products.

Lu Weibing also discussed the smartphone and PC markets. He mentioned that the smartphone market is not highly integrated, with the top player having a market share of less than 20% and the fifth player having a market share of at least 15%. He believes that the market will continue to concentrate, leading to some brands exiting.

In terms of the PC market, Lu acknowledged Apple (NASDAQ: AAPL )'s strong ecosystem, while stating that there is still a divide between Windows and other players like Xiaomi, Huawei, and Samsung (KS: 005930 ). He mentioned that Xiaomi has made progress in connecting its PC, tablet, and mobile phone offerings, but there is still a gap compared to Apple. He also mentioned the possibility of Android plus Windows (WOS) integration through ARM-based products, which could bring benefits to Xiaomi and other ARM-based companies.

Overall, Xiaomi sees the PC business as important for its Home x Car x Human ecosystem and plans to continue working on connecting its ecosystem through various products. The company expects growth in mobile phones, home appliances, tablets, wearables, and the launch of Xiaomi EV cars in both domestic and overseas markets in 2024.

InvestingPro Insights

Based on real-time data from InvestingPro, Xiaomi Corporation has a market cap of 51.86 billion USD and a P/E ratio of 37.55. The company's revenue for the last twelve months as of Q2 2023 was 36296.11M USD, with a gross profit of 6732.91M USD. It's worth noting that the company's price has seen a large uptick over the last six months, and it's trading near its 52-week high.

InvestingPro Tips highlight that XIACF holds more cash than debt on its balance sheet, which is a positive sign for investors. Furthermore, the company's net income is expected to grow this year, and five analysts have revised their earnings upwards for the upcoming period. XIACF is a prominent player in the Technology Hardware, Storage & Peripherals industry and has seen a high return over the last year.

For those interested in more insights, InvestingPro provides numerous additional tips and real-time data metrics. Currently, InvestingPro is offering a special Black Friday sale with up to a 55% discount on subscriptions. With this subscription, you can gain access to the full list of InvestingPro Tips, which currently includes 14 tips for XIACF.

Full transcript - Xiaomi PK (XIACF) Q3 2023:

Operator: Good evening, everyone. Welcome to Xiaomi 2023 Third Quarter Results Announcement Investor Conference Call and Audio Webcast. Today’s conference is being recorded. If you have any objection, you may disconnect at this time [Operator Instructions] I’ll now hand over the conference to Ms. Anita Chan, Head of Investor Relations and Corporate Finance. Please go ahead, Ms. Anita Chan.

Anita Chan: Good evening, ladies and gentlemen. Welcome to the investor conference call and audio webcast hosted by Xiaomi Corporation regarding the company’s 2023 third quarter results. Before we start the call, we would like to remind you that this call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various regions. Information about general market conditions are coming from a variety of sources outside of Xiaomi. This presentation also contains unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company’s financials prepared in accordance with IFRS. Joining us online today, we have Mr. Lu Weibing, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and the CFO of the company. To start, Mr. Lu will share recent strategic and business updates of the company. Thereafter, Mr. Lam will review the financial performance of the third quarter of 2023. Following that, we will move on to the Q&A session. I’ll now turn the call over to Mr. Lu.

Lu Weibing: Good evening, everyone. Thank you for joining us on our third quarter 2023 earnings conference call. As you can see from our Q3 financial results, we have achieved a robust performance across all our key operation metrics and I would like to mainly focus on 3 points. And this is the first time that we have achieved year-over-year revenue growth for the first time after 6 quarters. And the second highlight is that in Q3, in the Mainland Chinese market after substantial changes, everybody is paying attention to Xiaomi’s high-end strategy in our Xiaomi 14 product that has just been launched and we have achieved great results. And you can see that our capability has improved greatly. The external environment impact on -- has actually reduced substantially. Number 3, for this year, especially for 3 quarters that we have done very well, and you are very interested in our future development. We are also very capable that we have received quite great results for the past 3 quarters. And we believe that we can continue this sustainable growth. And we’re very confident about ourselves. So tonight, what we -- I’d like to talk with you there are three parts of areas. One is what changes has happened? And second, what have we done? In terms of Xiaomi’s business, is it sustainable? And finally, how do we look at the 2024 in terms of the industry, the operation as well as the consumption? First of all, let’s take a look at the global macro. The global economy has been slowly recovering throughout 2023. However, the trend continues to be sluggish. And there is also very uneven development or growth. And according to the latest report issued by the IMF, they are forecasting 2024. The economic growth was revised down by 0.1 percent point to 2.9%, weakness stays, especially in the developed economies and relatively resilient in the emerging countries that demonstrate a fair degree of resilience. In the third quarter of this year, according to Canalys, the global smartphone market remained weak, though shipments continued to decline by 1% year-on-year. However, the decline has noticeably narrowed down compared to the previous years, and we’re very bullish about 2024. Looking at competition. In Q3, for China market, we have seen certain changes, and this will also affect our industry. Overall speaking, the macro environment remains challenging. However, for Xiaomi, for our all business segments achieved a very high balance growth and operate efficiently. For the group, we have demonstrated robust execution. In the meantime, we have also seen very good results. And in our third quarter, our business has demonstrated the resilience and navigated throughout the economic cycles. Total revenue for Q3 reached RMB 70.9 billion. Year-on-year growth has been realized. We continue to deliver solid performance in profitability and net margin reaching RMB 6 billion, remarkable 183% year-on-year growth in the Q3 of 2023, excluding RMB 1.7 billion expenditures related to our smart EV business and other new initiatives. Our core business adjusted profit reached RMB 7.7 billion. So I would also like to say that this is the reason why I’m very bullish about our core business and for our new business, EV business. This will lend a very strong support. I would also like to share with you some of my points on the few important areas. And the first one is on the high-end market. And in Q3, Chinese economy has seen some changes. Within our industry, we have seen a lot of attention given to Xiaomi, especially for Xiaomi’s high-end development, especially with the Xiaomi’s 14 Pro and the smartphone being launched, and we can see that for Xiaomi 14 and very quickly within one week, and we have been able to realize 1 million units of sales and -- during Double 11 for Xiaomi 14. And we have been nominated as the champion across 4 platforms, and this also helped us with our -- across 4 platforms and the revenue achieved over RMB 2.4 billion. And in the meantime, we also have the whole complete Leica camera system. And in the meantime, for our product study above 5,000 has been significantly solidified and this has exceeded our expectation. The reason why Xiaomi had received this progress. There are following reasons: the first one is that Xiaomi, we adhere to benchmark ourselves to iPhone and starting from Xiaomi 12. And in terms of energy saving to capabilities and to today, overtaking iPhone this time with the Xiaomi 14 series. And for Xiaomi 14, we benchmarked to Apple iPhone 15 Pro and so you can see that we are benchmarking ourselves across different lines of products with the product that we have already realized overall overtaking of iPhone. And our customers have approved this point by their actions. Secondly, with the technology in front, and we have many innovations and you can see that first of all, in terms of our screen. And this is a compact full spectrum screen, and this brings greater user experience. And the second, you can see that this is our [indiscernible] glass, and this glass is very strong and even 20% stronger compared with the military glass. And in the meantime, we have also used the fiber. And the number four, we have the 14 Pro titanium metal and this is integrated into our Android flagship models. For Xiaomi 14’s, sales has also driven our market share in China in Double 11, and we have reached a market share increased to 22%. And within the price range of RMB 4,000 to RMB 6,000 and further rose to 51.1%. Apart from China market, also in overseas market, we have seen very good premiumization strategies for entrance. We have launched, with the co-engineered, with Leica, has gained widespread user recognitions. The sales volume of Xiaomi 13 Series ramped up significantly compared with the last generations. Secondly, I would like to talk about our internationalization strategy. You can see that for today’s Xiaomi in terms of our brand has done very well. And globally speaking, we would like to establish a safe and robust and stable platform. And in this backdrop, continuously for three quarters, and for Q3, we have reached 14.1% in addition, among Apple and Samsung, realizing negative growth. And for Xiaomi, we have realized positive growth. According to Canalys, for over 55 countries, smartphone shipments ranked top 3 and ranked top 5 across 65 countries and regions globally. In the meantime, we achieved 2.1% increase in the Europe market. In Latin America for smartphone shipments increased to 18.3% with a quarter-on-quarter growth of 1.8%; in Africa, with a quarter-on-quarter growth of 2.1% and a 4.7 percentage point growth year-on-year, total shipments increased to 10.7%. With mobile phones growth, not only that we need to look at the increment, we also need to look at its existing market by September, our MAU of MIUI reached 623 million, an increase of 10.5% year-on-year, marking a solid driver to our international business. Number 3, we continue to invest in future technology. And we have already seen very good market returns. In the past few years, we have seen very severe market strategies, but we continue to invest in technologies and in the future. Over the last few years in terms of our investment, we have already seen the good results. In Q3, where R&D investment has reached RMB 5 billion. And recently, we have seen a statistic report from the National Bureau of Statistics and this is a report on statistical bulletin on National Science and Technology Expenditures in 2022. The total is RMB 3.078 trillion with R&D investments, including universities and institutes. Xiaomi reached RMB 16 billion. So last year, the R&D spending of Xiaomi has already exceeded 0.5% of the national R&D expenditure for the same year. So behind this is basically for Xiaomi, we are committed to the investment in foundational core technologies and the dedicated to become a leader in the evolving realm of global cutting-edge technologies. In the meantime, we have also upgraded our strategy to the new human car and home strategy with this new strategy and Xiaomi HyperOS is our key platform to make sure that it happens. In early 2022, we dedicated -- we decided to integrate the software architecture across the four systems, MIUI, Vela, Mina and In-Car OS. After two years of hard work, we have been able to integrate all these software systems. We invested over 5,000 R&D engineers and 7 years into this process. In the meantime, we have a few targets. First, optimizing performance of our each individual devices, second seamless and efficient across device connection. Third is realize AI empowerment and to make sure AI becomes our brand and to ensure delivery proactive intelligent services to users. And fourth is ensuring robust production for cross-device, system-wide privacy and security. And fifth is fostering ecosystem development in collaboration with the global developers. We aim to integrate all consumer’s needs. In the meantime in October, we unveiled a series of features aimed at improving user experience, including leveraging AI to enhance our internal management. And we are also opening up our system to other developers internally. We also use AI technologies to further enhance our internal management. Number four, behind all these results is actually thanks to the continuous improvement of management. We can see that a lot of our management benefits have realized, including the cost down, the improvement of our profit. In the meantime for Xiaomi, we have the widest management structure. We also need to rely on a very scientific management system and starting from the 2019 and we introduced the IPD value creation system at the product development level aiming to address how to consistently launch top-selling products effectively. In addition, we also have the IPMS value realization system. We look at the ITR system and to realize a feedback loops between the user front and the research and development front and establishing a comprehensive strategic management framework. In the meantime, we have also established DSTE system and to -- for the past two years for our work, we have strengthened our closed-loop management mechanism of strategy formulation and ISC provided an efficient and high-quality supply chain to deliver our proven products. With the support of the management, the transform and the capability upgrades, we mentioned above, we hope that we would be able to cope with the external environment uncertainty. Number 5, to continue to pursue long-term sustained high-quality growth. For the past few years, we know very clearly that from a technology leader and we need to continue to invest in our technology, and this needs a very strong and stable finance as a core supporting point. And therefore, we have been able to continue to solidify our capabilities. And based on this area, you can also see that we have seen very good results. Going forward, in the industry, we continue to see very strong challenges. For instance, some of the parts actually we have seen the costs going up and raw material costs are going up. But for our management team, we are very confident that we would be able to overcome the uncertainties of the external environment and to ensure very strong growth. And looking into 2024, not only in mobile phones, but home appliance, tablets, wearables will continue to grow and for Xiaomi EV cars will also be launched to the market, not only in domestic, the Chinese market, but also in the overseas market. We will maintain our strong growth momentum. So far, we already have a complete and extensive product lineup, coupled with the new strategy of Human x Car x Home, smart system. We will provide our users with a superior products, fostering sustainable and high-quality growth. And I would like to say and Xiaomi today is the best of Xiaomi, is the Xiaomi that is ready and is Xiaomi that is looking forward to embrace the future. I now pass the floor to our CFO, Alain.

Alain Lam: Thank you, Mr. Lu. Investors, good evening. Just now, we have heard from Mr. Lu that in the macro economy, there are still uncertainties. However, in this industry, with the pressure, we continue to carry out a stable operations and consolidate our capabilities for this quarter. Xiaomi, we have delivered very excellent answers with our revenue growth resumed and profit continued to increase significantly. In the third quarter of 2023, our total revenue was RMB 70.9 billion, which China accounted for 51%, overseas revenue accounted for 49%. Our comprehensive gross profit margin was 22.7%, year-on-year increase of 6.1 percentage points. Looking at by different business segments. In 2023 third quarter, our Smartphone Business revenue was RMB 41.6 billion, accounting for 59% of our total revenue for the quarter. Even if the performance of the global mobile phone market is still under pressure, our global smartphone shipments improved by 27% quarter-on-quarter to 41.8 million units, exceeding 40 million units for the first time in a single quarter this year. And our market share increased by 1.2 percentage points Q-on-Q to 14.1%. It has improved Q-on-Q for the third consecutive quarter, has also ranked among the top 3 in the world for 13 consecutive quarters. Thanks to the product mix. The reduction in inventory impairment provisions in overseas markets and the impact of [falling core] component prices, the gross profit margin of mobile phones was 16.6%, a record high, an increase of 7.7 percentage points year-on-year. In the IoT business, we have achieved year-on-year growth in both revenue and gross margin. Revenue was RMB 20.7 billion, year-on-year increase of 8.5%. This is -- many thanks to our Tablet business and several consumer products with high gross profit margin in Mainland China. Our gross profit margin reached 17.8%. This is a year-on-year increase of 4.3 percentage points, setting another record. Our quarter, we have multiple IoT categories performing very well. For instance, Xiaomi TV maintained its first place in TV shipment rankings. For our Smart Home Appliance business continued to maintain year-on-year revenue growth including refrigerator shipments, the sales volume surged by more than 95% year-on-year. Our global tablet product shipment increased by more than 120% year-on-year, and our shipment ranking ranked among top 5 for the first time in the world. According to Canalys data, we ranked second in TWS headsets shipment in Mainland China this quarter. In terms of Internet business, where user has further expanded in September 2023, our global MIUI monthly active users have reached a record high with a number of users reaching 623 million, a year-on-year increase of 10.5%. Among them, the number of monthly active users of MIUI in Mainland China reached 152 million, a year-on-year increase of 7.4%. Our revenue this quarter was RMB 7.8 billion, a year-on-year increase of 9.7%, a record high in the single quarter. The gross profit margin also performed very well. Internet gross margin in this quarter was 74.4%. Advertising business, we have a same revenue quarter. Revenue for this quarter was RMB 5.4 billion, year-on-year increase of 15.7%, thanks to the outstanding performance of domestic and foreign FX and brand advertising. In terms of Gaming business, the revenue increased by 5.6% year-on-year to RMB 1.1 billion, marking the ninth consecutive quarter of year-on-year revenue growth. In addition, for overseas Internet service revenues increased by 35.8% year-on-year to RMB 2.3 billion, a record high. Overseas Internet service revenue accounted for 30% of the overall Internet service revenue, a year-on-year increase of 5.8 percentage points. In terms of our business and for this quarter, our overall operating expenses were RMB 11.1 billion. If we excluded new business investment expense of RMB 1.9 billion, our core business operating expenses were RMB 9.1 billion, a decrease of 1% compared with the same period of last year. We continue to expand our R&D spending and investor firmly in the future. This quarter, our R&D expense was RMB 5 billion, a year-on-year increase of 22%. In the third quarter of 2023, Xiaomi Group adjusted net profit margin -- net profit, we reached RMB 6 billion, a year-on-year increase of 183%. Adjusted net profit margin reached 8.4%, reaching a record high. Our core business profit was RMB 7.7 billion, year-on-year increase of 162%. In terms of optimizing inventory management. Since the beginning of last year, we continued to optimize our inventory management. We have heard from Mr. Lu about our management and our more -- particularly the management of the inventory, you can see that overall inventory amount was RMB 36.8 billion, down by 30.5% year-on-year. This is always the inventory level in 11 quarters. Looking at our cash flow. In the first three quarters of 2023, our cash flow -- operating cash flow was RMB 33.5 billion much higher than the same period last year. In terms of our cash on hand, we have RMB 127.6 billion, a record time. Abundant funds can better support the development of the group’s core business and new businesses. At the same time, we also actively give back to our shareholders. As of now, the total repurchase amount in 2023 has reached [indiscernible] billion. Finally, I’d like to touch upon ESG. We have fully integrated ESG management into our business operations and management as a part of the company’s important development strategy. In third quarter of 2023, achieved in the MSCI and Sustainalytics for the ESG rating results, we have seen very significant improvement that we pay attention to talent development and talent cultivation and with regard growing together with our employees as an important driving force for our development. Xiaomi Group has been selected as one of the world’s best employers published by Forbes for the third consecutive year. At the same time, adhering to the mission of enabling everyone around the world to enjoy the better life brought by technology, we are committed to achieving carbon neutrality in our existing operations and using 100% renewable energy by 2040. We will release the carbon-neutral action report at the end of 2023, detailing the group’s carbon-neutral action. Finally, we always practice a socialist public welfare and actively assume corporate social responsibilities. We have established 3 business keywords from Beijing Xiaomi Foundation, helping those in need, talent training and technology innovation in terms of property deviation. By the end of October 2023, Beijing Xiaomi Charity Foundation has already donated more than RMB 156 million in public welfare expenditure. In talent training as of October 2023, Xiaomi scholarship anniversary has covered 60 universities and with a cumulative spending of RMB 55 million. In technology innovation as of October 2023, Xiaomi Innovation Joint Fund has funded a total of RMB 108 million and funded 74 projects. Thank you very much. This is what we would like to share with you for this quarter. We can now go into the Q&A session.

Operator: We now go into the Q&A session. [Operator Instructions] We welcome Andy from Morgan Stanley (NYSE: MS ).

Andy Meng: Thank you, management team. My first question is our Mobile Phone business. We can see that Xiaomi recently after launching the 14 Series product, we have seen a record performance for HyperOS as well as the AI system. And will this actually bring a completely new competition landscape and how come the AI adoption actually changes the users cycles?

Lu Weibing: Yes, indeed, for Xiaomi 14, we have achieved very good results. For this year, we can see that for the overall mobile phone market has actually decreased compared to last year. But we can see that in the high-end market, actually, it is growing in the general market. So basically, for the high-end market and overall speaking, and this is why we have seen the growth. And this time and for the Xiaomi 14 and we have actually launched earlier compared to previous years. So basically, we have launched our product with Huawei Mate as well as iPhone. And people used to worry that will this affect our sales. And actually, we have done okay, and iPhone 15 has actually decreased compared to last year. So basically, the users will pay for innovative products. And if the users are not very attracted to your features and they will not purchase your product, so there are still opportunities for innovation. So this round compared with iPhone 15, and we are definitely not being beaten by iPhone. And actually, in a way, we have overtaken Apple. And so this is also one of the reasons we have done well. You have also talked about HyperOS. We have talked about this many times. This time with the HyperOS, we can see that indeed -- we have seen very good results. And for Xiaomi, this is a great way to help our users and a lot of our users actually because they have used HyperOS and they come back to our product and -- is because of our Human x Car x Home strategy and ecosystem, and we are the only one who can achieve this. And we believe that for app OEMs people might say that they have done very well. But actually, they do not cover that much and they don’t cover cars and nor do they cover a large percentage of our homes. And for us, we have realized that with a very smooth connection of mobile phones and the battery can last for a long time and there is a very smooth and seamless connections with all your other devices. When we talk about AI, we also will see the features that are enabled by AI. And behind it is about AI, and we look at AI, and we look at its capability. And for Xiaomi or -- various OS can play a very strong role. So we believe that for Xiaomi’s core technology, and the user experience that Xiaomi brings, I believe that this will continue to reduce the cycles of how often the users would change their mobile phones. So going forward, looking into the future, what I’m trying to say is that with the core technology, the investment long time in the Xiaomi that you see today compared with the technology that we have launched and is part and parcel of the old technologies and each round with the iteration of our new product launches. There will be new core technologies launching and all of this will also be very beneficial to the next round of our technology.

Andy Meng: Thank you, Mr. Lu. You have also talked to us about what are the points that Xiaomi has done right. And please also share with us in the future what are the areas that you will continue to focus on? And what about Q4?

Lu Weibing: So in the past, we have a few very important strategic points and lines and I often talk about this. And the number two is to continue to go through premiumization. Premiumization strategy is a very important strategy. It’s hard to do, but we are adhering to this. We are adhering to mobile phones, the premiumization and to drive the premiumization of our other series of products. So this is a very important premiumization strategy. Thirdly, for our strategy, which is we need to push forward for new retail. We believe that the premiumization mobile phone sales, we can see actually off-line sales is higher than online sales for Xiaomi’s 14, and offline sales has already overtaken online sales. I believe that the experience of our products could only happen in our flagship stores. And this is why we are very determined to implement this strategy. And I believe that these strategies will bring back very good returns to our business.

Operator: We welcome the next question [indiscernible] from Goldman Sachs (NYSE: GS ).

Unidentified Analyst: I have two questions. The first one in Q3, we can see that with the environment changing in Mainland China, and we have seen you have done well in premiumization. I’d like to ask about the overseas market in Q3. In the main market, we have also seen very good recovery. And for Latin America, Africa, India, and Europe, what have you done in those areas that you achieve such a good recovery. Second question, on your Internet business, we can see that year-on-year in terms of the growth, we can see that it’s speeding up, especially in our overseas business and we have about over 30% of business growth. So can you please share with us what are the drivers behind this?

Lu Weibing: Thank you. I’ll take the first question. Second question, I’ll leave it for my colleague, Alain to answer. So I have just come back from overseas. I’ve visiting -- I’ve visited our overseas market for 3x in February and March. I went to the Middle East and in May, I went to Southeast Asia, and this time I went to North America as well as Europe. So after my business trips, we would have these summary meetings. And I talked to my colleagues about Xiaomi. For overseas market, we certainly have a huge potential. You can take a look for our overseas market and the U.S. market, we are not in there. And at the moment, about 16% to 17% market share and in Q1, Q2 and Q3, our market share continued to improve. And In Q4, I believe that we can do even better. And in today, we can see that we are roughly about 16% to 17% of overseas market share. And in some markets, for instance, Spain market -- Spanish market, we have realized over 30%. In some markets, we only have 5%, so globally speaking, and we have a lot of potentials and those are all opportunities for Xiaomi. So this is point one in business. We have a lot of opportunities. If we look at IoT business, and for the IoT business, we feel that for our overseas business, we have about 5x of growth opportunities. So far for IoT business, it’s still a very small percentage. We don’t have a lot of categories and the price is very expensive overseas again. So this shows great opportunities there. So this is our IoT. And in the past few years, in the overseas market, what have we done exactly. If we look at our overseas business and number one is that we have a lot of different categories, and we cover global markets, very wide, ranging over 100 countries. In over 60 countries, we have representative offices. In 30 countries, we have companies established. In the past few years, global economy and the environment is not great. We have the pandemic, et cetera. So it’s a very complicated external environment. This means we have to build a very safe and highly efficient platform. It needs to be highly efficient to help us realize our global mission and vision. We have done a few things in the past few years. And the first one is that gradually, we can see that we are seeing good results. And in the past few years, with the pandemic and has brought some negative impact in some of the brands that have left the market. And for Xiaomi, for the last few years and in terms of our globalization, we continue to expand. So this is one point you can see. Very quick one example in Africa. From last year to this year, our market has doubled. Our Q3 versus last year Q3, our growth is 100% growth in Latin America, is very far away from China. I flew about 50,000 kilometers and we have realized about 40% growth. And in developed markets such as Europe, last Q3 and in last quarter, we have also seen a very good growth in India. People are concerned about the pressure. But in Q3 versus Q2, we have seen a very good rebound. In Q3, we have -- Q2, we had 15%. In Q3, we had 18%, including Middle East and Southeast Asia. We have all realized a very good growth. And this is, again, thanks to our globalization strategy. And, this is the good results that we have harvested.

Alain Lam: In terms of the Internet business, and I think number one, it is based on our overseas mobile phone growth. And Mr. Lu has talked about this and our Mobile business continued to grow, and you can also see our MAU users has already reached 623 million people. Our user base is becoming broader and broader. So the existing business and the users has brought us a lot of business. In the meantime, we have also done a lot of in-depth of work. So for instance, in terms of partners, we have done a lot of work. We have introduced a lot of new partners and you may have also read the news. One month ago in Singapore, we have organized a partner conference, inviting our global Internet partners to join us. And this would also help with more of our products that can go to our global users and to find more collaborators, and they would be willing to place their advertisement with us to carry out new services, et cetera. So this is the number one on the users -- number of users growth. And second, our overseas business operation is becoming more and more mature. We are finding more partners to work with us to continue to serve with our global users together.

Operator: We now welcome the next question, [indiscernible] from Citibank.

Unidentified Analyst: Thank you management team. Thank you, Mr. Lu. I have two questions to ask Mr. Lu. In the beginning, you talked about the company will continue to maintain stable operation in the Mobile Phone side, and we can see that the net margin has seen very good record high. And if we break this down and what are the successful factors behind it? Is it because of a structural change or cost down or inventory change or is it because some other factors? And for 2024, I’d like to ask looking at the company in terms of the hardware, will you have some new foundations? For instance, in the past, it’s about 10% to 11% of gross margin. And we can see that right now, we have already built quite a good foundation. So in terms of stable development and what is the trajectory? And recently, we have also seen that MIIT, they have published about Xiaomi’s EV car. Some of the information we have also seen the bugging and the debugging of your EV cars. And in terms of EV, can you let us know about your strategy? In addition for the company’s future, how do we work with the company? And can you give us some guidance?

Lu Weibing: Let me answer, and I will ask Alain to respond. And I do feel that for this season, we have achieved some new highs. And there is a reason behind this -- comprehensive reason and perhaps that you worry about our inventory write-down. And for Q3, we can see that currently it has given us about a write-down of RMB 600 million and for -- this is mainly because of our portfolio changes. And of course, we also have some other management rules and the tools, et cetera. And this is a very comprehensive process, and it’s not just one single change. And in terms of operation strategies, and we continue to adhere to our strategies for a very long time internally. We have also asked ourselves and is it that -- actually those two are in conflict with each other in terms of scale and margin. But actually, we can see that they are not exclusive of each other. With a good scale, you will have a good profit and vice versa. The key is how to really find the best balance between those two factors. And in the past 1 to 2 years, we have been looking for these strategies. And these are also strategies that we will adhere to. We also see investors paying attention to our growth momentum and whether this can be kept and when the external environment changes, how do we look at our operations. For our management team, we are very confident that we would be able to cope with the pressure from the external environment and cope with the fluctuation. This is something that we are very confident about. With respect to cars. You can already see that -- from the MIIT’s website, you can already see this EV. And this is a sedan and in terms of the details of this vehicle, I’m not in a position to tell you much more. But I can tell you that we have this home, human and car ecosystem. And this is very important for the vehicle in our ecology. And going forward, when customers purchase our products, it is not just purchasing simple one product, it’s about a life solution. It is about a whole ecosystem. So we are moving towards the whole ecosystem. And secondly, you will also see that for vehicles together with our mobile phones and our 3C products, there will be a lot of synergies. And I believe that the synergies will also be shown. You have heard that for EV, and this is a general integration with consumer electronics. In the meantime, with the integration with the consumer electronics, and there will be a lot of chemical reactions and this will see and give us a very good results in the future. So I pass on to my colleague, Alain.

Alain Lam: You can see that in Q3 in terms of our inventories, this may have affected our margin for 0.8%. If you look at last year’s Q3, it’s a negative 0.8% impact. So adding together, the inventories impact and the provisions impact would be 1.6%. I stated this, our gross margin has increased by 6.1%. So with this in mind, as Mr. Lu has said, our product structure optimization as well as raw material costs coming down and this has helped. This is my explanation.

Operator: Thompson from UBS, please.

Thompson Wu: Apology, I muted myself earlier. Thank you for your time. And congratulations on the great quarter. So the two questions, one on gross margin. My question will be from another perspective. And for the company, for the gross margin, you talked about from the domestic product portfolio, so in domestic market for the premiumization products versus the low-end product and what is the gross margin difference for high-end products and how much room is there for you to further improve the margin? So that’s question one. And question two, this is relation to IoT and Smart EV. For the company, every year, we will see the users’ usage, and in Q3, this is roughly about 1 -- about 13 million. And I feel that these users are a very good target and for your new EVs. So in terms of these users, in terms of their consumers’ profile and do they purchase the high end or mid-end or low-end products? And for these consumers and will they purchase all the functions features?

Lu Weibing: You asked about the gross margin difference between high end and low end and how we look at the future. Let me comment on this. The way I look at this is that our high-end product for -- right now, it is in an early investment. And if you look at our product and actually for high end and low end, there is a huge difference. And I myself feel that going forward, for high end, we have very deep potential. And we have not yet gone through from quantity to quality change. If we look at Apple for the whole year and it’s from -- for instance 220 million mobile phones and they are all high end. If we look at Samsung, globally, we also compared with Samsung quite a lot, compared with our high-end products, they have about 40 million. And for Xiaomi, we have about overall for mobile phones above RMB 4,000 and there is still a difference in the gap. This is a challenge for Xiaomi. This is also a huge potential for Xiaomi globally speaking. If volume continues to grow and the quality change that will be brought about, and we will see this. And you know that the raw material cost reduction is actually quite high. And for our product and the price was lowered in the very early days. So for Xiaomi and once -- we have already seen the changes, and I think that we still need some time, but I believe that the potential is there. And for Xiaomi, we are very confident that we would be able to dig out the potential. You also talked about AIoT as well as the number of the users. And this is actually about 20% higher than our users, and this is very stable. So we can see that going forward, we can expect that for our users, and of course, these are our main users and through our observation, we can also see if a user has over 5 Xiaomi’s product, they are very sticky users. When they purchase Xiaomi’s product, they will not just buy one single product, they will purchase a whole solution. They will purchase a whole set of products. And this is the type of customers that they are very -- they really appreciate and well-recognized Xiaomi’s products and utilizing this, we will continue to serve them very well. Okay? So this is what I have to say, Alain?

Operator: We welcome the next question come from [indiscernible].

Unidentified Analyst: Okay. Thank you, Mr. Lu and Mr. Alain. I have two small questions. And one is about our strategy, and you talked about off-line. It’s very important for your high-end product. We can see that Q3, more than half of the high-end product sales came from offline. So going forward, for our premiumization as well as for this whole complete Human x Car x Home ecosystem in, how do you look at the entire strategy? And I would also like to ask Mr. Lu and Mr. Lam for Q3, we have seen Advertisement business has reached a new high. So for your Internet business going forward, we’ll -- how will you carry this? And what is your future direction for the Internet business?

Lu Weibing: I will answer your new retail question. And for the Internet business, I will ask Alain to answer. For the new retail, after these years of development for Xiaomi’s business and the futures ecosystem, development has played a very important role. Overall speaking, if we look at our single mobile phone, you can see that premiumization of our smartphone is very obvious. In addition, I don’t know if you have also noticed that our tablet also grew very fast and wearables as well. So for Xiaomi’s new retail, this is a very strong support. I remember that some people say that a lot of Xiaomi’s -- a lot of small friends, who were little kids, would come to Xiaomi and people joke that Xiaomi has become the new Internet [bars]. And if the kids want to come in and play and we welcome them. We don’t really disturb them, and they can enjoy our products. For our refrigerators has been sold by 100x of growth. So this is also thanks to our new retail development. And not only that this will support our premiumization, in the meantime, it also supports our ecosystem going forward. This is very important, especially with our EV being launched into the market. Going forward for the EV, this will be completely incorporated in our new retail and going forward, there will be a lot of cars. In a lot of shops, not only that you will see our products, but also our cars. So this is something that I believe is of a very special value. Our Human x Car x Home strategy and the new retail strategy, not only that we need a new retail to contribute to the Human x Car x Home strategy, and this can help us to close the loop. And you can also see that perhaps one by one, it’s a silo strategy, but overall, it can be combined together. And with all this strategy, and this will be the special defensive unique advantage of Xiaomi. So not only that you give -- you need to give -- as long as you Xiaomi time, you will see that we will form a very strong defensive mode that nobody can attack us. And I believe that in the next three years, you can let your imagination fly and dream about our future. And I would like to very quickly to comment on the two points about our flying for our high-end mobile phone, and you can see that in Q3, it’s about 55.5% for high-end mobile phones. So this is a new high. Secondly, if you look at the GMV of a single shopper compared with the last year, it has increased by 28% year-on-year. So this shows that in the off-line business and the single shop at GMV has increased significantly. So this is something that’s just to supplement to the first question. And your second question, you asked about in the future how do we further improve our Advertisement business? And of course, as we have heard from our overseas Internet business, and I will not repeat this. Internally, in China, very important for the high-end mobile phones and its percentage of our overall mobile phones, we have shown some data before for the whole life cycle. And for high-end mobile phones, it’s about 10x low-end mobile phones. And for high-end mobile phones, if we continue to improve our market share and our sales, we believe that, of course, the margin will continue to grow, and this is our work plan as well. In the meantime, we are also looking at how to explore our operation capabilities. And in the meantime, commercialization of our users and to further solidify our sales. So those are the two parts.

Operator: Our next question is [indiscernible].

Unidentified Analyst: A great result. Just one question. And I noticed that Mr. Lu, you often talked about Human x Car x Home. And we also want to know more about this for the company in terms of clients as well as your development? And how do you look at this? You talked about the design and in terms of -- for instance, the client base and user base, can you let us know more about this?

Lu Weibing: Okay. The way I look at this is as follows. Actually, I feel that -- well, let’s talk about smartphone first. And smartphones ecosystem for today, we do not yet really see a very high level of integration in the industry. If we look at the Chinese market whole year, even for the number 1 player has not exceeded 20%, and the #5 is not less than 15%. So it’s in the region of 15% to 20%. So I believe that the market will continue to concentrate. There will be other brands that will exit from the market. So this is number one. Going forward, for any of the top brand, they will not only serve just one client base, it will be omnichannel. And if it is omnichannel, how do we meet for the omnichannels requirements and you will see that today for Xiaomi, for instance, we have Xiaomi and Redmi. Within Xiaomi, we have Xiaomi digital series and various different series of products. And through the product series, classification to satisfy the different users demand. And for Human x Car x Home, it is the same principle behind it. Based for the users, and we divide them into different groups and looking at mobile phones and EVs can drive our customers and to tell them more about our solutions and our user experience. And this is reliant on the whole set of the same operating system. And this is our commercial logic. I don’t know whether I have explained this clearly.

Operator: Thank you in the interest of time, and we welcome the last question, Huang Leping from Huatai.

Leping Huang: One question. PC -- in the past, PC and mobile phones, they are quite separate. And two weeks ago, we have seen that Qualcomm (NASDAQ: QCOM ) with their new chips. And Mr. Lu, you have also made a speech in that conference. And how do you look at the PC market competition? And how does Xiaomi look at this sector?

Lu Weibing: Well, PC, I feel that today, this is the market for the PC business. Actually, if we look at our industry and the benchmark is obviously Apple. For Apple -- for instance, with iPhone and wearable, tablets and the PC, they have organized a great ecosystem. And this is what we feel that this is why Apple’s stickiness is very strong. And for Windows, under this system, especially for Xiaomi or Huawei or Samsung and other players, if we want to connect all this, we really need to build end-to-end and Windows. So at the moment, there are still some divide. In terms of user experience versus Apple system, there is a difference. This is the current situation. So in this process, as we ourselves are also thinking, PC is not our main business. And it is possible that there are some ways and we have a few ways of looking at this. One is that we have, for instance, HyperOS and in terms for connect the platform, if you look at our PC with our tablet and our mobile phones, there are already some of these connections. And I feel that we have already made some progress. And of course, there is still a gap lagging behind from Apple. And secondly, in terms of the -- today, Android plus Windows going forward is a possible that with the WOS can build it through. It is possible, can connect those two. So for instance, based on ARM or based on some other products, there are some good samples and examples. In terms of the performance in the past for ARM-based, there is a huge difference. But right now, we can see that the performance has seen great improvement, for instance, power utilization, ecosystem, et cetera. So those are the areas that we pay great attention to. And for I -- myself, I also believe, and I’m very confident about the future, assuming that this direction is a good direction going forward for Xiaomi as well as for some ARM-based companies. And I think that this will be a great and a huge benefit, and this is a natural benefit to us. And for Xiaomi, again, this is why we say that we adhere to this business. PC business is hard to do for us, but we continue to do this. It’s because we believe that for PC, this terminal end in the Home x Car x Human, ecosystem is something that cannot be ignored. This is why we can see that we have mobile phones, we have wearables, our watches and our ear pods and we have seen some major improvement in the tablet. We have seen very good shipments result and is already top 3 in China and top 5 in the world and our PC and with our new product launch of our PC product, we have made great achievements as well as the large screen TVs as well as refrigerators and washing machines, all of these products for the whole Xiaomi ecosystem is very necessary and we will also work our hardest to connect our ecosystem.

Operator: Thank you. This is the end of today’s conference. Thanks again for joining us, and thank you for your support. Thank you, everyone. You may now disconnect. Thank you and see you next time.

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