Xiaomi Is Getting a Weak Signal from China’s Economy


Share post:

Xiaomi still isn’t connecting.

On Wednesday the Chinese phone giant reported a 10% year-over-year decline in revenue for the quarter ended September, roughly in line with analysts’ consensus estimates collected by S&P Global Market Intelligence. The company, however, sank into the red for the quarter as it booked losses on investments. Gross profit fell too, dropping by 18%.

China’s sluggish economy, battered by strict pandemic restrictions and an imploding housing market, has squeezed consumers. Smartphone shipments in China fell 12% year over year for the quarter ended September, according to industry tracker IDC. 

Though Xiaomi is China’s biggest smartphone maker overall, it isn’t the local market leader. Apple’s new iPhone 14 is popular there and it was the only major manufacturer that reported year-over-year shipment growth in China last quarter. Honor, which was spun off from Huawei after the Chinese company got hit by U.S. sanctions, has roared back to the top ranks. It was the second top-selling brand in China last quarter, according to IDC, with 18% market share—higher than Xiaomi’s 13%.

India’s smartphone market, where Xiaomi is the market leader, isn’t looking much better: Shipments last quarter dropped 11% from a year earlier, according to Counterpoint Research. Chinese companies, including Xiaomi, are also facing increasing regulatory scrutiny from the Indian government.

Xiaomi’s internet services business, which accounted for 43% of its gross profit during the quarter, also was hurt by China’s economic slowdown and regulatory crackdown on the internet industry. Revenue in the segment last quarter fell 4% from a year earlier, while margins narrowed. The company subsidizes its smartphones to sell customers advertisements, videogames or other services. Gross margins at the segment were 72% versus 9% for smartphones themselves. While Xiaomi makes around half of its revenue outside China, its home market makes up about three-quarters of its sales at the internet services segment. Overseas internet services were a bright spot, at least, with revenue growth of 17% year on year.

Like other Chinese stocks, Xiaomi’s shares have rebounded this month on hopes that China will ease both its zero-Covid policies and property crackdown. Its shares are down more than 70% from their peak in early 2021, though they still fetch around 30 times prospective earnings, according to FactSet.

Xiaomi’s prospects rest to some extent on factors beyond management’s control—especially measures around China’s zero-Covid policy. While Beijing will eventually roll back some of its strict pandemic restrictions, the process will likely take some time. Recent surges in Covid cases have sent many parts of the country back into lockdowns

Investors hoping to get a stronger signal from Xiaomi may need to wait a while.

Write to Jacky Wong at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Source link


Please enter your comment!
Please enter your name here


Related articles

Ethereum Shanghai Update: Here’s What You Will See There

Arman Shirinyan Arman Shirinyan Shanghai update will finally make Ethereum staking withdrawals possible Despite the poor performance on...

How Bellingham has become England’s most important player

AL WAKRAH, Qatar -- When England arrived back at their Al Wakrah base in the...

5 Heritage Crafts To Shop For When In Odisha

OT Staff Home to over 52 craft skills, the state of Odisha is a powerhouse of...

Jammu and Kashmir tourism department mulling opening 2 more tourist destinations this winter season

As winter sets in, the Jammu and Kashmir Tourism Department is mulling adding two more...