Xiaomi reports better profit than expected after bagging premium phone share

Xiaomi reported better-than-expected profit after cracking the Chinese market for high-end smartphones and growing its share of overseas markets like Europe and India.

The Chinese smartphone maker more than doubled net income to 4.49 billion yuan ($716 million) in the June quarter, beating the highest analyst estimate. Sales increased 3.1% to 53.5 billion yuan. Xiaomi’s overseas business has recovered to pre-Covid-19 levels, acting Chief Financial Officer Wang Xiang said Wednesday.

Smartphone shipments in European countries like France and Spain grew by 64.9% in the quarter, propelling Xiaomi into the No. 3 spot in the region for the first time, the company said, citing consultancy Canalys. The phonemaker also kept its top position in India in the quarter even though the country’s smartphone shipments halved during lockdown measures. That drove a 12% fall in the company’s device shipments globally, according to IDC, just when tensions between Delhi and Beijing threatened to further depress sales in its biggest foreign market.

Xiaomi may be able to offset some of the hit through higher-margin phones and market share gains against biggest competitor Huawei. The company shipped 28.3 million smartphones during the quarter, with average selling prices increasing 11.8% from a year earlier, reflecting deeper inroads into premium devices.

”What’s encouraging was Xiaomi’s premium end phones recorded hyper growth in overseas market,” Wang said. “This reflects a major breakthrough in high-end market.”

Huawei is struggling to sustain smartphone output because of US curbs on its in-house chip design and supply. Taking sales from its larger rival will become Xiaomi’s “main growth driver” until next year, according to China Renaissance analysts Jason Sun, Michelle Zhang and April Zhang. They estimate Xiaomi’s smartphone shipments could surge by over a third to 217 million units in 2021.

“Huawei’s increasing use of third-party chips will reduce its competitive advantage in phones and, hence, give Xiaomi an opportunity to gain share in China where most Internet Service revenue comes from,” Morgan Stanley analysts including Yunchen Tsai and Sharon Shih wrote in a research report ahead of the earnings release.

Xiaomi appointed a new chief financial officer, former Credit Suisse head of Asia technology Alain Lam, confirming a Bloomberg News report. The veteran investment banker, who worked on the public listings of Alibaba Group, Google and Pinduoduo, will take up his new role in October and could help Xiaomi uncover value in the more than 300 companies it has backed. That sprawling portfolio of startups, ranging from Segway-owner Ninebot to portable charger maker Zimi and Huami, are key to Xiaomi’s longer-term ambition of building a network of home devices for the so-called Internet of Things.

In China, domestically oriented businesses such as media and finance could bounce back alongside an economic recovery. Xiaomi, known for lower-priced phones, has been trying to lift its average retail price to cushion margins. Chief Executive Officer Lei Jun this month introduced a suite of smartphones priced close to the iPhone 11 and transparent TVs costing 49,999 yuan to commemorate the company’s 10th anniversary. The co-founder also pledged to develop advanced manufacturing to fuel China’s high-end electronics making ambition.

Xiaomi’s shares, which have mostly traded below their HK$17 2018 initial public offering price, jumped 5.7% at the Hong Kong close on Wednesday before results were released. The company will join Hong Kong’s benchmark index from September in one of the gauge’s biggest revamps, a potential boost for the stock.