Xiaomi’s growth slows in Q3 as China smartphone demand wanes

Chinese smartphone maker Xiaomi Corp posted its slowest-ever quarterly revenue growth as the country's smartphone market grapples with a protracted lull in sales and larger rival Huawei increases its share of the market.

Demand for smartphones has eased in China as consumers hold on to devices for longer. Shoppers have also rallied behind Huawei, boosting sales at the world's second-largest smartphone maker, which the United States has added to a trade blacklist.

Smartphone sales still account for most of Xiaomi's revenues but it has been promoting its internet services division, which mainly consists of online ad sales. The business, however, accounts for just 10% of total revenue - the same proportion as when the company listed its stock in August 2018.

Revenues at Xiaomi's smartphone business fell 8% to 32.3 billion yuan in the quarter ended Sept. 30. The company sold about 32.1 million phones during the period, roughly one million units fewer than a year earlier. Total revenue rose 5.5% to 53.66 billion yuan from the same period last year, largely in line with analysts' expectations according to Refinitiv data.

Xiaomi has looked to foreign markets to make up for the sales drop at home but that came at a price with selling and marketing expenses jumping 16% in the quarter. Excluding one-time items, Xiaomi earned 3.47 billion yuan, versus 2.89 billion yuan a year ago. Investors have so far appeared unimpressed by Xiaomi's efforts, pushing the stock down nearly a third so far this year.

The company is looking to aggressively roll out 5G-enabled handsets in 2020 as the technology becomes available across China. The company has released two 5G enabled smartphone models to date, one in Europe and one in its home market. Last month, CEO Lei Jun said the company would release more than 10 5G phones priced for a range of budgets next year.

"If you look at the Chinese smartphone market in the past two years, it is true that there has been some decline, and recently we have also seen some pressure in the market," Xiaomi's Chief Financial Officer Chew Shou Zi said on an earnings call.

"Once the 5G era is with us, then I believe we will start to see improvement in the smartphone market quite significantly."