Xiaomi Corp. (Xiaomi) is reaping the rewards of embracing the “Smartphone + AIoT” dual-engine strategy with the favorable market response posting 71.7% growth in its net profit for the second quarter (2Q) of 2019.

What was once called emerging technologies, artificial intelligence and the Internet of Things (IoT) are slowly creeping into the mainstream market. Manufacturers are embedding AI into its new creations while cashing in into people’s thirst for hyperconnectivity.

Xiaomi calls itself as an internet company with smartphones and smart hardware connected by the IoT platform at its core.

In 1H2019, Xiaomi reported that the group’s total revenue increased by 20.2% to approximately RMB95.71 billion. Revenue from the overseas business was RMB38.6 billion, accounting for more than 40% of total revenue. Adjusted net profit (non-IFRS measure) was RMB5.72 billion, up 49.8% year-on-year (“YoY”). In the second quarter of 2019 (“2Q2019”), Xiaomi’s total revenue grew by 14.8% to RMB51.95 billion. Adjusted net profit (non-IFRS measure) was RMB3.64 billion, increasing substantially by 71.7% YoY.

“Thanks to the Xiaomi relentless efforts, we have managed to achieve solid growth in our businesses, posting a consensus-beating profit and becoming the youngest Fortune Global 500 company in 2019, despite global economic challenges,” said Lei Jun, founder and chair, Xiaomi. “Our performance is a testament to the success of our ‘Smartphone + AIoT’ dual-engine strategy and the Xiaomi business model. Looking ahead, we will continue to strengthen our R&D capabilities and investments so as to capture the great opportunities brought by 5G and AIoT markets and strive towards ongoing achievements for the company.”

During the first half of 2019, Xiaomi posted total revenue of approximately RMB95.71 billion, up 20.2% YoY. Its gross profit was approximately RMB12.47 billion, up 25.3% YoY with net profit pegged at approximately RMB5.15 billion. The group’s non-IFRS adjusted net profit was approximately RMB5.72billion, up 49.8% YoY and the earnings per share were RMB0.214.

For 2Q, Xiaomi’s total revenue was approximately RMB51.951 billion, up 14.8% YoY. Its gross profit was approximately RMB7.26billion, up 28.4% YoY while the net profit was approximately RMB1.96 billion. The group’s non-IFRS adjusted net profit was approximately RMB3.64 billion, up 71.7% YoY and the earnings per share were RMB0.082.

Smartphone segment

In the first half of 2019, revenue from Xiaomi’s smartphone segment was approximately RMB5.9 billion; whereas revenue in the second quarter totaled RMB32.0 billion, mainly attributable to smartphone sales volume and increase in average selling price (“ASP”). According to Canalys, we ranked 4th globally in terms of smartphone shipments during the second quarter of 2019. Thanks to the Group’s constant improvement in its product portfolio and its dedicated efforts to making Redmi an independent brand, its multi-brand strategy is exhibiting increased advantages: gross margin increased remarkably from 3.3% in the first quarter to 8.1% in the second quarter whereas the ASP of the smartphones in mainland China and in overseas markets achieved a YoY growth of 13.3% and 6.7% respectively, with revenue from smartphones priced over RMB2,000 accounting for 32.3% of the total revenue of the smartphones segment.

Following the release of new flagship models of our Mi 9 series and Redmi Note 7 series in the first quarter of 2019, the Group released the new flagship model K20 series that highlights ultimate cost-effectiveness in the second quarter, successfully establishing a smartphone portfolio covering a diverse price range. In the second quarter, smartphone sales volume in the reached 32.1 million units. The global sales volume of the Redmi Note 7 series reached 20 million units as of 30 June 2019. In addition, the global shipments of the K20 series have already been recorded at more than 1 million units within the first month of its launch.

New retail channels

In the meantime, the Xiaomi brand continues to innovate and expand new retail channels to sustain its position in the medium-to-high-end and diversified market segments. On 2 July 2019, Xiaomi launched the brand-new CC series which was well received by female users, laying a strong foundation for further development of the market. On 7 August 2019, Xiaomi launched an ultra-high-resolution 64MP camera technology, which the Redmi product line was the first to adopt. The Group also announced its collaboration with Samsung Electronics to bring the first-of-its-kind 100MP camera sensor to cater to the increasingly sophisticated demand of users. Meanwhile, following the commercialization of 5G technology, Xiaomi’s first 5G smartphone model the Mi MIX 3 5G was already launched in various European countries, and the second 5G smartphone model will also be launched in China in the second half of the year.

During the first half of 2019, the revenue of the IoT and lifestyle products segment rose by 49.3% to RMB27.0 billion over the corresponding period of 2018. In the second quarter of 2019, revenue of the IoT and lifestyle products segment increased by 44% YoY to RMB14.9 billion. It is worth noting that IoT and lifestyle products accounted for 28.8% of total revenue in the second quarter of the year, compared with 22.9% in the same period last year.

Smart TVs

Xiaomi’s smart TVs continued to maintain its leading position. The global shipments of smart TV reached 5.4 million units in the first half of the year, representing a YoY growth of 64.9%, ranking 1st and top 5 in terms of shipments in mainland China and globally, according to AVC. In the second quarter, global shipments of smart TV totaled 2.7 million units, increasing by 41.1% YoY. On the other hand, shipments of the Mi air conditioners exceeded 1 million units in the first half of the year, whereas shipments of Mi Band also exceeded 1 million units within 8 days of its launch on 14 June 2019.

As of 30 June 2019, the number of connected IoT devices (excluding smartphones and laptops) on Xiaomi’s IoT platform reached approximately 196 million units, a YoY increase of 69.5%; users with more than 5 IoT products approximately 3 million, a YoY increase of 78.7%. Furthermore, in the second quarter, monthly active users (“MAU”) of Xiaomi Home application reached 30.4 million globally, and MAU of AI Assistant (小愛同學) had 49.9 million, making it one of the most used AI voice interactive platforms in mainland China.

Revenue from Xiaomi’s internet services segment grew 22.9% YoY to RMB8.8 billion in the first half of 2019; revenue from the internet services segment grew 15.7% YoY to RMB4.58 billion in the second quarter. In June 2019, MAU of MIUI reached 278.7 million, an increase of 34.7% over the corresponding period last year; MAU of smart TVs and Mi Box achieved 53.8% YoY growth, reaching 22.6 million in June 2019.

In the second quarter, Internet services revenue outside of advertising and gaming from smartphones in China but including those generated from TV internet services, overseas internet services, Youpin e-commerce, and internet finance business, increased substantially by 108.8% YoY and accounted for over 36% of total revenue. In the first half of 2019, gross merchandise value (GMV) of Youpin e-commerce grew 113.9% YoY to RMB3.8 billion. It is worth noting that in June 2019, more than 65% of Youpin’s GMV came from non-Xiaomi smartphone users.

In the first half of the year, Xiaomi’s revenue from international markets grew 33.8% YoY to RMB38.6 billion, accounting for more than 40% of the Group’s total revenue. In the second quarter, revenue from international markets grew by 33.1% to RMB 21.9 billion. According to Canalys, Xiaomi ranked among the top five in over 40 countries and regions in terms of smartphone shipments. According to IDC, Xiaomi’s smartphones ranked 1st in India in terms of shipments for eight consecutive quarters. According to Canalys, Xiaomi ranked 4th in terms of smartphone shipments for Western Europe, representing a YoY increase of 53.2%, which is growing the fastest in the market. In terms of smart TV shipments, Xiaomi ranked 1st in India for five consecutive quarters as of the second quarter of 2019.