Excluding the performance level, there are actually more implications for the substantial increase in global mobile phone sales.
The substantial increase in mobile phone sales may not be quickly reflected in the company’s performance, but it will greatly increase the ecological value of Xiaomi. For long-term investors, this is the “dark line” of Xiaomi’s investment.
On July 16, Xiaomi (01810.HK) unlocked the new achievement “the world’s second mobile phone brand”. According to the Q2 global smartphone market share rankings released by Canalys, Xiaomi surpassed Apple with a market share of 17% to become the world’s second largest.
Xiaomi is an iterative company, and it has its own goals in every period.
At the beginning of its establishment, Lei Jun was committed to creating Xiaomi into a company that brings a better life to everyone. Today, Xiaomi has become a world-renowned brand. It seems that Lei Jun’s dream has come true.
In 2014, Xiaomi’s goal was to become the world’s top 500. At that time, Xiaomi was still a company only three years old. The market was generally not optimistic about Xiaomi’s performance, but Xiaomi finally proved itself with its own strength. In August 2020, Xiaomi Achieved this goal and became the youngest Fortune 500 company in the world.
In the following two years, Xiaomi suffered setbacks, and sales fell for a while. 2017 is a turning point in the development of Xiaomi. This year Lei Jun proposed the goal of breaking through 100 billion in revenue for the whole year. In the end, Xiaomi reached the goal in just 10 months and became the youngest “100 billion in revenue” giant in the world.
In the Q4 quarter of 2017, the global mobile phone market was sluggish. With the overall shipment decline of 6.3%, Xiaomi’s sales volume bucked the trend and increased by 96.9% year-on-year. It is not only the only brand growing, but also the fourth brand in the world.
The fiery performance of the global market now allows Xiaomi to have a bigger goal. Xiaomi’s market share is only 2% away from the number one Samsung. At this time, Xiaomi has only one goal left, which is to surpass Samsung and become the world’s number one.
01 How did Xiaomi succeed?
In the past three years, the global mobile phone market has ushered in unprecedented challenges. The overall mobile phone market has been saturated, with shipments falling from 1.466 billion units to 1.292 billion units. All players in the industry have sensed the cold of winter.
In this context, millet able to buck the trend growth, and beyond the apple fruit to the world’s second was not easy, it is entirely derived from millet accurate insight into the development of the entire industry.
5G is the largest replacement wave in history, which has long been a consensus in the industry, but even so, many mobile phone players still hope to use 4G residual temperature to produce mobile phones desperately. Among them, only Xiaomi has not made a rash advance, and still strictly controls inventory levels to maintain the healthy development of cash flow.
It is the steady and steady style that allows it to continue to launch the industry’s first 5G flagship model, Mi 10, in the face of a sudden epidemic, so as to stabilize the high-end market. According to IDC data, after the launch of Xiaomi Mi 10 in the 2020Q1 quarter, Xiaomi’s global market share has suddenly increased, and since then it has begun to continuously swallow the share of other manufacturers.
(Data source: IDC)
On the other hand, Xiaomi surpassed Apple to become the world’s second place. The core support behind it is the continuous pursuit of innovation and the determination to establish a business with technology.
Xiaomi has three “iron laws” that will never change: technology-oriented, cost-effectiveness-oriented, and making the coolest products. With this purpose, Xiaomi never hesitated to invest in research and development. In the Q1 quarter of 2021 alone, Xiaomi’s R&D expenditures exceeded 3 billion yuan, a year-on-year increase of 61%.
At a time when global chip production capacity is in short supply, no chip will be stuck. Based on this, Xiaomi has developed the first independent professional imaging chip Surging C1, which has achieved a new breakthrough in imaging technology, and has upgraded all aspects of focusing, exposure, and white balance.
In terms of batteries, the silicon-oxygen anode battery technology and full-phase-change heat dissipation technology are applied for the first time on the Xiaomi 11 Ultra, which can achieve rapid heat dissipation and conduction through changes in solid, liquid and gaseous states. This is almost the top battery technology at the moment, which can greatly enhance the user experience.
The mobile phone is a product whose user experience is greater than the actual function. If the mobile phone manufacturer wants to obtain the support of the user, it must be anxious for the user and think what the user thinks. Mobile phone manufacturers should not put users on the opposite side, but should regard users as partners who hone their product skills together . The difference between ordinary products and the coolest products is the craftsmanship.
Of course, surpassing Apple is not worth celebrating. In addition to surpassing Samsung in the front, what Xiaomi needs is to stabilize its current second position in the market.
Samsung is Xiaomi’s next goal, but before surpassing each other, Xiaomi must lay a solid foundation.
02 Breaking the game overseas becomes the key
Xiaomi’s global mobile phone sales are so dazzling, the core factor behind it is its outstanding performance in overseas markets.
In the past few quarters, overseas business has always been the focus of Xiaomi’s performance growth. Excluding the 2020Q2 quarter when the epidemic is raging, Xiaomi’s international business is in a steady growth trend. From Q1 of 2019 to Q1 of 2021, Xiaomi’s overseas business has increased by 1.23 times in just two years.
According to the 2021 Q1 financial report, Xiaomi’s single-quarter revenue in overseas markets reached 37.4 billion yuan, a year-on-year increase of 50.6%, accounting for 48.6% of the company’s total revenue.
According to Canalys data, based on smartphone shipments, Xiaomi ranked top five in market share in 62 countries and regions around the world in the first quarter, and ranked first in 12 regions around the world.
Especially in the Indian market, Xiaomi continued its previous strong position, maintaining the top spot for 14 consecutive quarters, and taking the top spot with a 28% market share, 9 percentage points ahead of second-place Samsung .
In order to consolidate its leading advantage in India, Xiaomi plans to build three factories to expand production. The new plan is expected to increase Xiaomi’s mobile phone production capacity in India by 20%, and almost complete the localization of mobile phones and TVs in India.
In addition to the Indian market, Xiaomi has also won market share in Eastern Europe for two consecutive quarters, with a market rate of 32.5% and a year-on-year increase of 81.8% in shipments; in Russia, it has achieved a market share of 32.1%, gaining the first market share for the first time. In Latin America, the Middle East and Africa, Xiaomi ranks among the top four, with shipments soaring by 162%, 137% and 191% respectively.
As Xiaomi continues to strengthen its channel construction in overseas markets, in overseas markets outside India, the shipments of smartphones in online channels and operator channels have exceeded 5 million units. As of the end of March 2021, Xiaomi has established cooperation with more than 150 operator channels around the world.
Xiaomi’s overseas markets are blooming everywhere, and it has become a typical international representative of Chinese manufacturing. If Xiaomi wants to surpass Samsung, overseas markets will be the top priority.
03 Xiaomi’s investment “dark line”
There is actually a “dark line” in Xiaomi’s investment .
The global mobile phone sales have grown substantially, which guarantees the future performance of Xiaomi. However, excluding the performance level, there is actually more significance in the substantial growth of global mobile phone sales.
As we all know, the hardware business has never been the focus of Xiaomi’s profitability. As Lei Jun promised at the Xiaomi 6X conference: the comprehensive after-tax net interest rate of the overall hardware business (including mobile phones and IoT and consumer products) does not exceed 5% each year.
Despite this, the mobile phone business can still provide a steady stream of cash flow for Xiaomi. Mobile phones are a consumer-oriented business, and various models are iterating quickly. This means that the mobile phone itself has the attributes of consumer goods, and the sale of large quantities of mobile phones can provide a stable operating cash flow, which is the basis for Xiaomi’s future development.
From a strategic perspective, mobile phones are precisely the best cut of the “Mobile Phone X AIoT” strategy. The substantial increase in global mobile phone sales means that the progress of Xiaomi’s “Mobile Phone X AIoT” will be greatly accelerated. As the hub of the AIoT ecosystem, mobile phones are not only the brains of the entire ecosystem, but also the first products consumers buy.
Abstractly speaking, behind every mobile phone is an information hub. If a family wants to “build” a Xiaomi ecosystem, it is bound to give priority to the use of Xiaomi mobile phones. After recognizing Xiaomi’s services, it will further increase the purchase of other Xiaomi products and complete the transformation from “primary rice noodles” to “senior rice noodles”.
According to the 2021 Q1 financial report data, the number of connected IoT devices on the Xiaomi AIoT platform has exceeded 350 million, a year-on-year increase of 39.3%, but the number of users with five or more devices connected to the Xiaomi AIoT platform has increased by 48.9%. It is not difficult to see, “Senior The transformation speed of rice noodles is significantly faster than that of “primary rice noodles”.
It can be seen that, in addition to bringing a huge data stream to Xiaomi, the mobile phone business can also bring a large number of “fan streams” to the Xiaomi brand. This is the key hidden behind Xiaomi’s strong sales.
The Mi AIoT ecosystem is not a simple accumulation of machines, but a high-stick interaction among fans. Just as Xiaomi’s vision said: Let everyone enjoy the fun of technology and make friends with users, and be the coolest company in users’ hearts.
If every Xiaomi user is a single point, then when the sales of Xiaomi mobile phones increase significantly, these lattices will be connected to each other to form a network. In this “big network”, mobile phone products will only increase the scale of the network, and what really makes Xiaomi’s future value possible is the “ecological business” contained therein.
From a data perspective, in the past five years, the annual compound growth rate of Xiaomi’s AIoT business and Internet business has increased by 50.6% and 49.0% respectively, becoming a new driving force for Xiaomi’s performance growth.
In investment, people are often willing to turn a company’s superior product into a moat. For Xiaomi, the number of global mobile phones is its core moat. We always believe that Xiaomi is a company with long-term value, mobile phones are the moat, and ecology is the key to monetization.
From scratch, from simple to complex, the Xiaomi ecosystem has been continuously improved, and the commercial value of the entire ecosystem has also been significantly improved. The substantial increase in mobile phone sales may not be quickly reflected in the company’s performance, but it will greatly increase the ecological value of Xiaomi. This is exactly the “dark line” of Xiaomi’s investment.
For investors who are concerned about the company’s value for a long time, this part of the value has been recorded in their minds. This is where the long-term value of Xiaomi lies.
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