Xiaomi Corp recorded its slowest pace of quarterly sales growth since the start of 2020 after supply chain chaos stifled the flow of vital components and rivals like Apple Inc eroded its market share.
Shares of China’s biggest smartphone maker fell more than 5% in Hong Kong to their lowest level since September 2020, reflecting lingering concerns over a global chip shortage that has wiped out billions in revenue from the auto and electronic.
Xiaomi expects this deficit to persist through 2022 before easing, especially towards the second half of the year. Still, it expects to ship around 190 million smartphones in 2021 — a roughly 29% increase from last year — thanks to inroads in overseas markets and an expanding retail network.
Revenue rose just 8% to 78 billion yuan ($12.2 billion) in the September quarter, in line with analysts’ projections, but marking its slowest growth since the June quarter 2020 .
Net profit fell 84% to 788.6 million yuan after the company suffered a loss of 3.5 billion yuan due to investment losses, echoing the large write-downs that its technology peers reported to the quarter due to the slowdown in the Chinese economy and market turmoil.
“We faced quite a lot of pressure in the third quarter” from chip shortages, Chairman Wang Xiang told reporters after the results. “This will continue into the fourth quarter, but will start to subside in 2022.”
What Bloomberg Intelligence says
Prolonged chip shortages and logistical challenges may continue to hamper Xiaomi’s Q4 overseas smartphone sales. Economic headwinds in China and intensified competition with peers could inhibit the company’s sales in the domestic market.
Smartphone gross margin may drop in Q4 as Xiaomi launches entry-level products targeting the mass market and offers steep discounts on its high-end smartphones during Singles’ Day sales. Still, rising monthly active users (MAUs) and high-end smartphone shipments may bode well for Xiaomi’s internet services, which could maintain a 70% gross margin.
– Nathan Naidu and Matthew Kanterman, analysts
Xiaomi has lost more than a third of its value this year as supply chain issues and a resurgence of the Covid pandemic in key markets hampered operations. It briefly overtook Apple to become the world’s second-largest smartphone supplier before global shipments slumped in the third quarter, mainly due to component shortages.
The Chinese vendor saw a 4.6% drop in smartphone shipments after high double-digit growth in the previous four quarters as supply issues began to bite, according to research firm International Data. Corp. This compares to a 21% increase in shipments from Apple following the release of new iPhones.
“Supply chain issues and component shortages have finally caught up with the smartphone market, which until now seemed almost immune to this issue despite its negative impact on many other adjacent industries,” the analyst wrote. ‘IDC Nabila Popal in a report.
Xiaomi is also facing growing pressure in China. Honor, a formerly sanctioned sub-brand of Huawei Technologies Co, resumed business with U.S. suppliers from Qualcomm Inc to Alphabet Inc, Google’s parent company, after it was spun off a year ago.
The Shenzhen-based company targets a similar group of customers to Xiaomi and has expanded its network of physical stores in China in recent months.
Xiaomi is expanding its own offline channels, with plans to open 20,000 more stores in its home turf in three years to counter competition, local media reported this month.
“Competition from Honor, rising component prices and weakening global economies could be downside risks,” Citigroup analysts Andre Lin and Arthur Lai wrote in a note ahead of the earnings release. But Xiaomi is still expected to outpace the market and ship 220 million smartphones in 2022, driven by a recovery in emerging countries, market expansion and distribution initiatives, they said.
A stable smartphone business is essential for billionaire Xiaomi co-founder Lei Jun to realize his electric vehicle ambition. Xiaomi plans to mass-produce its first electric vehicle in the first half of 2024, and its first factory will be in Beijing, Lei said at an October investor event.
The company is also vigorously hiring talents from the automotive industry to strengthen its development capabilities.
“Investors can also start pricing the business value of Xiaomi’s EVs, which we estimate at a theoretical value of HK$3-5 per share, assuming Xiaomi delivers 60,000-90,000 EVs in 2025,” he said. said China Renaissance Securities in a research note.
Xiaomi has pledged to invest $10 billion in the electric vehicle sector over the next decade, joining an already crowded market of players ranging from Tesla Inc. to local brands such as Nio and Xpeng.
“Given its strengths in capital, technology and human resources, we are optimistic about the prospects for Xiaomi’s smart electric vehicle business and expect the company to offer a new engine of growth. “, wrote Hu Peng, analyst of China International Capital Corp. in a research note.
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