<Editor's Pick>Xiaomi is about to advance into the high-end market even though its IOT business shows weakness

来源 / 每日财报

作者 / 逆旅行人

On April 6, 2020, Xiaomi celebrated its 10 years of existence. Founder and CEO Lei Jun wrote on Weibo, "Everything in the past is a prologue. Let us together create a new glory for Xiaomi in the next ten years." 

However, as one of the most controversial mobile phone manufacturers, at the beginning of the new decade, Xiaomi will face more challenges and dilemmas than it did a decade ago, and the road ahead is still difficult.

Xiaomi's mobile phone business is struggling to advance into the high-end market

Xiaomi's new decade is regarded by Lei Jun as a "new start" decade. However, what is different about Xiaomi is that this time its goal is to enter the high-end market. The Mi 10 series which is released not long ago is the start of this new entrepreneurial journey. Unfortunately, the outbreak at the beginning of the year and other difficulties encountered have made Xiaomi's advanced path even worse.

The current epidemic is sweeping the world, and it is still unknown when it will end. In such an environment, Xiaomi, as a multinational company, will certainly be affected to varying degrees in the supply of raw materials and domestic and foreign markets. Especially, the situation in the Western European market and the Indian market is not optimistic, where Xiaomi wants to show its strength.

In addition to the impact of the epidemic, Xiaomi's high-end route is also a challenge to consumers. After all, Xiaomi has been taking the "high cost-effective" route for many years before. Now Xiaomi has greatly increased the price and entered the high-end market, which must be difficult for many consumers to accept in the short term.

Despite this doubt, Xiaomi also launched a solution in 2019, but from the perspective of results, it is not satisfactory. At the beginning of 2019, Xiaomi decided to separate the Redmi brand to continue its "high cost-effective" route. Lei Jun explained Xiaomi's dual-brand strategy in this way: "On the one hand, Redmi inherits Xiaomi's fine tradition and adheres to the "high cost-effective" route. On the other hand, it enables Xiaomi brand to get rid of the price limit, pursue the best experience at any cost, and go all out to rush into the high-end mobile phone market."

From the financial report data, in the first three quarters of 2019, the gross profit margin of Xiaomi mobile phones has increased, from 3.3% in the first quarter to 9.0% in the third quarter, but the fourth quarter fell and returned to 7.8 %. Obviously, the high-end strategy formulated by Xiaomi in 2019 has not been significantly effective, and in terms of the average selling price of mobile phones, in 2019, Xiaomi mobile phones have only increased by 2.2% or 979.9 yuan.

In fact, looking at the entire China's mobile phone manufacturers, it is not just Xiaomi that is taking the high-end route. Other brands have also entered the high-end market. OPPO launched its new products, Find X2 series, whose price is up to 7000 yuan per phone. And iQOO, Realme, Vivo, etc. are competing to release their own new machines iQOO 3, X50 Pro, NEX 3S, successively. The keywords of these new products are high-end, high-configuration, powerful-performance and high-price. By the way, Huawei's folding mobile phone Mate Xs price is up to 16,999 yuan.

Just as China's mobile phone manufacturers are competing to take the high-end route, their rival, Apple, has begun to take the route of dominating the sinking market, which has brought tremendous competitive pressure to Xiaomi's high-end route and other China's manufacturers. According to foreign media sources, the iPhone 9, priced at $399 and equivalent to about RMB 2,800, has begun mass production.

Obviously, this situation is a huge challenge for Xiaomi. A little slacking may lead to a situation that there is no place for Xiaomi in the high-end market and the sinking market may be divided by other mobile phone manufacturers. Therefore, in such an environment, Xiaomi's high-end route can only be more difficult.

Xiaomi's IOT business shows weakness

As the three main businesses of Xiaomi (mobile phones, IOT and consumer life, Internet services), the IOT business has already become the focus of attention. In the annual report released by Xiaomi on March 31, the number of devices connected to the Xiaomi IOT device platform reached 234 million in 2019, a year-on-year increase of 55.6%. Among them, Xiaomi TV is the biggest highlight, with the shipments of 12.8 million in 2019, a year-on-year increase of nearly 52%, and a market share of 20%.

However, overall, the growth rate of Xiaomi's IOT business has slowed down significantly. MeiRiCaiBao (ID: meiricaibao) noticed that the growth rate of the IOT sector in the fourth quarter was 30.5%, while in the first half and the third quarter, this data was 49.3% and 44.4%, a drop from the previous month.

Similarly, although the number of devices connected to the IOT device platform by Xiaomi has reached 234 million, a year-on-year increase of 55.6%, compared with 193.2% in 2018, this growth rate has clearly dropped significantly. The growth rate in the first half of 2019 also fell by more than 10%.

In recent years, whether smart homes are just needed is questioned endlessly, which has also adversely affected the development of IOT business. At present, the purchase of Xiaomi's these products is still limited to a small number of people, who have more and more smart products in their homes, and the number of new users is obviously very small. It has to make people worry whether Xiaomi's IoT business has encountered a bottleneck.

The core technology is still Xiaomi's biggest weakness

With the advent of the 5G era, the key for Xiaomi to maintain its position in the 4G era lies in the competitiveness of mobile phone products, which depends on the performance of the product and the breakthrough of technology.

In February last year, at the meeting of the establishment of the Xiaomi Technical Committee, Lei Jun said: "To continue to strengthen the technical establishment, technology is related to the future of Xiaomi, which is the most important driving force and engine for Xiaomi's sustainable development." It can be seen that Xiaomi's senior management is aware of the importance of technology, but objectively speaking, Xiaomi has not got rid of its original essence, and the core technology is still its biggest weakness.

The chip is the core of mobile phone innovation. Currently, the only mobile phone manufacturers that can self-develop chips are Apple, Samsung and Huawei. In addition to Xiaomi, OPPO has also launched a self-developed chip plan. But it took Huawei decades to achieve its current results. Therefore, if other companies want to achieve the goal, it will have a long way to go.

In 2019, Xiaomi's R & D investment reached 7.5 billion yuan, accounting for about 8% of total revenue, a year-on-year increase of 30%. However, if this data is compared with Huawei, Xiaomi's investment in technology research and development is just a start. According to the latest annual report data released by Huawei, its R & D expenditure in 2019 is 131.7 billion yuan, accounting for 15.3% of the annual sales revenue.

Previously, Xiaomi had repeatedly emphasized that it is not a hardware company but an Internet company, but so far, many people still do not agree with this idea. And they believe that the essence of Xiaomi as a hardware company has not changed. The main reason is that Xiaomi has not formed its own core technology.

But in any case, the establishment of Xiaomi does have a huge impact on the Chinese mobile phone market. It not only accelerates the popularization of smartphones in the country, but also affectes a generation of mobile Internet users. As for what kind of company Xiaomi is and whether it can have its own core technology, it may take another ten years before the answer can be given.

This is an article from WeChat official accounts MeiRiCaiBao (ID: meiricaibao), written by NiLvXingRen, translated by Chris Yuan.