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Nikkei Markets

Xiaomi aims to boost share in shrinking smartphone market

Pricier handset models and surging internet device sales help swing to 1Q profit

Against that backdrop, Xiaomi on Monday reported a 16.2% increase in revenue from the smartphones segment by stoking demand for its newer, more expensive models.    © Reuters

HONG KONG (Nikkei Markets) -- Handset maker Xiaomi on Monday said it is aiming to take a bigger share of the market in China and further diversify its overseas presence to sidestep a prolonged downturn in demand for smartphones.

The Beijing-based company, the world's fourth-largest smartphone maker by sales volume, has been rapidly expanding its presence in overseas markets. At the same time, it has been gaining share in China by selling pricier models even as the global market has continued to contract.

Worldwide smartphone sales fell 6.6% in the first quarter from a year earlier - a sixth consecutive quarterly decline according to preliminary data from the International Data Corp. - as consumers have been pushing back purchases or upgrades while awaiting the next generation of handset devices. Overall smartphone shipments in China fell an even steeper 15%, according to IDC.

Against that backdrop, Xiaomi on Monday reported a 16.2% increase in revenue from the smartphones segment by stoking demand for its newer, more expensive models. While sales volume declined by about 2%, its average selling price for smartphones climbed more than 18% to 968.3 yuan per unit. Citing third-party research, the company said its market share in China has risen for three straight months to reach 11.8% in March.

Xiaomi said that while smartphone shipments in China fell in the last quarter, it believes government stimulus, including the reduction of a value added tax, will "greatly benefit" the local smartphone market. In the overseas market, meanwhile, it plans to step up efforts to build its retail network while exploring newer markets such as Africa and Latin America.

"Before the 5G 'spring' comes, smartphone sales have a bit of a decline," Chief Financial Officer Chew Shou Zi said on a conference call after detailing the first-quarter results. The company, however, will adopt a multi-brand strategy and focus on "expanding our business in selected markets" such as India, he added.

Xiaomi, the market leader for smartphones in India, earlier on Monday reported a net profit of 3.13 billion yuan for the three months ended Mar. 31, compared with a loss of 7.01 billion yuan a year earlier. Profitability weakened, however, with gross margins slipping to 11.9% from 12.5%.

Revenue grew more than 27% to 43.76 billion yuan as sales of its internet connected devices surged 56.5% while revenue from its internet services business, which includes advertising services, jumped nearly 32%.

The company said it will continue to invest more to develop its artificial intelligence-powered internet-of-things platform to strengthen the appeal of its product offerings. At the same time, it is betting its past investments will usher in a "sustainable" revenue stream.

Xiaomi's investments, spanning more than 270 companies, had a book value of 29 billion yuan as of March 31. Since 2018, 10 of its investee companies, including online video streaming company iQiyi, have gone public, and the company signaled it is hoping others will follow suit.

The company will trim its holdings in the investee companies at the "right time" in future, Chew said.

Xiaomi shares slid 2.7% in Hong Kong on Monday before the company declared its results. The city's benchmark Hang Seng Index lost 0.6%.

-- Amy Lam & Lopamudra Bhattacharya

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