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Xiaomi posts increase in revenue and profits for Q2

Xiaomi posts increase in revenue and profits for Q2

Xiaomi recorded a 68% uptick in revenue for the second quarter as it provided a timely reminder to investors that it can deliver strong sales and returns following a challenging IPO in July.

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By Meili Chen 24.08.2018

Chinese smartphone maker Xiaomi recorded a 68% uptick in revenue for the second quarter as it provided a timely reminder to investors that it can deliver strong sales and returns following a challenging initial public offering (IPO) in Hong Kong in July.

Xiaomi is currently enjoying a boom period in Asia, where its cheap smartphones have become popular with price-conscious consumers. It said in its latest report that revenue from overseas markets soared between April and June and that it had generated ¥45.24bn ($6.58bn) overall during the three-month period.

These results are the first since Xiaomi raised more than $5.4bn in its IPO last month, which valued the company at $54bn, some way short of the industry estimates from earlier in the year. Life as a listed company has been difficult for Xiaomi, as shares have slumped by around 20% from a July peak after investors became concerned about the company’s operations.

Smartphones continue to make up the lion’s share of revenue, according to the figures from the latest quarter, with the company’s internet services division and IoT smart devices offering ample support. Xiaomi Founder and Chief Executive, Lei Jun, said that the short-term focus will be on breaking into the smartphone “upmarket” while fleshing out its line of IoT products, which will include robotic vacuum cleaners.

Expanding overseas is also important for the company, and CFO Shou Zi Chew revealed on Wednesday that its “priority new market” will be Western Europe. Xiaomi is already selling smartphones in France, Spain and Italy and should enter a range of other European countries before the end of the year. International sales now account for just over a third of its revenues.

Xiaomi is also the fastest-growing smartphone maker after sales for handsets soared during H2 2017. However, it is still performing behind its rivals in key areas. For example, Apple’s premium iPhone 8 and X can deliver gross margins of 60%, according to analysts, but Xiaomi’s smartphones business comes in at just 8.8%.

“Xiaomi will face some challenges as consumers look to upgrade their low-end devices to more expensive models. Currently, Xiaomi is very strong in the lower price segment,” IDC Analyst Ahmed Mohamed said. He also believes that rivals Oppo and Huawei will continue to provide fierce competition in domestic markets.

“Xiaomi posted somewhat encouraging results today,” Kaiyuan Capital Managing Director Brock Silvers added. However, he admitted that it “may not have done much to assuage concerns about its business model. Xiaomi has billed itself as an Internet company deserving a tech growth multiple, and the market continues to expect evidence of a transformation.”

The internet company billing has been an issue for investors and analysts, as some believe that Xiaomi is a hardware company. Chew addressed that particular point on Wednesday. He said: “We are a new species... we are a combination of internet company, hardware company and ecommerce company, and there's no point trying to [put] us in any traditional bucket.”

Investors will be keeping a close eye on Xiaomi shares in the coming days. The company logged a $1bn loss for the quarter before its initial IPO, and its valuation subsequently limped to $54bn – well below the $100bn target.

Shares have fallen during the previous month, with the company putting the contraction squarely on the ongoing China-US trade conflict, but they have rebounded during the last week. Xiaomi stock finished 1.6% higher on Wednesday as it finally rose above the IPO price of HK$17 ($2.17).

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