The rise and rise of Xiaomi - TechCentral

The rise and rise of Xiaomi

Xiaomi’s quarterly profit beat estimates after the world’s third largest smartphone maker narrowed the gap with market leaders Samsung Electronics and Apple in shipments.

The Beijing-based company posted an adjusted net income of C¥6.07-billion (US$949-million) in the quarter ended March, surpassing the highest estimate of ¥5.3-billion. Revenue jumped 55% to C¥76.9-billion, according to a filing to the Hong Kong Stock Exchange Wednesday. That compared to the C¥74.7-billion average of analyst estimates.

Billionaire co-founder Lei Jun is seeking new battlegrounds for the 11-year-old company that has already expanded from smartphones to a wide spectrum of consumer electronics, including smart TVs and laptops. The entrepreneur in March unveiled a $10-billion foray into car making, embarking on its biggest-ever overhaul.

On Wednesday, a US court issued a final order that formally removed sanctions that could have blocked American investment in Xiaomi. The company had been accused of alleged links to China’s military in the waning days of the Trump administration, though it disputed that charge and sued the US government. The defence department has agreed that a final order vacating the designation “would be appropriate”, according to a May legal filing.

The court order marks a rare victory for China’s technology giants caught in the crosshairs of the US government, which had under former President Donald Trump targeted scores of Chinese tech companies over national security concerns. Huawei Technologies, once among Xiaomi’s biggest rivals in smartphones, was cut off from its key suppliers as a result of a series of restrictions imposed by the US.

Blacklisting

The lifting of the US blacklisting means Xiaomi can now focus on growing its businesses, including in smartphones — responsible for roughly 60% of company’s revenue — as well as nascent endeavours like smart cars. The company had shipped 48.6 million handsets worldwide in the first three months of the year, a 64.8% increase from a year ago and the fastest growth among the top five vendors, according to research firm International Data Corp.

Xiaomi remains among “the biggest beneficiaries from Huawei’s smartphone retrenchment”, Bloomberg Intelligence analyst Matthew Kanterman wrote in a research note ahead of the earnings release.

Lei is also joining tech leaders from Apple’s Tim Cook to Huawei’s Ren Zhengfei in the already crowded electric vehicles market. Calling it his last start-up endeavour, he set up a standalone unit inside Xiaomi to focus on development of next-generation EVs. It’s said to mulling over a C¥1.5-billion joint investment in auto driving chip-maker Black Sesame Tech as an attempt to broaden its reach in the sector.

A portion of Xiaomi’s campus in Beijing, China. Image: Plerxemo (CC BY-SA 3.0)

EV sales could bring C¥18-billion in sales for Xiaomi by 2030, a “modest opportunity” given the company’s 2020 revenue was north of ¥245-billion, according to Kanterman.

“Given Xiaomi’s strategic focus on mass-market products, we think a lower price point than Tesla or Nio would make sense,” he added.

Those efforts may be hampered by a global semiconductor shortage that is affecting production in areas from videogame consoles to cars. Chip lead times — the gap between ordering a chip and taking delivery — have climbed to the highest since 2017, forcing manufacturers to idle plants and fuelling a shortage of key consumer goods. Still, Xiaomi is likely to suffer less than smaller brands because its strong supply chain could lead to market consolidation, according to Citigroup analysts Andre Lin and Arthur Lai.

“Under the tight supply situation, improved product mix and fewer promotional activities could help on margins and mitigate the impact from higher component price and lost sales opportunity,” the analysts wrote in a note.  — (c) 2021 Bloomberg LP

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