CHAIRMAN’S LETTER TO INVESTORS, 2019

Dear investors and friends:

The world is still under the dark shadows of COVID-19 pandemic, and during this difficult time, nothing is more important than your well-being. As such, I sincerely wish good health for you and your loved ones.

We have just released our full year financial results for the year ended December 31, 2019. Besides reporting on our growth, I believe it is equally important for us to share our vision and strategies on how we can overcome economic “black swan” events.

A year of prudent management and proactive progress 

In 2019, Xiaomi exceeded RMB200 billion in revenue for the first time, reaching RMB205.8 billion, an increase of 17.7% year-on-year, as well as adjusted net profit of RMB11.5 billion, an increase of 34.8%. Against the backdrop of uncertainties related to Sino-US trade tensions, Xiaomi’s commendable results stood out in strong contrast.

In 2019, Xiaomi hit a series of significant milestones. We made our inaugural entry into the Fortune Global 500 list, becoming the youngest company on the list. We entered BrandZ’s global brand TOP100 for the first time, ranking 74th. We also accomplished an unprecedented record, becoming the first smart TV brand to ship more than 10 million units annually in China ever.

Foresight, confidence, resilience and strong execution are key to our continued progress

Mobile telecommunications is at a critical juncture globally, as the industry transitions from 4G to 5G. We have adopted a sound business strategy, focusing on product quality, innovation, and delivery, while making key adjustments to our brands, product portfolios, organizational structure, and management systems. Combined together, these initiatives have paved a solid foundation for our future.

We have officially launched a dual-brand strategy for our smartphones business, with the brand separation of Redmi from Xiaomi. Their independent operations have brought us great success. Our market share is consistently ranked among the top four globally, while our healthy and prudent inventory levels have enabled us to step forward boldly with our 5G game plan.  At the end of 2019, close to half of our revenue are derived from overseas markets, making Xiaomi a truly global company. Our Internet Services business has become more dynamic and diverse, while our AIoT business maintained its global leadership, becoming recognized across our industry as a “first mover in smart living”.

Business success on the back of technological innovation

At Xiaomi, we firmly believe that our business success is underpinned by technological innovations, and to that effect, we have continually increased our R&D investment. In 2019, our R&D investment reached RMB7.5 billion, a 29.7% year-on-year increase on the back of substantial R&D expansion for the three prior years. In 2020, we expect our R&D investment to increase to RMB10 billion.

At the same time, we are also proactively attracting top R&D talent from around the world. Recently, we have successfully recruited Daniel Povey, a top international expert in artificial intelligence, to join Xiaomi. Starting from 2019, we have set up the Xiaomi Annual Technology Award, which awards a US$1 million bonus to core R&D project personnel with the highest technical achievements each year. Last year, the award was shared by 10 engineers from the Xiaomi MIX Alpha project.

Our strategic roadmap of “5G+AI+IoT and next generation super internet”

To us, 5G is not merely about a faster smartphone network, while AIoT is also not just about AI technologies or IoT platforms. Instead, “5G+AIoT” will be a revolutionary combination that will fundamentally change all Xiaomi’s products, platforms and user scenarios, catalyzing the next stage of our growth in the next generation of Internet era. At the start of last year, we first proposed our “All in AIoT” initiative, allocating an investment of RMB 10 billion in AIOT over the next five years. One year in, we believe we are moving in an important strategic direction. As such, we will increase our investment to at least RMB 50 billion over the next five years in “5G+AIoT”, to ensure our absolute dominance over the new smart living era.

This bold initiative will enable us to create greater value for you and is a tangible reflection of the philosophy we adhere to: By making a connected world a reality for billions of people globally. We believe technology can be a force for good to improve lives everywhere.

We firmly believe that a connected world is better than an isolated one. We also firmly believe in the economic value created by global collaboration, and how the world can truly change when technology is freely accessible.  During the COVID-19 outbreak, as we witnessed people in isolation connecting with their family, loved ones and even their pets through their smart devices, we could feel the very human desires to connect and to care.

It is famously said that no man is an island. At Xiaomi, we deeply believe in this. As we build the next generation super internet, we will continue to use technology to connect and improve lives everywhere.

Operational efficiency as the ultimate way to overcome crises 

While our industry and the entire world are currently facing huge challenges, we have absolute confidence in navigating through these extraordinary times together with our partners. During this period of adversity, the strength of our operational efficiency will be more obvious than ever.

At Xiaomi, we have always been very focused on efficiency. We believe that the pursuit of efficiency is an exercise in self-discipline and contingency planning.

Having experienced the SARS epidemic and global financial crisis in 2003 and 2008 respectively, my colleagues and I know crises are the ultimate litmus test that separates successful companies from others. Our efficient operations, strong execution capabilities and consumer trust will enable us to seek out opportunities during crises and stay on a sustainable growth trajectory.

During our IPO, we said that a company that is able to achieve world-class efficiency will have the ability to survive multiple economic cycles, continuously seize new opportunities and sustain excellent operational performance in the long run. Now more than ever, we want to reiterate this.

We are also safeguarding our competitiveness through a series of organizational restructuring. Over the past year, we have established the Department of Group Organization to improve our management processes. We have also set up our employee training campus and ramped up our college recruitment efforts. These initiatives form a key part of our overall effort to grow and sustain our operational efficiency.

In the face of challenges, perseverance is key

Our mission is to relentlessly build “amazing products with honest prices” to let everyone in the world enjoy a better life through innovative technology. In order to ensure that we stay true to our mission, our board of directors passed a special resolution before our IPO last year. According to the resolution, we pledged to our existing and potential users that the overall net profit margin of Xiaomi’s hardware business will never exceed 5%.

A commitment to our consumers and a testament to our efficiency

As we stay true to our commitment to our users, we are pleased to share that, similar to last year, our hardware business net margin in the year ended December 31, 2019 maintained positive and less than 1.0%.

It is also worth highlighting that Xiaomi as a standalone smartphone brand has been re-launched early last year. With the release of Mi 9, Mi 9 5G and Xiaomi CC 9 Pro last year, and the release of the Mi 10 series earlier this year, it is proven that the Xiaomi brand can move upscale while continuing to win over our users via “amazing products at honest prices”.

Despite the impact of COVID-19, we remain optimistic about our future prospects. To date, our supply capacity has recovered to 90% of normal levels and we are seeing light at the end of the tunnel in China. Fortune favors the brave and this year, Xiaomi will continue to act swiftly and decisively.

In a few days, we will celebrate our tenth anniversary on April 6th. Over the past ten tumultuous years, Xiaomi has created a series of miracles. In the next ten years, we will continue to steadily move forward, turning Xiaomi’s vision into reality. Thank you for trusting us, investing in us, and joining us in our journey to let billions of people around the world enjoy better lives through innovative technology.

 

Lei Jun

Chairman

March 31, 2020

Xiaomi’s Revenue Exceeds RMB200 Billion in 2019

All Segments Grow Despite Headwinds, Adjusted Net Profit of RMB 11.5 billion

Both Beat Consensus

***

Strengthen Leading Position in Smart Living Market, Driven by Successful

“Smartphone + AIoT” Dual-Engine Strategy

 

 

Hong Kong, March 31, 2020 — Xiaomi Corporation (“Xiaomi” or the “Group”; Stock Code:1810), an internet company with smartphone and smart hardware connected by an Internet of Things(“IoT”) platform at its core, today announced its audited consolidated results for the year ended December 31, 2019.

In 2019, Xiaomi achieved solid growth across all business segments. The Group’s total revenue exceeded RMB200 billion for the first time, reaching RMB205.8 billion, up 17.7% year-on-year (“YoY”), representing a 9-year CAGR of 112%. Adjusted net profit was RMB11.5 billion, up 34.8% YoY.

In the fourth quarter of 2019, Xiaomi’s total revenue grew by 27.1% to RMB56.5 billion. Adjusted net profit was RMB2.3 billion, increasing by 26.5% YoY.

2019 Financial Highlights

  • Total revenue was approximately RMB205.84 billion, up 17.7% YoY beat market consensus;
  • Gross profit was approximately RMB28.55 billion, up 28.7% YoY;
  • Non-IFRS adjusted net profit was RMB11.53 billion, up 34.8% YoY, beat market consensus;
  • Earnings per share were RMB0.0423;
  • The aggregate amount of cash resources was RMB66 billion.

4Q2019 Financial Highlights

  • Total revenue at historical high of approximately RMB56.47 billion, up 27.1% YoY, the best performing quarter of the year;
  • Gross profit was approximately RMB7.84 billion, up 38.5% YoY;
  • Non-IFRS adjusted net profit was RMB2.34 billion, up 26.5% YoY.

Xiaomi Founder, Chairman and CEO Mr. Lei Jun said, “Despite headwinds from the Sino-US trade war and global economic downturn, Xiaomi stood out in 2019 with a commendable set of results as our revenue exceeded RMB200 billion for the first time. We also celebrated several key milestones, ranging from the successful launch of our dual-brand strategy as Xiaomi and Redmi are spun-off and independently operated, the affirmation of ‘5G+AIoT’ as our strategic roadmap, to our inaugural entries into the prestigious ranks of the Fortune Global 500 and BrandZ’s Top 100 Most Valuable Global Brands.”

“While the entire world is still under the dark shadows of COVID-19, we have maintained our keen focus on efficiency to tide over this economic ‘black swan’ with everyone. At Xiaomi, we firmly believe that our long-term business success is underpinned by technological innovations, and to that effect, we plan to invest RMB50.0 billion in the next five years, as we relentlessly focus on technological innovation and user experience to grow our loyal Mi Fan base. Overall, we remain committed to using technology to connect and improve lives everywhere in future.”

Annual Performance Review

Multi-Brand Strategy Off to a Good Start

Smartphone Business Seized 5G Market Share

In 2019, Xiaomi’s revenue of the smartphones segment reached RMB122.1 billion, up 7.3% year-over-year. In the fourth quarter of 2019, revenue of the smartphones segment was RMB30.8 billion, an increase of 22.8% year-over-year. For 2019, Xiaomi shipped 124.6 million units of smartphones while in the fourth quarter, shipments were approximately 32.6 million, up 30.5% year-over-year. According to Canalys, for the fourth quarter of 2019, Xiaomi achieved the highest year-over-year smartphone shipments growth among the top five smartphone companies.

Since January 2019, Xiaomi and Redmi were separated into two standalone brands to operate, and the dual-brand smartphone strategy has made solid progress during the year. The Redmi brand continued to pursue the ultimate price-performance ratio across different price points and make innovative technologies readily accessible to the mass market.

According to Canalys, the Redmi Note 7 was the best-selling smartphone model among all models made by Chinese companies in terms of global shipments in 2019.  In December 2019, Redmi launched its first 5G smartphone, Redmi K30 5G, with pricing starting from RMB1,999, making it the first 5G smartphone priced below RMB2,000, accelerating the adoption of 5G smartphones by a larger population.

The Xiaomi brand, on the other hand, focuses on pioneering advanced technologies and successfully established a solid foothold in the premium smartphones segment. It launched the flagship 5G smartphone models the Mi 10 and Mi 10 Pro in February 2020. The Mi 10 Pro received the highest scores from DxOMark for overall camera, video and photography performance.

In 2019, the average selling price (“ASP”) of the Group’s smartphones increased by 2.2% year-over-year. and the gross margin of the smartphone segment increased to 7.2% from 6.2% in 2018. In 2020, Xiaomi will continue to focus on 5G smartphones development and strengthen its presence in the premium smartphones segment, which will lead to further ASP expansion.

IoT Business Growing from Strength to Strength

2019 is the first year for the Group’s implementation of its “Smartphone + AIoT” dual engine strategy. In 2019, Xiaomi’s revenue of the IoT and lifestyle products segment was RMB62.1 billion, an increase of 41.7% year-over-year and accounted for 30% of the total revenue from 25% in 2018. In the fourth quarter of 2019, revenue was RMB19.5 billion, up 30.5% year-over-year.

In 2019, the annual Xiaomi smart TVs shipments in mainland China exceeded 10 million units, which is believed to set an unprecedented result in China’s TV industry. The global TV shipments reached 12.8 million units, up 51.9% year-over-year. According to AVC, Xiaomi TV shipments ranked first in mainland China and fifth globally in 2019. Xiaomi also ranked first in India in terms of smart TV shipments for seven consecutive quarters as of the fourth quarter of 2019, according to IDC.

As one of the world’s leading consumer IoT platforms, Xiaomi continued to expand its IoT user base. As of December 31, 2019, the number of connected IoT devices (excluding smartphones and laptops) on our IoT platform reached 234.8 million units, an increase of 55.6% year-over-year. Xiaomi AI assistant “小愛同學” had over 60.4 million MAU in December 2019, an increase of 55.7% year-over-year. In December 2019, MAU of MIUI increased by 27.9% year-over-year to 309.6 million.

According to Canalys, Xiaomi was the world’s largest smart wearable device (including smart watch and wristband) brand in 2019 by shipments. Besides, Xiaomi’s IoT products won over 50 renowned design awards around the world in 2019.

Nearly Half of Total Revenue from Overseas Markets 

In 2019, Xiaomi’s revenue from overseas markets was RMB91.2 billion, up 30.4% year-over-year. In the fourth quarter of 2019, overseas revenue grew 40.7% year-over-year to RMB26.4 billion, accounting for 46.8% of total revenue. Currently, Xiaomi products are present in more than 90 countries and regions around the world. According to Canalys, Xiaomi’s smartphone shipments ranked top five in 45 countries and regions in 2019.

In the fourth quarter of 2019, Xiaomi was the largest smartphone brand in India by shipments for ten consecutive quarter, capturing a market share of approximately 28.7%, according to IDC.

In the Western Europe, Xiaomi continued to expand market share. According to Canalys, Xiaomi smartphone shipment in the region grew 115.4% year-over-year in the fourth quarter of 2019. Its smartphone shipments in Spain, France and Italy grew by 65.7%, 69.9% and 206.2% respectively.

In 2019, Xiaomi’s overseas IoT revenue grew rapidly, driven by the robust sales of the best-selling IoT products in overseas markets, including our smart TVs, wristbands, TWS earphones and electric scooters.

Diversified Internet Services Contributing Further to the Group’s Revenue

In 2019, Xiaomi’s revenue from Internet Service reached 19.8 billion, up 24.4% year-over-year. For the fourth quarter, revenue was RMB5.7 billion, up 41.1% year-over-year. In December 2019, the global monthly active users(“MAU”) of MIUI increased by 27.9% year-over-year to 309.6 million with mainland China’s MAU of MIUI standing at 109 million.

Xiaomi continued to make progress in diversifying revenue sources for Internet Services. For the fourth quarter of 2019, its Internet Services revenue outside of advertising and gaming from mainland China smartphones(including those generated from the Youpin e-commerce, fintech, TV internet services and overseas internet services) increased by 112.6% year-over-year and accounted for 43% of total internet services revenue, driving the growth of the internet business. In the fourth quarter, advertising revenue and gaming revenue were RMB3 billion and RMB874.4 million respectively, up 17.8% and 44.4% year-over-year respectively.

Impact of Covid-19 Outbreak

In early 2020, the COVID-19 epidemic spread across the world, Xiaomi experienced temporary disruption in production in February and March 2020, but the production capacity has since recovered to 80% – 90% of normal levels.

For mainland China market, during the peak of the outbreak, Xiaomi’s offline sales were affected as most of Mi stores were closed or operated at shortened hours with significantly lower customer traffic. However, due to its advantages in online channels, Xiaomi is relatively less affected.

For overseas market, with a strong global foothold and continuous expansion into new markets, Xiaomi remains optimistic about the long-term potential of the overseas markets.

Notably, user traffic of Xiaomi’s internet services, such as video and online games, recorded solid growth as people stay at home.

Investment and Development Strategy

As of December 31, 2019, Xiaomi had invested in more than 290 companies with an aggregated book value of approximately RMB30.0 billion. In February 2020, Roborock, one of Xiaomi’s investee companies, was successfully listed on the Science and Technology Innovation Board of Shanghai Stock Exchange (“STAR Market”) in China, becoming its first ecosystem investee company to list on the STAR Market. By expanding the ecosystem, Xiaomi will accelerate the rollout of new complementary products and services, enabling the Group to grow its user base in mainland China and globally.

 

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About Xiaomi Corporation

Xiaomi Corporation was founded in April 2010 and listed on the Main Board of the Hong Kong Stock Exchange on July 9, 2018 (1810.HK). Xiaomi is an internet company with smartphones and smart hardware connected by an IoT platform at its core.

With the vision of being friends with its users and being the “coolest company” in the hearts of its users, Xiaomi is committed to continuous innovation, with an unwavering focus on quality and efficiency. The company relentlessly builds amazing products with honest prices to let everyone in the world enjoy a better life through innovative technology.

Xiaomi is currently the world’s fourth-largest smartphone brand, and has established the world’s leading consumer IoT platform, with more than 235 million smart devices connected to its platform, excluding smartphones and laptops. Currently, Xiaomi is present in more than 90 countries and regions around the world, and has a leading foothold in many of them.

In July 2019, the company made the Fortune Global 500 list for the first time, ranking 468th among all, and 7th among internet companies. Xiaomi is the youngest company on the 2019 Fortune Global 500 list.

For more information about Xiaomi, please visit our blog http://blog.mi.com/en/

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