Xiaomi Smartphone: High-End Strategy Takes Effect, But Gross Margin Declines, How to Respond in the Future?

Xiaomi Smartphone: High-End Strategy Takes Effect, But Gross Margin Declines, How to Respond in the Future?Despite the much-anticipated Xiaomi automotive business, Xiaomi's financial reports reveal that smartphones, IoT, and internet services remain the company's solid revenue pillars. Xiaomi Chairman and CEO Lei Jun hailed the second-quarter earnings as "the best in Xiaomi's history," driven by the continued growth of Xiaomi's smartphone business

Xiaomi Smartphone: High-End Strategy Takes Effect, But Gross Margin Declines, How to Respond in the Future?

Despite the much-anticipated Xiaomi automotive business, Xiaomi's financial reports reveal that smartphones, IoT, and internet services remain the company's solid revenue pillars. Xiaomi Chairman and CEO Lei Jun hailed the second-quarter earnings as "the best in Xiaomi's history," driven by the continued growth of Xiaomi's smartphone business.

Smartphone Business: High-End Strategy Pays Off, "Price for Volume" in Overseas Markets

Xiaomi's smartphone business revenue reached 46.5 billion yuan in the second quarter, a year-on-year increase of 27.1%, accounting for 52.31% of total revenue, firmly establishing its position as Xiaomi's core business. Xiaomi smartphones performed exceptionally well in the global market, with shipments reaching 42.3 million units, a 27.2% year-on-year increase, securing the third spot in global market share, trailing only Samsung and Apple.

Xiaomi's global market growth is attributed primarily to continuous expansion in overseas markets. In emerging international markets like Latin America, Africa, India, the Middle East, and Southeast Asia, Xiaomi smartphones have achieved market share growth through a "price for volume" strategy, even reaching the top two positions in Latin America.

In contrast, Xiaomi's performance in the domestic market has been relatively subdued. The domestic market is fiercely competitive, and Xiaomi's smartphone market share stands at 14.2%, ranking fifth. While Xiaomi has made some progress in the domestic smartphone market, its high-end strategy has led to a diminished presence in the lower-profit thousand-yuan phone segment, impacting its market share.

Although Xiaomi's high-end strategy has shown progress, the overall average selling price of Xiaomi smartphones has not significantly changed due to faster sales growth overseas.

Declining Gross Margin: Balancing High-End Strategy with Promotional Tactics

It is worth noting that Xiaomi's smartphone gross margin has declined, dropping from 14.8% in the first quarter to 12.1% in the second quarter.

Xiaomi's high-end strategy aims to elevate profitability, but the decline in gross margin is attributed to the Redmi Turbo 3 series, which was the main focus in the quarter, as well as promotional tactics during the 618 shopping festival. The Redmi Turbo 3 series has diluted the gross margin benefits brought by high-end models, while Xiaomi intentionally sacrificed some profit during the 618 festival to secure sales revenue growth.

Xiaomi's smartphone market share has stabilized, and the future relies on the high-end strategy to counter stagnant sales. The Xiaomi MIX Fold 4, Xiaomi MIX Flip, and the upcoming Xiaomi 15 series launched in July will be key products in boosting Xiaomi's high-end market share.

Looking Ahead: Key Directions for the Smartphone Business

Xiaomi's smartphone business will continue to compete in terms of materials, screens, fast charging, performance, and imaging, while also exploring new product categories to achieve growth.

Foldable smartphones are a crucial direction for the future of the smartphone industry, and Xiaomi will aim for a dominant position in this rapidly growing category with the Xiaomi MIX Fold 4, Xiaomi MIX Flip, and future products.

The competition in AI smartphones will center on the underlying operating systems and chips. The launch of Xiaomi's Pangu OS, integrating all products within its ecosystem, will build a "whole ecosystem of people, cars, and homes," becoming a significant competitive advantage for Xiaomi in the AI era.

Imaging smartphones will also be a significant area of competition. The Xiaomi 14 Ultra, with its collaboration with Leica, achieved success, and the future Xiaomi 15 series will continue to make strides in imaging.

In summary, Xiaomi smartphones are the company's core business, and their development will directly impact Xiaomi's overall growth. While Xiaomi's automotive business is rapidly expanding, Xiaomi smartphones continue to play a critical role in the global smartphone market. To sustain its market competitiveness, Xiaomi needs to further solidify its high-end strategy and explore new categories such as foldable, AI, and imaging smartphones.

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