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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, everyone. Welcome to Xiaomi Corporation 2019 First Quarter Result Conference Call. I'm Steve Lin, the Director of Corporate Finance at Xiaomi.
Before we start the call, we would like to remind you that it may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons.
Information about general market condition is coming from a variety of sources outside of Xiaomi. This presentation also contain some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute, for company's financial prepared in accordance with IFRS. Now joining us on the call today are our Founder, Chairman and CEO, Mr. Lei Jun; Senior Vice President and CFO, Mr. Shou Zi Chew; and today, we also have Vice President and Managing Director of Xiaomi India, Mr. Manu Jain; and Vice President and Chairman of Technical Committee, Mr. Cui Baoqiu.
Now I will turn the call over to Mr. Shou Zi Chew.
Good evening, everybody, and thank you very much for joining us on this call. In the next few minutes, myself, Manu, and Dr. Cui will walk us through some of the key highlights for Q1 2019 and then we will follow up with Q&A session with everybody. As always, thank you for your continued support of Xiaomi.
First of all, in terms of overall financial highlights for Q1 2019, our total revenue for this quarter was RMB 43.8 billion, achieving a year-on-year growth of 27.2%. Our adjusted net profit was RMB 2.1 billion, achieving year-on-year growth of 22.4%. We believe this has met our internal expectations and is slightly above Bloomberg consensus. Q1 2019 was the first quarter that Xiaomi and Redmi were operated as independent brands. As many of you may remember, Redmi is focusing on finding the optimal price-to-performance ratio and with the focus on online channels, while Xiaomi brand will continue to focus on innovation and bring the most extreme user experience to our users.
After a period of calibration in Q4 2018, where we launched Mi Mix 3, we launched a series of new smartphones in Q1 2019. First, starting from Redmi, we launched our Redmi Note 7 handset in January 2019, followed by Redmi Note 7 Pro and Redmi 7 in March 2019. All these phones enjoyed a great fanfare and reception from our users globally.
As of the end of Q1 2019, our Redmi Note 7 series phones had achieved shipment of over 4 million units. As far Xiaomi, we launched our flagship phone, Xiaomi 9, in February 2019. Now this is a phone that has a lot of cutting-edge technology, pioneering the way for a lot of innovative use cases. For example, it has fingerprint on display. It has a 48-megapixel triple camera and 20 watts quick charge, supporting including wireless charging.
Xiaomi 9 series was also very successful. And at the end of Q1 2019, we had already supplied 1.5 million units of Xiaomi 9 series phones, with shipments achieving 1.5 million units shortly after in April 2019.
Now as a result of this multi -- the execution of this multi-brand strategy and as a result of the collective hard work of all Xiaomi employees, our Mainland China smartphone market share increased every single month in Q1 2019 according to a third-party research analyst. Now apart from smartphones, we also announced our Smartphone plus AIoT dual-engine strategy earlier in 2019. Today, we have the leading global consumer IoT platform. Our connected device, excluding smartphones and laptops, has reached 171 million devices. This is a year-on-year growth of over 70%. Today, more than 2.6 million users have more than 5 Xiaomi IoT devices, excluding smartphones and laptops.
One of the most representative products of the AIoT era is the AI speaker product. As of the end of March 2019, we have over 10 million accumulated AI speaker shipments. According to Canalys, in Q4 2018, our AI speaker shipments was #2 in China and #4 globally. Today, our AI assistant [Foreign Language] has 45.5 million monthly active users. The focus that we will put on is on improving user experience and creating more smartphone use cases. For example, in our recent smart TV launch event in China, we displayed the possibilities of using all our devices when they seamlessly connect and create experience use cases with each other. For example, if you are using our smart doorbell and our smart TV, if you are watching TV and someone rings your doorbell, the image from the doorbell can be projected onto your TV, and this is actually -- this is very convenient. We have created and will continue to invest on creating more smartphone use cases as we feel we have the responsibility to pioneer them.
Today, our AI assistant has more than 1,400 skills. In a little bit, we will invite Dr. Cui, our Head of our Technical Committee to give everybody an update on our AI -- our overall AI road map as well.
In terms of our international business, we are now ranked top 5 in more than 40 smartphone markets globally. Of which, the market that over the last few years, we have experienced very fast growth globally, but our focus is to be sure that we build our own deep capabilities in many of the key markets. And today, it is a pleasure to have Manu Jain, Vice President and Managing Director of Xiaomi India to share with you more information.
Just to give you an introduction of Manu, he has a bachelor's degree from IIT Delhi, an MBA from IIM Calcutta, worked at McKinsey for a number of years before starting his own fashion e-commerce company, Jabong. Manu joined us almost exactly 5 years ago, and he is the most senior employee in terms of time in Xiaomi India.
So let me turn over the time to Manu.
Thank you, Shou. Hi, everybody. This is Manu here. So it's my great pleasure to be here today with all of you guys. So as Shou mentioned, Xiaomi India journey started about 5 years ago in July 2014 when we launched the first phone in the country. And in a short period of 3, 4 years, we became the most loved technology brand in the country. We have launched 8 categories in India till now, and we're already #1 in 4 of these categories. So today, we are the largest brand in the country across smartphones, smart TV, fitness variables and power banks.
Let's talk about each one of them. The first one is smartphones. So now we have been #1 for 7 consecutive quarters. We became #1 in exactly 3 years from when we launched. We launched in Q3 2014. And by Q3 2017, we had become the largest brand in the country. And for last 7 quarters, every single quarter, we have been the largest and #1 brand in the country. If you look at the IDC numbers, for last year, which is entire year 2018, IDC estimates that we shipped more than 40 million devices, and we had about 29% market share in the country. While Samsung, which is the #2 brand, shipped about 32 million devices and had about 22% market share.
Not just we were the -- not only we were the largest brand in the country, but we were also the fastest-growing smartphone brand amongst our top 5 brands and we grew at a whopping 58% year-on-year from 2017 to 2018. Again, this Q1, we were the largest brand. And this time, we crossed the 30% market share. And we had approximately 31% market share in the smartphone industry in India. And we were 36% bigger than the second largest brand, which was Samsung. And we were 133% bigger than the third largest brand in the company, which is Huawei.
Now we started building our business 5 years ago in online. And for the first 3 years, we were mainly focused on the online segment, and we have literally spent almost close to 0 marketing dollars. Now in the online segment, we have been #1 brand for 10 consecutive quarters. And if you look at the entire 2018 data from IDC, we had a 51% market share, which means if there are 2 people who go online and buy a smartphone, 1 out of 2 are Xiaomi customers. And there was a huge difference between us and the second or third largest brand. We were about 7x bigger than the second largest brand in the online segment and about 8x bigger than the third largest brand in the online segment, which are Realme and Samsung.
Two years ago, we realized that online is about 1/3 of the market share, and we already have 50% market share over there. And we started building our off-line channel, and we have seen an exponential growth in our off-line business also. In a short period of 2 years, from Q2 2017 till end of last year or beginning of this year, it already grown from less than 3% market share within off-line segment to more than 20%.
So let me just reiterate. So we have 20% market share in off-line, 50% market share in online. And overall India, online plus off-line put together about 31% market share. We've been entering many new categories. For example, smart TVs. We just launched it last year in February 2018. And within 6 months, we became the #1 smart TV brand in the country. And for last 3 quarters, every quarter, we have been the largest smart TV brand. Today, we have about 34% market share within the smart TV category versus LG having 17%, Sony 15% and Samsung 13%. So we are almost 2x bigger than the second largest brand within the smart TV category.
In variables, we have Mi Band. We sell 2 different variants: Mi Band 3 and Mi Band HRX, 2 products in India. And we have a whopping 41% market share. And we are more than 2x bigger than the second largest brand, which is an Indian startup. We are more than 2x bigger. While we are selling a lot of these devices, many Indian customers really worry about aftersales service a lot. And so we have also built an extensive service network where we have more than 1,000 service centers. And our aftersales service has been rated as the best-in-class service network across the country by third-party reports.
While we're building our entire hardware business, we're also focusing on building our Internet revenue, Internet business in the country. If you look at just last 12 months, which is 1 year, we have already launched 3 very successful apps. Mi Music, which is our music streaming platform; Mi Video, which is a video streaming platform, with more than 700,000 hours of content; and recently just about a few weeks ago, we launched our payment platform, which is based on UPI stack, and we are calling it as Mi Bank. So we're building our hardware business. We're building our retail business, off-line retail business and we're building our Internet services in India. Thank you, guys.
Thank you, Manu. As we mentioned earlier in the 2018 full year report, Smartphone + AIoT is a dual-engine strategy that we are taking on that is going to propel us going forward. And today, it is my great pleasure to also introduce, Dr. Cui Baoqiu, our Vice President and Chairman of the Technical Committee of our group. Dr. Cui has a PhD in Computer Science from State University of New York at Stony Brook, and has 20 years of engineering experience in LinkedIn, Yahoo! and IBM. He joined Xiaomi 7 years ago and was previously in-charge of our AI, Big Data and cloud computing business. So let me turn the time over to Dr. Cui.
Okay. Thank you, Shou. And good evening, everyone. My name is Baoqiu Cui. In Chinese, it's Cui Baoqiu. I'm now the Chairman of Technical Committee of the Group. Before I took this new role, earlier this year, in February, I was the head of Artificial Intelligence and cloud platform team responsible for AI, Big Data and cloud platform. So starting from this year, my role was switched to Technical Committee. This is a big milestone to the company and to me.
Let's talk about the AIoT. What's AIoT. And this new term was coined in China in 2017. Around that time, companies like Alibaba and Xiaomi started to talk about AI plus IOT. In short word, it's AIoT. Why AIoT was so important to us? Personally and also now from the corporation's point of view, AIoT is the right answer, is the only answer to a lot of users' questions, 2 questions, why Xiaomi is an Internet company? Why Xiaomi is a technical company?
To me, this is the best answer to answer 2 of these questions. So after the Technical Committee was formed officially late February, we did a lot of things. One of the early task, we did, was to draw a clear and a detailed map of Xiaomi's technology inventory. This is the very first time for this group.
After we draw this map, we can clearly see where we are in terms of everything. So we categorized all technologies that we do in the company into first tier -- about 8 or 9 first tier categories, including industrial design, OS, security and privacy, Big Data, communication technology, cloud technology, application and services, artificial intelligence, hardware and drivers. And among each of these categories, we have a Tier 2 categories. And that's more than -- maybe close to 100 secondary act categories. So after we saw this map, it's very clear that we hold leading positions in industry design, operating system and securities privacy protections. And also we have strong capabilities in artificial intelligence, Big Data and cloud technology.
In the areas of communication technology, hardware and drivers, application and services, we need more heavy investment. So recently according to Chinese Nikkei.com website, Xiaomi was ranked as 11th in terms of number of AI patent applications. This is a globally ranking, and we are behind Alibaba, who was ranked as the 10th and Huawei is ranked after Xiaomi, 12th. So we also did a study in the patent portfolios of the company in the area of AIoT, AI plus IoT. And zooming into this map, we can see the strength of what we accumulated in the last many years, and we can see all the dots around AI technology, IoT platform control and applications, speech technology. That's empowering [Foreign Language] smart assistant -- assistance. So my responsibility as the Chair of Technical Committee is heavy and -- but I think the future of Xiaomi is bright. And we -- after 9 years of early stage, we officially went into a new era of relying on technology. Thank you. That's all my...
Okay. Thank you very much, Dr Cui. In the following section, I will go through some of the key financial highlights in a little bit more detail. I will start with our smartphone business. Our smartphone revenue reached RMB 27 billion in Q1 2019, representing a growth of 16.2% year-on-year. As of Q1 2019, we sold 27.9 million units of smartphones. And we have already gone through sort of a -- the launch dates of all these smartphones and it is the new portfolio of products that's driven an ASP, continued ASP expansion for us.
In Mainland China, our ASP year-on-year growth reached 30%. And in international markets, our ASP growth reached 12%. Now because the series of new products was launched throughout the first quarter of 2019, there was also a period of change between our old portfolio and our new portfolio, particularly in the international market, where the time lag for this particular set of product was about 1 to 2 months behind.
In terms of our IoT and lifestyle products, our IoT and lifestyle products revenue stream reached CNY 12 billion in Q1 2019, representing a year-on-year growth of 56.5%. So we have maintained a very fast-growing IoT and lifestyles product revenue business. Now this is -- part of it is driven by our smart TV sales volume, which reached 2.6 million units globally in Q1 2019. This is a growth rate of 99.8% year-on-year, almost a 100%. And for the second consecutive quarter, we were ranked #1 in China by smartphone -- smart TV shipments.
Now this was also a quarter where we continued to launch many killer popular IoT and lifestyle products. This includes my personal favorite, the Mi Photo Printer, the Mi Smart Door Lock, the wireless power bank and the wireless car charger. Of course, it also includes our immensely popular Mi AirDots and Redmi AirDots. As we move into the second half of 2019, we have visioned that we will continue to launch killer products that will continue to attract our fans to our Mi.com, our Mi Home, and our Youpin e-commerce website. Now in terms of Internet services, Internet services revenue reached RMB 4.3 billion in Q1 2019, representing a year-on-year growth of 31.8%. Now as many of you on this call will know, there is a slightly challenging macro environment in terms of advertising market in China today, but despite this, we managed to achieve a 31.8% growth. This is underpinned by our strong MIUI monthly active user growth. Our MIUI monthly active user has reached 260.9 million users globally, while our Mainland China MIUI monthly active users achieved a quarterly -- quarter-on-quarter growth in Q1 2019.
The health of our Internet services business is driven by 2 layers of diversification of our Internet services revenue that's ongoing right now. The first layer is that 32% of our Internet services revenue is now from Internet services outside of gaming and advertising from Chinese smartphones. And this revenue streams combined achieved a year-on-year growth of 167.3%. Now what does this revenue stream include? It includes Internet services revenue from TV and other IoT products from our international market, from our European e-commerce and from Internet finance.
The second layer of diversification going on for our Internet services revenue is that our Mainland Chinese advertising revenue for the last number of years due to its fast growth was primarily serving the Internet sector. Over the course of the last few quarters, we have diversified this into new verticals, including in education, in certain parts of Fintech, in e-commerce and in certain types of games. And the result of this is a healthier and more diversified Internet services revenue stream that has managed to grow in a challenging macroeconomic environment.
In terms of our international revenue. As Manu described just now, over the course of the last few years, our international business had grown very, very rapidly. In 2019, there will be a strong focus in making sure that we build out not only smartphones, but also other products, buildup our retail capability, particularly, off-line, and buildup our Internet services revenue stream from key markets outside of China, including India. Just to share a set of numbers outside of India. We are ranked #4 for smartphone shipments in Western Europe in Q1 2019, achieving a year-on-year growth of 115%, which in the top 4 for -- in the top 4 in terms of smartphone shipments for Western Europe, is by far the fastest.
Now moving on to our margins. In Q1 2019, as we mentioned just now, due to the calibration of our product portfolio over the last 2 quarters, Q1 2019 was a period of transition between our old and new product portfolio, particularly in the international markets. As a result of this, our hardware gross margin, in particular, our handset gross margin declined as we were promoting our old products to pave the way for the launch of our new products in international markets. Now just add a note here. By April 2019, with the launch of the new products internationally, our overseas smartphone gross margins has rebounded.
In terms of Internet services gross margin, our Q1 2019 Internet services gross margin reached 67.4%. The increase is primarily driven by the increase in gaming revenue, which has a higher gross margin profile.
Moving on to operating expenses. We -- as probably all of you know on this call, Xiaomi is a company that prides itself on extreme operating efficiency. We are pleased to say that in Q1 2019, our operating expenses as a group was still below 10%, at 9.4%. Now despite this, our R&D expenses reached RMB 1.7 billion, growing 50 -- almost 50% year-on-year. So with revenue growing at 27% and R&D expenses growing at 50%, we are continuing to invest in our core capabilities in order to have long-term sustainable growth.
Also a word on our cash flow. Although it looks like Q1 due to seasonality had cash outflow in terms of operating cash flow, we made it a point to note in our announcement that this was due to seasonal factors. Now in March and April -- because in January and February, there's a very special Chinese New Year celebration across the most important country where our supply chain takes place. In March and in April, our operating cash flow was actually a net cash inflow. So overall, we think that our company is in a very healthy cash flow state.
Now in terms of inventory, we want to point out that our total inventory has declined from RMB 29.5 billion at the end of Q4 2018 to RMB 26 billion in Q1 2019. In particular, our smartphones finished goods inventory declined from RMB 13.4 billion to RMB 9.2 billion. Overall, we think that we are in a healthy inventory state.
Now last point on financial highlights. As many of you know, over the course of the last many years, Xiaomi through strategic investments has invested in over 270 companies to help strengthen our business relationship with these investing companies. A lot of them have been very successful from a strategic and financial point of view. For example, Huami, which makes our smart band for us, our wearables for us, contributed significant portion of our wearables revenue, is a very successful wearable company in itself and has generated a significant amount of investment return for us. Today, our investment book value is already at over RMB 29 billion, with a year-on-year growth of close to 29%.
Since 2018, a number of our portfolio companies have entered the stage of maturity and have gone public in many different stock exchanges around the world. In 2019, there is a strong pipeline for a number of these companies to go public as well. As a result, we believe that we will have the potential to generate recurring investment income going forward. In Q1 2019, after taxes, we generated a net gain of RMB 590 million in investment income.
This ends the brief report that we have, before we open up the Q&A. I would like to thank you for -- again your attention. And if I can turn it over to Steve to host that Q&A session. Steve?
Thank you, Shou. We will now open the floor for questions.
[Operator Instructions] Our first question comes from Leping Huang with CICC in Hong Kong.
[Foreign Language] So I am glad to see that the first time, Xiaomi's revenue exceed by RMB 3.2 billion. So I would like to know what's your plan on this large home appliance business?
[Foreign Language] Thank you for the question. First of all, our major appliances business is a very important part of our AIoT plus smartphone dual-engine strategy. We believe that with our experience with smart TV, we have formulated a playbook to help us succeed in other major appliances categories, including air conditioners and washing machines, not only in China, but also around the world. So over the period of the next few years, there will be a significant amount of management bandwidth and investment that we would dedicate to major appliances.
Okay. The second question is that, I think, the major discussion these days in the smartphone supply -- smartphone industry is the -- your peer, Huawei, is included into the Entity List on the U.S. Department of Commerce. So what's your -- I mean, because you also purchase a lot of components from U.S., so how you'll make sure that this is continuity of your supply chain safety?
Thank you for the question. We have seen the recent news, and this is clearly an issue that is -- that we are very focused on at this point in time. At this point in time, we can share that these series of events has no direct impact on our business at this point in time.
Next question comes from Grace Chen with Morgan Stanley in Hong Kong.
My question is now on flat screen model Mi 9 integrated to management and updates with latest shipment momentum and the outlook we project? And also component supply situation right now, the compelling landscape, and also if we can talk about the contribution from this model specifically to our Q2 and Q3 numbers, that will be great.
Okay. Thank you, Grace. Regarding Mi 9, we launched Mi 9 on the 20th of February this year. And the reception from our users is very great, and this is a phone that is in high demand. As we disclosed, at the end of Q1 2019, we had already supplied 1.5 million units of Mi 9. And shortly after in April -- in early April, we have already shipped 1.5 million units of Mi 9. Mi 9 is a part of our dual-brand strategy. It is the Xiaomi brand, which will focus on extreme user experience. Now we will continue to monitor its progress. Right now, it's doing well. Now, of course, at the end of this month, on the 28th of May, we will be launching our Redmi flagship called K20. And when the details of this device is out, we will make sure that we share with everybody in this group. Generally speaking, although, there is a little bit of pressure in terms of global shipments and Chinese shipments of smartphones as the industry awaits the dawn of 5G, the -- our performance in Q1, I think, shows that we are still outperforming the market.
Our next question comes from [ Robert Cowel ] with [indiscernible] Research in China.
Congratulations on the result. I first want to ask about the gross margin. Your first quarter was a little bit soft. I'm wondering, going forward, how does the VAT tax impact your gross margin? And also how should we think about the gross margin as we move through the product cycle?
Thank you, Robert. In terms of our gross -- hardware gross margins, as I described just now in the earlier part of the call, Q1 2019 was the quarter that after a quarter of calibration of our portfolio, we've actually launched a number of smartphones, including Redmi Note 7 in January, Mi Mix 5G in February, Mi 9 in February, Redmi Note 7 Pro and Redmi 7 in March. Now these launch events were happening in China and also in many other international markets. But in the international markets for this portfolio, there was a lag. So in preparation for the launch of these new products, we did a series of price promotions to ensure the successful launch of the new portfolio. So the decline in gross margins, particularly smartphone gross margins, in Q1 was due to decrease in gross margins in international markets.
Now as of April, with almost successful completion of a lot of these product features, our gross margins for smartphones in international markets has rebounded.
Now in terms of the VAT cut, generally speaking as mentioned, although the smartphone shipment market in China is relatively soft today, we are generally optimistic about this VAT cut. According to public sources, this is a RMB 2 trillion fiscal stimulus. Everything combined, not just the VAT cut. And this VAT cut directly impacts us because we are part of the list of manufacturing companies that benefits from the 3 percentage point reduction in VAT. Now a part of it will eventually spur increased consumption, a part of it will flow down to us and our suppliers. Generally speaking, this is a piece of positive news for us.
[Operator Instructions] Next question comes from Gokul Hariharan with JP Morgan in Hong Kong.
My first question on Internet services. I think you mentioned about 30% or slightly higher than 30% of revenues came from non-smartphone or non-China non-smartphone related. Could we get a little bit of granularity in terms of Youpin and Internet finance, how they've been doing? I think you gave some granularity, I think, in the last couple of quarters. Second thing is also on Internet services revenues. Could you give us a little bit more color in terms of how you feel about this business going into the rest of the year, especially given some of the renewed [ patent ] trends cropping up and some of the Internet companies disappointing on advertising revenue outlook? My second question is on smart IoT products. The gross margins have been consistently in the low teens in the last several quarters, substantially higher than the smartphone products. Could we talk a little bit about why that is so? And how should we think about this? Is it a structurally higher-margin product given, I think, your peer -- your competitors are probably also earning much higher margins in the space?
Thank you, Gokul. Okay. In terms of Internet services, as we mentioned just now, our Internet services as a whole grew by 31.8%. And our non-Chinese smartphone advertising and gaming revenue is now 32% of our entire Internet services revenue stream and that grew by 167.3%. Now across the board, all international Internet services, Youpin, TV Internet services and Fintech grew strongly in order to achieve 167% growth. We will disclose them -- we will disclose the granularity periodically. So that's the first question. The second question in terms of Internet services for the rest of the year, I think, while we wanted to display here the 2 layers of diversification that we talked about. One, I've already talked about, which is Youpin and international Internet services and Fintech and Internet services from other IoT products. Manu was giving you the example that we are putting in a lot of investment and effort in building up Internet services in other key markets as well, including in India where over the last 12 months, we have launched 3 new Internet services, Mi Music, Mi Video and Mi Pay. Over the sort of medium term, we think that the tool -- this kind of diversification will allow us to have a healthier sort of Internet services revenue growth even in a challenging -- overall challenging market. Now in terms of the second layer of diversification, we are -- our advertising revenue itself because we were growing so rapidly over the last few years, the initial sort of first stage of growth was based on servicing the Internet industry. Our advertisers are from the Internet industry. Now what we did over the period of the last 6 months was to expand into new verticals. So to us, these are new verticals where we are going from pretty much a clean slate. And there is -- again, this layer of diversification is the reason why you see more resilience in our Internet services numbers. Now in terms of the general outlook, the general outlook for 2019, I think, for the industry is still relatively soft for advertising, but the series of fiscal stimulus put in by the Chinese government could have an impact in lifting business confidence and in consumer spend. The second, in terms of gaming, we are optimistic as we sort of move into the new wave of approvals coming into the gaming sector. So that's the way we look at it.
Your second question is on IoT margins. As you know, our IoT revenue stream consists of many products. And a lot of where margins are really determined by sort of the level of competition in each and every one of these industries. And I think the different margin profile really reflects the intensity of competition in each one of these categories.
[Operator Instructions] Our next question comes from Frank He with HSBC in China.
My first question is about the ARPU trend. I think fourth quarter last year, the ARPU had been stabilized at around RMB 17 per quarter. So just wonder whether that should be the number we are looking at in the second half or in 2020? This is first question.
Thank you, Frank. Let me answer that quickly. Our ARPU trend should be on an upward trend particularly as our international Internet services revenue ramps up. So it should be on an upward trend.
Okay. And then the second question about the MAU in China. Since you mentioned the MAU in China in the first quarter is still growing. I guess, the smartphone shipment in the first quarter actually is not growing in China, so just wonder what's the key drivers behind this MAU growth?
The life cycle of a lot of our users is expanding, Frank. So not every one of this is replacement for them. Some of it goes to new users as well.
Okay. Got it. My last question is about the smartphones margin trend. Since I understand that the margins in overseas and margin in first quarter is lower. And given that you have a low -- you are having an improving margin trend in April, just wonder is there any guidance for the second half or second quarter over margins for the smartphone segment?
Thank you, Frank. As you know, we don't give specific guidance on our margins. But I think what you see over the full year is going to be sort of a more normalized number. Q1 is the result of switching our portfolio mix.
Our next question comes from Leping Huang with CICC in Hong Kong.
So the first question came because we have the Senior Executive from India. Can you share us some color on what is the latest status on the Indian market, especially on how the market grows because we see in China the market actually slowdown, falling to negative growth these days. And how -- what's your plan to maintain or even extend the Xiaomi's market share in this market?
Okay. So the first question is regarding the overall Indian smartphone market. So last year, the Indian smartphone market was 150 million units and still about another 150, 160 million was feature phones in India. So the one thing which is significantly different between China and India is that, that in China almost everybody already has a smartphone. While in India, there's still about 400 million feature phone users. And now a lot of the feature phone users, about 25% of them, which is 100 million, have started using data. So we do expect that many of these feature phone users, especially the feature phone users using 4G data will migrate to smartphones over next 2 years. Our estimate shows and based on multiple third-party reports that Indian smartphone market will continue to grow at least for next 5 to 8 years. In next 4 to 5 years, we can expect it to grow from anywhere between 150 million -- current 150 million to upwards of 200 million over next 2 years. It may also be higher than that. So from overall market growth perspective, we do think the market is going to be very strong.
The second question that you asked was around what do we plan to do to sustain this growth. So on the online segment, as I mentioned, we have had about 50% market share for last 10 quarters. And yes, we continue to hold that 50% market share in the online segment. While the 2/3 of the market is off-line where we were negligible and we have grown rapidly to capture about 20% market share. We are still building our off-line channel because we're just present in about top 40, 50 cities. We're now going to few hundred and few thousand cities in off-line. And with that, we continue -- we expect that we will continue to grow our market share within off-line. If we hold our market share in online and continue to grow our market share in off-line, our overall market share should continue to grow within the Indian smartphone market.
Yes. A follow-up is, one thing Xiaomi's very interesting to us is the capability to monetize on the smartphone platform. So where we are now in the monetization of the smartphone in India market?
For India market, it's too early. We have started monetizing some of the services, mainly in 3 areas: One, if you look at our overall OS, we have integrated many services. Like there is a company called as Ola, which is used for booking cabs and their service is integrated into our OS. Similarly, we're integrating a lot of services within our OS. Second is, we have a lot of platforms like our security platform browser that we had started monetizing. Third, we are launching specific services like Mi Music, Mi Video, what I mentioned, and which we haven't started monetizing yet to a large extent. But over a period of time once our -- we have significant number of users using them, we will start monetizing them. So overall, it is still at an early stage as compared to where we were in -- we are in China, but growing very rapidly.
Okay. Now we'll take the last question.
Our last question comes from Gokul Hariharan with JP Morgan in Hong Kong.
I had a follow-up question for Manu. Manu, could you talk a little bit about, I think, on the monetization bit. Just as a case study, given this is the first market where Xiaomi is trying to monetize smartphone user base in the existence of larger Internet platforms like Google, Facebook, et cetera. How does that partnership/competition work? And how do you monetize the user base in the existence of say, companies who already have an app store like Google Play Store, et cetera? That's my first question. And secondly, could you talk a little bit about what's happening from a competition perspective in India? I think it looks like the domestic players are already out. It's largely Chinese players plus Samsung. So what's happening from a competition perspective, especially with new brands like Realme basically getting created out of nowhere and almost taking like 7%, 8% share in the last few quarters?
Gokul, before I hand over to Manu. It's Shou here. Just to clarify, we are actually making Internet services in many countries, not just in India at this point in time. As you are aware the -- we are close partners with, for example, Facebook and Google, where they share some of their search revenue if we give them incremental traffic where we are also connected to the ad networks where they help us sell some of our inventory, both Facebook and Google. So India is not the first one we're doing -- we're monetizing from. So I'll hand it back to Manu.
Sure. So from a monetization perspective, of course, companies like Google and Facebook have a significant base, but in the services that we are launching, as Shou mentioned, in many of the services, we are seeing collaboration, like Google pays -- share some of their search revenue from us on the mobile platform. And on many other services, we're also seeing partnership with companies like Facebook and InMobi where we are selling our inventory using their platform choosing their ad networks.
Overall, we see -- again, this is an early stage because we have just started integrating a lot of these services over last 1 or 2 years in India. And we have started monetizing them even more recently. So we are building a lot of unique services, which are specifically for India, which we believe many of the big companies might not be able to build. For example, our Mi Video platform comes with 700,000 hours of content, which has been accumulated across from multiple providers like Voot, Hotstar and many more. It's one of the largest content platforms in the country. And more than 90% or approximately 90% of this is free. But over a period of time, we do plan to monetize some of this content in India. So again, the start is pretty encouraging. And we expect this to continue to grow over the next few quarters or next few years.
The second question that you had was around competition. So on the question on Realme. Realme is actually an OPPO company or an OPPO brand, which was specifically created to fight against our online segment. But even after Realme or a new competition brands came in, there's not just Realme, but there are many other competition -- competing brands, like Honor, like ASUS, but we have seen that we still have a extremely loyal user base. So despite many of these competition brands coming in Q3, Q4 and Q1, if you look at our share within the online segment, which is where all these brands are very active, we still continue to have about 50% market share in the online segment. So while they have taken away share from many other brands, our share within the online segment is still 50%. And within the off-line segment, we continue to eat away market share from many other more established brands, which have been there for last 15, 20 years. So yes, is the competition increasing? Definitely, yes. But despite that increased competition, our share and our growth continues to improve.
Gokul, I'll add 2 more things here. One, the fact that OPPO is learning from us. I think it's validation. Like they say, imitation is the most sincere form of flattery. Then the second -- the second is, at the end of the day, we are a company that believes in operating on efficiency. And we believe that as long as we continue to focus on our product, design quality, user experience and then unwavering attitude towards efficiency and returning the cost savings to our users, we will do it eventually.
We will take 1 more question.
The question comes from Piyush Mubayi with Goldman Sachs in Hong Kong.
First on, yes, Manu, can you talk about what percentage of Internet revenues you've started to earn? And in particular, I think I read somewhere you've got 2 million smart TVs installed in the recent couple of quarters. Is there an ad model there that started to work, that's been effective? That's my first. Second, moving on the Internet line as for as China is concerned, could you talk through the impact that we've been observing of the slowing down of the advertising spend shown on your business into the second quarter onwards? And we've seen this coming through in the lines of every other company that reported in the advertising space in China. And I think you touched upon the gaming business. The gaming business is poised in an interesting manner. But I wanted to also ask if outside India and China, you've got exposure that's building up nicely through how your business is being built up in Europe.
Manu, why don't you...
Okay. Regarding the Internet service, the share of Internet service revenue coming from India, we are not sharing it at this point of time. All I can say is, it's going pretty fast, but also from a small base, because as I mentioned earlier, we've just started monetizing it over last few quarters.
Your second question was on TV, where -- yes, we are sole -- we are probably the fastest-growing TV brand in India, also the #1 smart TV brand for last 3 consecutive quarters. So on TV, we haven't started monetizing any kind of ads, but we are monetizing content. So the same 700,000 hours of content which is there on Mi Video, on TV, we have our own operating system called as Patchwall, and we're the only TV to have a dual-operating system. We have stock Android and we have Patchwall. On Patchwall, we provide the same 700,000 hours of content which we have on Mi Video. So the way that we think about this is that 2 different platforms to consume the same content. The bigger platform, a bigger screen, which is TV, and the smaller screen, which is smartphones. And you can switch between the content across these 2 platforms on these 2 screens. So about 90% of that 700,000 hours of content is free. Remaining 10% is paid. So when you watch the paid content, some part of the revenue goes to our service provider like Voot or Zee, and some part of that revenue comes to us at Xiaomi. These are the 2 questions that you asked about India business. And there was a question about...
For advertising in China, Piyush, as you talked about the few points on this call. Yes, generally speaking, I think, the outlook is soft, but from a macro point of view, we think that the fiscal stimulus pumped in -- put in by the Chinese government of about CNY 2 trillion in size should go some part in alleviating sort of at least business confidence and spur retail. But the tax cuts have just been affected. So we're also optimistically awaiting this. But even with all these macro factors, I think, the diversification that we have enjoyed and put in effort over the last few quarters, I think, starting to bear fruit. And we believe that even in this kind, we can remain resilient.
So thank you, everyone, for joining the call tonight. We will now be closing the call. If you need further information, please take a look at our website for the result announcement. Thank you.