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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Investors Conference Call hosted by Xiaomi Corporation regarding the Company’s 2023 First Quarter Results. This call will be recorded. If there is any issue, you may disconnect form the call. [Operator Instructions]
We now have Mrs. Anita Chan from Xiaomi to this session. Welcome Anita.
Good evening, everyone. Welcome to the conference call hosted by Xiaomi Corporation. And before we start, we would like to remind you that today’s meeting may include forward -- forecast information and there will be uncertainties and this may not be realized in the future in addition in terms of information coming from external sources. And the information would also contain unaudited data, and this is not something to go for -- for the restricted -- this is not the precise that information that has been audited.
And we have Mr. Lu Weibing, Partner and President, Mr. Alain Lam, Vice President and Chief Financial Officer.
Before we start, we’ll have Mr. Lu to walk us through the Company’s business updates and strategies, followed by Mr. Lam on the performance of Q1 2023 and followed by a QA session.
So now I will pass the floor to Mr. Lu.
Good evening, everyone. Welcome you all to join us on the Q1 2023 earnings conference call.
In Q1 of 2023, we can see that global macro economy there was still a lot of uncertainties. And at the moment, overall consumption is beginning to experience a mild recovery as there is a 5.8% year-on-year increase in total retail sales of consumer goods in Q1 in mainland China. But consumer electronics has yet to be fully rebounded.
And if we look at the global market, it has declined by 13% and mainland China 11%, India smartphone market declined by 20% year-on-year in terms of the shipments in Q1 2023. But if we look at it from a more positive perspective, and this means that globally speaking we are still in destocking mode. And for our management team, we are committed to our 2023 key corporate strategies, including prudent operations, dual emphasis on scale and profitability.
We have just released our Q1 financial report, and from the figures you can also see our strategies. And in Q1, our total revenue amounted to RMB 59.5 billion. Despite the decline in revenue, our gross margin improved to a record high of 19.5%. In addition, we can also see that our operating expenses were effectively controlled, down 6% year-on-year.
Our adjusted net profit increased by 13% year-over-year to RMB 3.2 billion. This has already taken into consideration of our RMB 1.1 billion investment into new business. And in addition, we can also see that compared with last year, this is an increase of 13%. So, we have returned to a year-on-year growth after four quarters.
And we now look at our business step by step, first of all in terms of our premiumization strategy. And in terms of our premium product, its strength has further grown. And for the past few years, and in terms of Xiaomi, Ultra 12, Xiaomi Ultra 13, et cetera, and our four consecutively released premium models received positive review ratings on JD.com above 98%, one month after they were launched. In Q1 2023, our premium smartphone sales in mainland China surged by over 23% year-on-year. In the RMB 4000 to RMB 5000 price segment in mainland China, we ranked number one among Android smartphones, with a market share of 24.1%.
In addition, we have recently unveiled Xiaomi 13 Ultra in April and achieved a strong performance in the market that has already reached double in the initial sales volume of last year’s Xiaomi 12S Ultra. So, all of these serve as a further testament to the solidity of our brand premiumization methodology. That is, our priorities have been upgraded from technical parameters to user experience, focusing on the in-depth integration of hardware and software. We continue to bring users a suite of premium products that deliver the best technology and a flawless user experience.
In addition, we believe that smartphones are technology-driven consumer goods, and our technology powers and the humanistic elements are highlighted and tightly integrated throughout our products to further impress our customers.
For Xiaomi, secondly, we’d like to talk about overseas market. Our global scale and our global strategy has also helped us to counterbalance the risks at hand. In the first quarter, our global smartphone shipments maintained its number three ranking. This afternoon we have also announced a good piece of news, our global MAU reached 595 million and MAU in mainland China reached 146 million. In addition as of May 21, 2023, our global MAU exceeded 600 million for the first time, marking another milestone of our global expansion. In addition, we can see that we continue to optimize our inventory level, and in the first quarter, we have been able to further lower our overall inventory level, which has reached the lowest level for the past nine quarters.
Going forward, we will continue to build upon our fundamental capabilities by forging ahead with localized operations, strengthening our channel development and digitalization constructions and offering a more secure and efficient global rating platform to enhance our services overseas.
Thirdly, I’d like to talk about our retail strategy. In 2023, this is the year of storefront integration. We focus on improving the operating efficiency of our offline stores; expand the positive effects of scale that we are seeing from our partnerships. And for Q1, our offline smartphone market share has reached 7.9% in mainland China, a year-on-year increase of 1.4 percentage points.
Mi offers -- Home offline GMV of smartphone products increased year-on-year and was up over 60% of Q-on-Q, and the average single store GMV was higher than any of the four quarters last year. Our new retail strategy facilitated the growth of our premium products, and offline channels accounted for over half of the shipments of Xiaomi 13 Series and the newly unveiled 13 Ultra.
And firstly, I’d like to share with you on our R&D. Even if our industry is facing a lot of challenges, we have taken further stepped up our expenses control. By the way continue to further invest in our R&D and innovation. You can see that in the first quarter of 2021 our R&D expenses reached RMB 4.1 billion, up 18% year-on-year, which included around RMB 1.1 billion in expenses related to our smart EV business and other new initiatives.
Our R&D personnel accounted for over 50% of our employee base. We have obtained more than 32,000 patents worldwide. More recently, Xiaomi imaging algorithm team won four championships in the CVPR competitions. This is also one of the highest competitions in the world. And in this April -- we would also like to talk about our AI investment. So in this April, we officially designated a large language model team of AI Lab to insist on self research of core technologies.
Over the years, we have been putting into a great deal of effort in AI. Right now, we have AI assistant, camera algorithm and autonomous driving teams. We currently have more than 1,200 AI R&D staff. We have built up our own know-how in technology use case and data. And we are open for more opportunities in the future through cooperation with the potential third parties and strategic investment. As we gear up for the next disruptive changes brought by AI, we are wholly prepared to embrace them.
Looking ahead, after the Q1 presentation, you can see that Xiaomi’s performance is very healthy, whether it is our gross margin or expense ratio or inventory level or cash flow. So all of this is, thanks to the management team’s hard worker to advance our corporate strategy, a dual emphasis on scale and profitability and prudent operations, further refine our business management to stimulate quality of growth. Meanwhile, we’ll continue to invest in our future, making every effort to enhance the technology, quality and innovation. This powerful combination gives us the opportunity to effectively demonstrate our vision for long-term growth, further strengthening the sustainable value we created for our users and all of our stakeholders.
This is my remarks, and we welcome Alain to give us his presentation.
Thank you, Mr. Lu. I would like to thank everyone for participating in our conference call.
As mentioned by Mr. Lu, for quarter one for macro economy, so we still see a lot of uncertainties and this continues to weigh on smartphone demand globally. Despite this industry backdrop, we remain committed to prudent operations. And thanks to the concerted efforts across the group, our 2023 operating strategy of dual emphasis on scale and profitability began to bear fruit in the first quarter.
In the first quarter of 2023, our total revenue amounted to RMB 59.5 billion. Segment-wise our smartphone revenue was RMB 35 billion for the first quarter, accounting for 59% of our total revenue. Our global smartphone shipment was 30.4 million units, solidify our number three ranking globally. We also ranked as a top three player in key markets across Europe, Latin America, Southeast Asia and the Middle East. As Mr. Lu mentioned earlier, the market continues to embrace our flagship premium products with enthusiasm.
In the first quarter of 2023, our smartphone ASP in mainland China reached a new quarterly high, up over 18% year-on-year. The contribution from our premium smartphones as a percentage of total smartphone shipments in mainland China increased by 4 percentage points year-over-year. In the first quarter of 2023 revenue from our IoT and lifestyle products was RMB 16.8 billion, accounting for 28% of overall revenue. As of March 31, 2023, the number of connected IoT devices on our AIoT platform reached 618 million, an increase of 29% year-on-year.
Our key product portfolios achieved solid growth. In the first quarter, our smart large home appliances business continued to demonstrate robust growth momentum with revenue increasing by over 660% year-over-year. Our smart TV quarterly shipment reached 2.8 million units globally, maintaining our ranking among the global top five players. For our AI products, whilst meeting users’ pursued to cutting-edge technology, we also strive for product excellence and perfection in design in our AIoT products. In 2023, a total of 46 Xiaomi products including Xiaomi Buds 4 Pro and Xiaomi Watch S1 Pro won the 2023 iF Design Award. 24 Xiaomi products, including Xiaomi TV Master Mini LED 86 and Xiaomi Sound Move, won 2023 Red Dot Design Award. Notably, our Xiaomi Mijia Smart Desktop Dishwasher 5 S1 won the 2023 Red Dot Best of the Best Award.
In Q1 2023, our internet business revenue was RMB 7 billion, accounting for 12% of total revenue. Our global and mainland China MAU of MIUI both reached record highs. In March 2023, global MAU of MIUI reached 595 million, while our MAU of MIUI in mainland China reached 146 million.
Just now, we have heard from Mr. Lu, as of May 21, 2023, our global MAU exceeded 600 million for the first time and reached a record high. We continuously enhance and refine our internet business operations.
In Q1, our advertising business was slightly down, 2.8% year-on-year, mainly due to the reduced revenue from pre-installation, due to the decline in our smartphone shipments. That said, our gaming revenue outperformed the market, surging 16% year-over-year, marking year-over-year growth for the seventh consecutive quarter with an impressive performance. Notably, our overseas internet business has maintained a robust growth trajectory with revenue growth of 16% year-over-year, accounting for 25.7% of the total internet service revenue. In the meantime, we continue to optimize our operations. For this quarter, we have been able to improve our gross margin as well as cost premiumization and optimization. If we look at the first quarter of 2023, our overall gross margin has reached a record quarterly high of 19.5%, up 2.2 percentage points year-on-year.
Looking at it from different business sectors. The gross profit margin of smartphone business reached 11.2%, up 1.4 percentage points year-over-year, mainly attributable to the decreased the price of key components as well as the improved product mix. IoT gross profit margin also reached a record quarterly high of 15.7%, primarily attributable to the improvement in gross profit margin of smart large home appliances. In the internet services, gross profit margin has reached 72.3%, up 1.5 percentage points year-on-year, mainly due to the higher gross profit margin of our advertising business and the gaming business.
Meanwhile, we have improved our management efficiency. You would be able to see that operating expenses decreased year-over-year in the first quarter. Our total operating expenses were RMB 9.4 billion, down 6% year-over-year. In this quarter 2023, first quarter, RMB expenses reached a RMB 4.1 billion, up 18% year-on-year, accounting for 6.9%.
Our selling and marketing expenses were RMB 4.1 billion, down 22%; administrative expenses RMB 1.1 billion, down 9% year-on-year. Overall speaking excluding the expenses related to our smart EV business and other new initiatives, our expenses for our core business segment was RMB 8.2 billion, down 14% year-over-year.
Thanks to our prudent operations in Q1 of 2023, our adjusted net profit was RMB 3.2 billion, up 13% year-over-year. Excluding expenses related to our smart EV business and other new initiatives, our core earnings grew by over 30% year-over-year.
We continue to maintain a strong cash position. As of March 31, 2023, we maintained RMB 94.6 billion in cash reserves. In addition, our prudent inventory management measures delivered more promising results. In the first quarter of 2023, our total inventory was RMB 42.6 billion, down 24% year-over-year, and 16% quarter-over-quarter, the lowest level for the past nine quarters.
Our self-owned and channel inventories both declined steadily in mainland China. And therefore, we can have better and more optimized inventory composition. We highly value and actively practice corporate social responsibility, making relentless efforts to achieve sustainable development. In April 2023, we published our 2022 ESG report and unveiled our plan to substantially curb Scope 1 and Scope 2 greenhouse gas emissions with clearly outlined targets and timeframe for the first time.
Included in our GHG goals is our plan to reduce greenhouse gas emissions from our main operating segments by at least 70% over 2021 levels by no later than 2030 followed by a 98% reduction from 2021 levels before 2040 with preconditions are in place to achieve a net zero emission.
Throughout the greenhouse gas emission reduction process, we will prioritize measures including low carbon technologies, long-term power purchase agreements on green power and self built renewable energy power generation facilities.
In the meantime, part of our efforts will also be actively encourage key suppliers to set comparable or more ambitious targets for using renewable energy and reducing greenhouse gas emissions with an aim to continuously reduce Scope 3 emissions. Looking ahead, we reiterate our focus on our strategy of dual emphasis on scale and profitability. In the face of persistent uncertainties in a macroeconomic environment and across the sector, we will further reinforce our prudent approach to our operations, improving both efficiency and effectiveness of our management and decision making. At the same time, we have every confidence that our sustained investment in R&D and technical innovation will safeguard our long-term competitiveness.
Furthermore, while we remain steadfast in prioritizing sustainable long-term growth, we continue to adhere to our mission to empower everyone to enjoy a better life through innovative technology.
We would like to thank you all for your long-term trust and support for Xiaomi. And that concludes our prepared remarks for this quarter. We’re now ready for questions.
Thank you. We now go into the QA session. [Operator Instructions] Our first question, we have Andy from Morgan Stanley. Please welcome, Andy.
Thank you, Mr. Lu and Alain for sharing with us your latest Q1 performance. My question is related to smartphone business. We can see that for Q1, for the whole market, the demand is quite weak and the gross margin for Xiaomi we have seen great rebound, and this is very encouraging. Looking into Q2, we can see that your company has also started the preparation for the presale of June the 18th. And we have also seen that there are a lot of different products, for instance, so for the Xiaomi 13 Series and these are promotions, we have seen a lot of promotions and discounts. And as investors, how do we look at this and its impact on Xiaomi’s product sales, ASP and various -- gross margin, et cetera? And will this actually affect your gross margin because of the discount given or the company is confident that even with the discount provided, gross margin could still be maintained at a good level? In addition, could you please also share with us for overseas market shipment for Q2? Thank you.
Okay, great. So, let me explain this question. And for Xiaomi, starting from 2021, we have started our IPD, and IPD is to help us to resolve a product lifecycle. So for a product and before it is launched to the market, we have already seen the IPD for this product and its lifecycle, how long it is et cetera. So, actually today, when we look at our product sales and its expense ratio, the net margin, et cetera. So, we will use this whole set of system design. And perhaps today you have already seen that. So, last night at 8 pm we have officially started our June 18th sales -- pre-sales and we have performed very well. And please rest assured, all these discounts are given out and they are within the plan that we had for these products in terms of first when we designed these products and therefore its impact on the gross margin would be zero for the whole year. So please rest assured. Do not worry about this. So, this has already answered your question on ASP and gross margin et cetera. So, do not worry. This has no impact on our gross margin for this year.
In addition for overseas for quarter two and for Q1, our main task was destocking. So, we wanted to lower our inventory level and to make sure that we have a healthy management, so for the Q1, for the whole year and if we look at the shipment, we have seen some reduction of the shipment. However, if you look at the overall situation, our market share is actually going up. And we believe that they activated the market and as long as you have an activated market, of course, going forward, you will enjoy shipments. And if we look at the overseas market and -- which is Redmi and you have also seen that Note product. And we have adjusted from February launch to April launch. And this has affected our overseas business slightly in terms of its launch, but for our Note business, you know that the globally speaking and actually we are always ranking on the top chart. So for Q2 -- and we believe that we are quite positive for overseas for Q2.
Thank you. Our next question comes from Thomson from UBS. Welcome.
I have two questions. And my first question is that we can see clearly Xiaomi in Q1, you have destocking going on, and the figure is quite good. Can you please share with us in terms of the channels, domestically and overseas? And in addition, for Q2 and in terms of restocking what is your view? And in addition, we can also see that there are some limitations on memories, and what are the preparations of the Company?
And I believe that you have already seen from our performance, our inventory level has reduced greatly. And this is also something that we had talked to everyone about in our last meeting. Our target was to reduce the inventories and we have been able to achieve so. Right now, whether it is the Xiaomi inventory or the channel inventory level, it is at a very healthy level. So, please rest assured. In addition, looking at our whole industry supply chain -- and it is still on the downward trajectory, and going forward for inventories, we will look at, for instance, the supply chain and the raw materials, et cetera. And to consider about how to stock up and in terms of memories, and at the moment, it is still on the slow decline of the price. We haven’t yet seen the fine tunes of the price. And in terms of the RAM because it is a commodity and therefore we will look at a different period and a different stage and we will have a different stock picking up. And we believe that next step for memory, we don’t really think that will have a major impact on our cost.
So, Thompson, I’d like to supplement, and you have seen that so far our recent quarters, our inventory continues to decline. And for instance, existing finished product and inventory is already reduced to about -- has already reduced by about RMB 10 billion to about RMB 21 billion. So we have done very successfully in this regard in terms of inventory reduction.
In order to make sure that more investors could ask questions, please limit your questions to two per time. Our next question comes from Timothy from Goldman Sachs. Welcome, Timothy.
Thank you, Mr. Lu for giving me this opportunity. I have two questions. And the first question is that we can see that Xiaomi also have 1,200 staff in the large language models team. And can you please let us know about AI large models? How is the progress? And going forward, what are the new customers demand you will be able to meet? And in addition, looking at the whole industry and in your opinion, so, is this a good catalyst for further development? And second question, looking at Q1 for your expenses in terms of quarterly and yearly, we have seen quite good performance. And could you please let us know, for Q1? And the basis of Q1, will there be further room for optimization and looking at the whole year for the whole year expenses outlook? Thank you.
So, for large models, I believe that this is a topic that everyone pays great attention to. So, I’ll further expand. And at Xiaomi, our investment into AI started from 2017. For the past six years, we have invested heavily into this area. In addition, we have very strong AI capability, we can see that two years ago for Xiaomi in terms of our decision, we were very quick to make the decision to organize an AI team. And this is our empowerment reflection. And looking at ChatGPT and I believe that this is on everybody’s lips. So with AI large language model after a lot of round of discussions and communications as well as forward looking for Xiaomi, we have a very clear target and strategy. And number one is that, unlike OpenAI, and we are not going to work on the large language models. This is a very clear view. However, for Xiaomi, we will actively embrace large language models because we still believe that going forward for the users to use these models and there will be user case scenarios and everybody could stand to benefit from this.
From this perspective, we believe that number one, we need to combine it with our business. In addition, we also need to turn it around to our business results. For instance, you can look at our products, so we have some demo to present. And you can see that with MIUI and its launch, it is also closely connected with AI and our robots et cetera, we will use at the large language models to further support our development in this area. In addition, we will also use the large models to further improve our efficiencies internally. And at the moment for our AI, R&D team is already organized and they have already started their work. Going forward, you will continue to see the result that is being achieved by this team.
Second on expenses, you can see that the expenses we have decreased quite a bit but there is still a lot of room to further decrease. And the first one would be our marketing expenses. Of course, there is also the reduction for procurement cost. And I have recently just been overseas and I can see that a lot of the marketing spaces have become available. And so, we can see that -- doesn’t mean that our investment has gone down. It just means that there is this organic growth in the market. And secondly, we can also see that so we can play a very important role for Xiaomi. For the past many years, our development has been very faster. But internally, we do have some waste. And therefore, through cost reduction and efficiency improvement, this can help us to further improve our business. And in terms of cost reduction and efficiency improvements for this sector, and this belief is something that is reflected in our day-to-day work. And for this year, we continue to see further room for growth.
And can I please further supplement in terms of open language AI. In terms of a large language model, and of course, we will continue to invest. And secondly, we will also use our investment, to look at other opportunities, for instance, whether we would be able to introduce third parties to help us to develop. So, we have a very open attitude. We also have our investment fund. Continue to look at opportunities outside. And you may see that when the opportunities arise, we might invest in certain projects out there in the market and how to include them in our system. So this is number one.
Second in terms of cost reduction and efficiency improvements. In beginning of the year, we have established two committees, which is HR committee as well as operations committee. These two committees under our guidance continue to look after our costs tightly and how to further improve our expense efficiency. And as we have heard for logistics, cost, and this year, we have seen some savings as well as for marketing costs in a way ourselves, we are also keeping a close eye on our cost and the human resources spending. So, I think that we actually hope that investors that you would be able to see the results in a timely manner.
Thank you. Our next question comes from [indiscernible] from CITIC.
Two questions. So, first one is to ask about overseas inventories. And we have heard Mr. Lu talked about activated market and its performance. And in terms of overseas, selling and setting out and when will that strike a balance and when will we see a balance being stricken there? And secondly, I would like to ask about new retail. For beginning of the year, when the pandemic measures were taken away and we have seen that for a lot of offline business. It has been very encouraging. But in April and May we have seen that the impact has sort of eased off. And I don’t know what you are seeing on your end and in addition for overseas in Q1, I have asked the question. You have 20 for lots of countries as your key strategies, markets, to push forward to you are a new retail strategies and I don’t know whether you have any benchmark examples to share with us.
The first question is quite simple. From Q2 for our overseas business, for Q1 actually, we have done a lot of destocking. And for Q2, we believe that we’ll be able to strike the balance. So, don’t worry. And in terms of new retail, Q1, we have done well. And April, we have also done well. So with Xiaomi 13 Ultra’s launch and therefore, for April we have performed quite well. And at the moment Xiaomi Ultra 13 is still out of stock. And there are still a lot of customers waiting for this product in May and June. And you can see that especially for this year for some of our AC products are already selling very well and demand too will be the peak season for purchasing air conditioners. And again, this is something that will drive our offline business for June 18th, the Shopping Festival. We have always talked about this.
And Xiaomi is the only Chinese brand that has realized promotions, both offline and online. And in the past for instance, if online has promotion, there’ll be a disaster for the offline. But for Xiaomi actually, after our new retail building, and for our online and offline business and the promotion, we have been able to make sure that they can happen in tandem at the same time. And for Q2, we do believe that we are very positive. And in terms of new retail expansion in overseas market, I just went to Hong Kong and Southeast Asia. I went around. And to give you a simple example, in Hong Kong, we have a shop and I went to this shop yesterday, or two days ago. I believe a lot of people will have been to that shop. And the shop, in April, they have enjoyed 12 million. I went there in the morning and they tell me that actually during the weekend, the shop is still full of people. And I believe that Xiaomi not only for mainland China, but also for overseas. And I also went to Thailand, Malaysia and for Southeast Asia. And you can see that the development is also very vast. For instance, in Thailand, in shopping mall, our smartphone business already accounted for 40% and in Philippines it’s even higher. For Southeast Asia, it’s very hot and people would prefer to go in the shopping malls. So this is very advantageous.
So Xiaomi’s development in the whole of Southeast Asia is very good. And in addition, I have also been to Western Europe and Eastern Europe and Middle East, and we have seen very good growth in all these areas. However in new retail, it still lags behind in -- compared to where the Mainland China market. So I do believe that for new retail business development overseas, I’m still very confident.
Our next question, Wen, Hanjing from CICC.
Thank you, Mr. Lu and Alain. I have two questions. The first question, we have heard that a brief update on the AI and I’d like to ask about AI thinking for IoT because in the past, for instance for Shanghai, [ph] you have a very good deployment. I like to ask AI plus the existing IoT, what are your thinking? For instance, will those be connected and combined together? And secondly, looking at the internet business for Q1, and we have seen the record high for internet business, and what is your future forecast and how will you continue to implement your strategy in this area?
Well, I have already said this. In AI, it must be combined with our business. This is for me for Xiaomi as a terminal company and this is something that we must focus on. For instance, in Shanghai at the moment, we have already used the TBT model and to have some demo. And we are looking at an appropriate time, we’ll launch this. And so, it’s very important AI entrance point. And in addition, you can also see that so for our smartphones, it is not only just a smartphone, it can also be expanded to a lot of different equipment and devices going forward for MIUI and its combination with AI will be even stronger and that be even tighter. And in the near future, there will be products launched in this area.
For internet business, I pass it to Alain.
So for internet business, we have said that the main growth really comes from -- for instance, it’s enjoying a very healthy development and at the moment, our shipment continues to grow. So secondly, we continue to expand and look at discovery of new customers, not only just existing comers, but also local customers in overseas market. This is for the past two years in terms of improving our overseas revenue, very important point, not only to help Chinese apps to go overseas. In addition, we are also working with global apps as well as local apps together. So, this is something to help us as our customers’ number grow and bring us very good revenue.
And in terms of internet business, gross margin is 72.5%, quite healthy. And this mainly comes from gaming. For instance, we have some very high gross margin gaming partners. And they have seen very good growth and which has also driven our gross margin on gaming as well as high gross margin advertisement placement. This has also helped us to improve our internet business gross margin. However, I often say that for the past few quarters, it has been maintained stable at 70% for our internet business. And I think that this is a very healthy level. Thank you.
Thank you. We welcome next question, it’s Huang, Leping from Huatai.
Thank you. I have two questions. For Mr. Lu, how do you look at second hand mobile phone issue? And recently, we can see that from the news for second hand mobile phones becoming more prevalent and the frequency of people changing their mobile phones is becoming fewer and fewer. So, [Technical Difficulty] talk about the impact of a secondhand phone firsthand phone. How do you look at the mobile phone market and when would we reach a stable market size and what is your opinion on this?
And perhaps you finish your second question as well.
Okay. My second question, I would like to ask, we can see third-party numbers and for the Indian market, and very obvious, we can see that you focus on scale and profitability. So, I’d like to ask about your business in India. What kind of a target to do you have? And you have also been to many countries. And would we be able to bridge the gap of missing out on the Indian market?
For second smartphones, we know that second smartphones and I think that because the mobile phones’ quality becoming better and better and generally speaking, our customer can use three to four years and the phone is still very good. So, that’s why the second hand smartphone market has prospered. And we do think that the second hand mobile phone and in terms of replacement of the lower tier phones, the impact is very strong. And in part if it’s 1,000 -- lower tier phones and people will spend a little bit more money and buy a better secondhand phone. And I do think that this is a trend that everybody has bought and this is a natural trend. So with this in mind, I think that a few areas that Xiaomi can work on, first of all, in terms of new mobile phone promotions, we really need to make sure that for the high end, new mobile phone sales, and you can see that we really need to make sure we can use the old phones to replace a new phone. And so, we need to help and further solidify this trade-in service because a lot of the customers, they will think that their old phone is still quite good. And therefore we need to enhance the trade in business.
And in addition, we also need to make sure that we maintain our existing customers and serve them well. For instance -- and for the customers that we need to make sure that the customers can still enjoy a very good user experience, even if they have used our products for a long time. And secondly, for instance, a customer may have used our product for a long time and the battery is no longer that efficient, perhaps we can help them to replace the battery. And for the customers perhaps they feel that after changing of a battery, they feel that this is same as if they had a new -- brand new phone. And I don’t really think of this as a threat. I think of it as a way to maintain our existing customers and to continue to serve them well.
And secondly, on India, and we have talked about this many times, investors continue to focus on this. So, simply looking at it from the business perspective, in India, today, Xiaomi is still very healthy. And in Q1, we have about 70% market share. We -- for India market, we won’t really have a very specific profitable target. But the market in India at the moment is still very healthy.
Mr. Lu, for the domestic market, when do you think that for the first hand smartphone market will be considered stable in a reasonable fashion?
For Q1 actually, if we look at the destocking, and I don’t think that so we need to look at Q1’s decline to forecast and predict the whole year. We do think that for the whole year the decline will be a lot less than Q1. Specifically speaking for China in last year here and we know that so we had some tough period for this year. I believe that for 2023 for the overall market, and I think that within 5% and its market is very good. I think that decline is 2% to 3%. And so roughly speaking, 2.6% to 2.7% and this will be the range. Thank you
Our next questions just coming from [indiscernible]. Welcome.
Mr. Lu and Alain, I have two questions. So, this is related to semiconductors and the chips. My first question is to ask that your peers, we have seen that they have stopped their chip business and this has affected Xiaomi’s plan in this area. And secondly, if in terms of mobile phone chips development business, can you give us a general feeling in terms of the cost and what are the impacts on your cost? And in addition, for the mobile phone premiumization strategy, what kind of impact will that have? Those two questions, please?
Yes, indeed. We have heard this question. And this is also a question -- a topic that is on everybody’s lips. And for our peers, based on their own strategies they have decided to terminate this business. And we all feel that it’s quite a pity, but it fully reflects the difficulty that chips business would present. And I think that for various different cities and innovation, for our peers, their bravery, we really need to applaud them. And for Xiaomi, we started chip business back in 2014. It’s been almost 10 years. We have also paid heavy price, lessons learned. But in the meantime, at least, it has enlightened us. As well as chips industry has its own industry rules to handle which is that it is a for the long-term, it is very difficult that through a huge amount of capital and the human resources investment, you would be able to achieve breakthrough. That’s impossible. So we need to realize that for chip business, this is in that for the long run, and the complexity and the difficulty involved, we need to be aware of this.
Secondly, for chip business, for our core business, and for our terminal end business, it plays a very important role. For chip business, for Xiaomi, it is not about whether we’re doing it or not, it’s about that we have to do it. So, do not worry about our determination. This is an area that we will be investing in the long-term. This is of a strategic importance to us.
Very simple example, I will tell you, you know that for Xiaomi cameras and we are able to capture the objects very quickly or characters very quickly, it’s because of our chips. And you can also see that our charging speed is 120 watts. And we are currently still using a single chip. And the advantage of that is that it has a large capacity and low cost. But you can also see that a lot of the peers, they would use double chips. And so, these are the benefits and values chips can bring to us.
And of course, we realize the difficulty, the complexity and the long-term devotion is involved. And we need to look at our business in the chips investment area in the units over decades. And we are going to invest in chips. We are going to work in this area. We respect its complexity, its difficulty and its long-term required energy. And in terms of 3 nanometers and for the industry and we believe that we will go into -- 3 nanometer. And the 3 nanometers versus 4 nanometers, we believe that the cost wise there will be quite a big improvement. And, of course, what it reflects is that it will reflect our chips cost. And at the moment from mass production to delivery, there is a long time and we are also following this up closely. So, at the moment, I do not yet see any direct impact.
Thank you. In the interest of time, we welcome the last question. I have Oriental Securities.
I have a few questions. Actually they have already been asked. And so, I only have one last question for supply chain. And we have seen that for some consumer products and there are some new restocking. And so, Xiaomi, you also have your press release tomorrow and for media you have new products and some new different types and for instance, some ovens et cetera. And I would like to ask Mr. Lu and Mr. Lam and for these new products, and what sort of putting effect does that have going forward?
Well, actually starting from last night, with June the 18th, going into the pre-sales, and every year, whether it is June 18th or Double 11, Xiaomi will attach importance to these shopping festivals. And generally speaking a year in advance, we will start preparing for our new products. And every year for June 18th we will have two types of products and one is that for some of the products and they have been out there on the market for a long time, we will readjust the price. For instance for Xiaomi 13 and it has been launched for about six months, a while ago. And we have heard consumers say that perhaps Xiaomi 13 and Xiaomi Pro, perhaps they need to reduce the price a bit. And yesterday from our presales we have seen very good results. And generally speaking in terms of the chart, and Xiaomi basically has topped all the charts.
And the secondly, for June 18th, we will also launch some of our new products, including smartphones or ecosystems as well as the home appliances and will be our generation 3 mobile phone launch. And this product, at the moment, we have seen a very good attention given to it from the consumers. And at the moment there are still uncertainties going on. And people are still quite conservative in terms of consumption. And in terms of the promotions, discounts and new offers, we believe that this will definitely have a positive driving effect for consumption. And we also hope that the industry could recover as soon as possible. And we also hope that investors could pay attention to June the 18th. And check out our products. And if anything meets your demand, please go ahead and buy them.
So, for your ecosystems -- for ecosystems and new products, actually, we will have some quite cool products introduced to the customers and the clients. And we will have some new products and some killer products out there and to provide to our customers and clients.
Okay. This is the end of today’s conference call. Thank you for your time. We hope that you could continue to support Xiaomi. And thank you everyone, and have a great evening. Goodbye.