Xiaomi Corp

HKEX:1810

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, welcome to Xiaomi's 2025 First Quarter Results Announcement Investor conference call and audio webcast. Today's conference is being recorded. If you have any objection, you may disconnect at this time. [Operator Instructions]

Now I would like to hand the conference over to your host today, Mr. [ Chiran], General Manager of Group Investor Relations. Please go ahead, sir.

[Unknown Executive]

Good evening, ladies and gentlemen. Welcome to the investor conference call and audio webcast hosted by Xiaomi Corporation regarding the company's 2025 first quarter results. Before we start the call, we would like to remind you that this call 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 conditions comes from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company's financials prepared in accordance with IFRS.

Joining us on the conference today are Mr. Lu Weibing, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and CFO of Xiaomi Corporation. To start, Mr. Lu will share recent strategic and business updates of the company. Thereafter, Mr. Lam will review the company's financial performance in the first quarter of 2025. Following that, we'll move on to the Q&A session.

I will now turn the call over to Mr. Lu.

[Weibing Lu, executive]

Good evening, everyone. Thank you, and welcome to Xiaomi's Q1 2025 Results Announcement Conference Call. This year is the 15th anniversary of Xiaomi's founding and also the beginning of our new 5-year journey. In the first quarter just passed under the traction of the overall strategy of people, car, home and ecology, we have steadily pushed forward the various strategies of our group. Various business lines have achieved multipoint blossom increasing another record. We have delivered a single quarterly financial report that is the strongest in our history. Tonight, I would like to share with you two main points. First, talk about the milestones we've achieved in core technology, including the breakthrough of XRING processor released last week and the progress of the AI big model.

Second, I'd like to share with you the highlights of our first quarter results and latest progress in executing our strategy. As you know, our development goal for the new decade is to invest massively in the underlying core technology and become the next generation of global hard core technology leader. Based on this goal, we have adhered to technology-based principle. At the beginning of the year, we announced that our R&D investment in 2025 should reach RMB 30 billion, which means that our R&D investment in the 5 years from 2021 to 2025 should exceed RMB 102 billion. Last Thursday, Mr. Lei announced a new 5-year R&D investment target for the next 5 years, that is from 2026 to 2030 R&D investment is expected to reach RMB 200 billion. And these R&D investments will help Xiaomi turn hard core technology into a corporate mode. In the field of hardcore technology, AI and chips are important underlying core technologies and there are also two very important strategies of our Xiaomi Group, and we have recently shown you our latest R&D achievements in these two fields.

In the field of AI, we continue to promote research of large model of the base. At the end of April, the Xiaomi Big Model core team released Xiaomi's open source first Big Model for reasoning Xiaomi MiMo, which, with the parameter size of OE-7B has achieved excellent results in the open test set of mathematical inference and core competitions. And then in the field of chips last Thursday, we delivered the first report. Xiaomi's first independently developed and designed 3-nanometer flagship cell phone SoC chip, Xiaomi XRING O1 was officially released, using second-generation of 3-nanometer process with 90 billion transistors, the performance and experience are in the first echelon of the global industry. XRING 01 advanced 10-core 4 quad-cluster architecture and the AnTuTu score reached more than 3 million points, while energy consumption performance is also very good. .

Currently, the XRING 01 is installed in our flagship smartphone, Xiaomi 15S Pro as well as the highest end tablet Xiaomi Tablet 7 Ultra. In addition to the release of XRING 01 processor chips that you have already seen. We also released Xiaomi's first long-lasting 4G watch chip XRING T1 at the same time. XRING T1 internal integration of Xiaomi's first self research 4G baseband, representing Xiaomi in the baseband of this key track has taken an important step forward.

For scale of investment in the chip sector when we decided to relaunch big chips in 2021, we set out a plan for long-term investment. At least for the coming 10 years, we should at least, at least -- we should invest at least RMB 50 billion. Over the past 4 years, starting 2021, as of the end of April this year, XRING's cumulative investment in R&D has exceeded RMB 13.5 billion. At present, the size of our R&D team in the chips division has exceeded 2,500 people. Number of person and the scale of investment ranked top 3 in China. We believe in the future, chips will be the core track for Xiaomi to breakthrough hardcore technology. We'll do our best to maintain strategic patience and continue to invest in them.

Let's now share with you some highlights of our first quarter results. In Q1 2025, keyword for results was record high. Our total revenue, core business revenue, adjusted net profit and many other metrics all reached record high in a single quarter. Total revenue of RMB 111.3 billion, up 47% year-on-year. For a second consecutive quarter, and for cellphone business, RMB 92.7 billion, up 23% year-on-year single quarter adjusted net profit exceeded RMB 10 billion for the first time, reaching RMB 10.7 billion, up 64% year-on-year. I would like to highlight some of the key business results we achieved during the quarter. First, after a decade, we returned to #1 in smartphone shipments in Mainland China. In Q1, just passed, we returned to #1 in smartphone shipments in Mainland China increasing our share by 4.7 percentage points year-on-year to 18.8%, thanks to the continuous improvement of our brand and product strength and the solid new retail foundation we have built over the past few years.

For 5 consecutive quarters, we exhibited growth. Our shipment growth rate in the first quarter reached 40% year-on-year, fastest among the top 5 vendors, significantly outperforming 4.6% year-on-year growth rate of the broader smartphone market in Mainland China. We continue to promote premiumization strategy. In Q1, our global smartphone ASP hit a record high of RMB 1,211, up 5.8% year-on-year. In Q1 2025, Xiaomi's share of high-end smartphone shipment in Mainland China increased from 21% in the same period last year to 25%, an increase of 3.3 percentage points flagship from Xiaomi 15 Ultra saw a year-over-year increase of more than 90% in sales month in Mainland China shipment compared to PD sensor. At the same time, we continue to increase proportion of high-end users, which contributed to our record Internet revenue in Mainland. For channel expansion, we actively promoted construction of new retail channels. In terms of channel expansion, we actively promoted construction of new retail channels, adding more than 1,000 Mi Home to approximately 60,000 in Mainland China in Q1, expanding automotive stores to 235 and continue to enhance wider user reach and realize ultimate user experience with extreme efficiency.

In Q1, smartphone market share in offline channels in Mainland China increased to 12.1%, up 3.2 percentage points year-on-year. IoT revenue continued to reach record high driven by strong growth in multiple IoT categories. Thanks to our breakthrough in technology, product brands, channels and services, coupled with favorable national subsidy policy. Our IoT revenue reached RMB 32.3 billion in Q1, exceeding RMB 30 billion for the second consecutive quarter, with strong year-on-year revenue growth of 59%. We achieved breakthrough in a number of categories, focusing on our major large home appliances, tablets and wearable businesses, which achieved good results this quarter. We are all very concerned about big home appliance business. We set high target. And by 2030, for the Mainland market, we want to be 1 of the top 2 this year. In China Mainland open market sales, we target number three. So we have completed comprehensive technology benchmarking, and so we need to enhance our product capability. Our smart manufacturer and factory will start production this year, thanks to enhancement of our multi-facet capabilities in Q1. Revenue of large home appliance business doubled year-on-year with shipments of air conditioners, refrigerators and washing machines or achieving high growth rates of more than 65%. ASP increased significantly. Product mix improved significantly.

For tablets, relying on our improved product portfolio, our tablet product shipment hit a record high in Q1 and entered top 3 globally for the first time with shipments growing 56% year-on-year, fastest growth rates among top 5 vendors. Last Thursday, we announced Xiaomi Tablet 7 Ultra equipped with the XRING 01 which is the first time that Xiaomi tablet has launched the ultra series, meaning that it will have top quality technical specifications and experience. And this is also the first shot at Xiaomi tablets premiumization. For wearables, our wearable wrist band achieved #1 position globally in Q1. Last Thursday, we announced the Xiaomi watch, S4 eSIM 15th anniversary edition powered by our XRING T1 chip, which improves performance while significantly reducing power consumption. In Q1, we ranked second globally in TWS shipment with 63% year-on-year increase. We rank first in China with 44% year-on-year increase in shipments.

Third, EV business continued to grow at rapid rates. We continue to tap into production efficiency and increase production capacity, delivering 76,000 new EVs in the first quarter. As we shared last Thursday, Xiaomi has delivered more than 258,000 units of the SU7 Series and more than 28,000 units were delivered in April, making it the top seller of all cars in the 200,000-plus price range. Last Thursday, the long awaited wait Xiaomi YU7 was also officially unveiled, positioned as a luxury high-performance SUV, the Xiaomi YU7 both elegant styling and sporty high performance, while also offering an overall sense of luxury and spatial conference. The Xiaomi YU7 is equipped with full range of configuration, a full range of ultra-long range, standard version of the range is up to 835 km, also equipped with a standard 800V silicon carbide high-voltage platform. Xiaomi's panoramic Sky screen as well as a full range of standard LiDAR, 700 TOPS auxiliary driving arithmetic and continuous damping vehicle dampers -- variable dampers. Xiaomi YU7 has fully upgraded armor-cage steel aluminum hybrid body, which is the first to be equipped with 2200 MPa Xiaomi ultra strong steel has passed more than 50 positive safety performance development test and there are 3 versions, Standard Pro and Max, which will be officially launched in July this year.

In conclusion, I would like to say that Xiaomi is standing at a new starting point of a new journey. And although the road ahead is far, there will be countless challenges and difficulties, but we will do our best. We firmly believe that Xiaomi's values, our model, our methodology are powerful and universal. And we firmly believe that as long as we start to catch up, we are on the way to win. That's what I'd like to share with you today.

Next, let me turn the floor over to Alain, our CFO.

[Alain Lam, executive]

Thank you, Mr. Lu. Good evening, everyone. As Mr. Lu just shared with you, in 2025, Q1 with our people, EV, home, ecology, strategic guidance, once again, we have achieved very good results performance. our total revenue, core business revenue, gross margin, adjusted net profit, all these metrics have achieved historical record high. In Q1 2025, we achieved total revenue of RMB 111.3 billion, up 47.4% year-on-year. Gross margin was 22.8%, reaching a record high in history up 0.5 percentage points year-on-year. Looking at our different segments. First, our smartphone times AIoT segment revenue was RMB 92.7 billion up 22.8% year-on-year. Gross margin, 22.8%, a historical high level, up 0.5 percentage point year-on-year.

Now let's take a look at different business segments. First, smartphone. In this quarter, revenue was RMB 50.6 billion, accounting for 45.5% of total revenue, 8.9% year-on-year. In this quarter, our global smartphone shipments was 41.8 million units. For 7 consecutive quarters, we achieved year-on-year growth in shipments. According to Canalys data in this quarter, our global smartphone shipments ranked #3 , market share was 14.1%. For 19 consecutive quarters, we are within top 3 in the world. At the same time, in 58 markets in the world, we are within top 3 in global 68 markets, we are within top 5. In Q1, our smartphone gross margin was at a healthy level. Smartphone gross margin in the last quarter was 12%. It rose to 12.4% in this quarter. This quarter, our smartphone ASP reached RMB 1,211, up 5.8% year-on-year. Again, a historical high level. According to Canalys data, in Q1 2025 in Mainland China, our smartphone shipments came first and our market share was 18.8%. Shipments grew 40% year-on-year or performance far surpassed the overall industry. For IoT, in Q1, our IoT business achieved breakthrough in both revenue and profit. IoT revenue and gross margin recorded historical high level. In this quarter, our IoT revenue was RMB 32.3 billion, 58. 7%. Our IoT business gross margin reached 25.2%, significantly improved by 5.4 percentage points.

For Internet, we continue to expand our user scale. In March 2025, our global MAU number reached 719 million, up 9.2% year-on-year of which in Mainland China, MAU number reached 181 million, up 12.9% or 13%. In Q1 2025, our Internet service business revenue was RMB 9.1 billion, up 12.8% year-on-year, of which our Mainland China Internet revenue reached a historical high level of almost 15% year-on-year to RMB 6.4 billion. Internet gross margin continued to improve. This quarter, gross margin reached 76.9%, up 2.7 percentage points year-on-year. Our advertising business continued to drive our Internet business growth. This quarter, our advertising revenue was RMB 6.6 billion, up 19.7% year-on-year.

AI strategy is a very important strategy. So since Q1 2025, our smart EV and related innovative business segment will be renamed as smart EV and AI innovative businesses. So we will increase AI-related investment, which will be incorporated into the new business. In Q1, our smart EV and AI Innovative Business segment had revenue of RMB 18.6 billion, accounting for 16.7% of total revenue, of which smart EV sales reached RMB 18.1 billion. Other related business revenue was RMB 500 million. Consolidated GP margin, 23.2%. This quarter, Xiaomi SU7 series altogether, 75,869 units have been delivered and ASP was RMB 238,301.

For our new business operating loss, it continued to narrow. This quarter, Smart EV and AI innovative business operating loss was RMB 500 million. Large-scale investment into bottom layer core technology and to become new generation global hardware technology leader. This is now 10-year goal -- new 10-year goal, we'll continue to enhance our R&D investment and technology innovation strength to build our long-term technology mode.

In Q1 2025, R&D expenses reached RMB 6.7 billion, up 30% year-on-year. As of 31st March 2025, our number of R&D people reached 21,731 reaching a historical record. While we promote R&D innovation for expense control, we continue to be highly effective. In Q1 2025, our overall operating expenses totaled RMB 15.4 billion. If we exclude new business investment of RMB 4.8 billion, our core business operating expenses amounted to RMB 10.6 billion. Expense ratio was 11.4%, down 1.4 percentage points year-on-year.

For profit, our single quarter adjusted net profit for the first time exceeded RMB 10 billion, reaching RMB 10.7 billion, creating a historical record and it is up 64.5% year-on-year. Adjusted net profit margin also reached a new record high at 9.6%. For ESG, in April 2025, for consecutive 7 years, we published Xiaomi Group's ESG report. We reported on our 2024 work in Xiaomi concerning low carbon transformation, circular economy, sustainable supply chain, talent development and corporate governance strategies and results and outcomes. So we plan that in 2022 to 2026 in these 5 years. Total volume of recovery should reach 38,000 tons of electronic waste.

Right now, we have already completed 95.94% of this target, and we actively lead industrial chain working partners towards green transformation in order to continue to lower Scope 3 emission. We have set 2 goals. First, by 2030, for smartphone business suppliers, their annual average carbon emission comparing with 2024 should not be lower than 5%. And for usage of green power, it should not be lower than 25%. Number two, by 2050, smartphone business suppliers, green power utilization ratio should reach 100%, besides the Ministry of Industry and Information published the 2024 Green Manufacturers List. And we successfully were included in the list of green supplier chain management enterprises.

So this shows that in promoting industrial chain, green transformation and the geocarbon target achievement, we were recognized by the authority. In the future, we will continue to promote various strategies of our group. We'll continue to enhance the building of our bottom layer building and management system reform. We will move towards higher targets and goals.

Thank you all. The above is the presentation that I would like to share with you tonight. Now we can start our Q&A session.

[Unknown Executive]

Thank you, Alain. Now we will move on to Q&A. In order to enable more investors to ask questions, can you please limit the number of questions to 2 at most.

[Operator]

[Operator Instructions] First question is from Morgan Stanley, Andy.

[Andy Meng, analyst]

Congratulations Xiaomi for the best quarterly results in history. I have 2 questions, question about your AIoT business. In Q1, in this segment, you achieved very rapid growth, the pace is much faster than the average growth rate in the industry. So investors have seen this and also your competitors have also paid attention to that. Recent research shows that some of your peers have already formulated plans to target Xiaomi in the future, IoT competitive landscape will be more intense. What strategies will you put in place to face up to the situation? Will that be different tactics between China and overseas?

The second question is about EV. After the technology launch, some investors said to me that they are worried that the EV will sell well, but then there will be impact on data sales, and that would be lowering in price in order to promotion to promote sales. So what do you think? How can you make sure or what strategies can you put in place to ensure that you will achieve your expectation?

[Weibing Lu, executive]

Right? You said that some peers have formulated strategies in relation to our products. Well, I think we are still in a high growth stage and there are many products that's out of stock. So for example, when the peak season of air conditioner is approaching, well, we are worried about production capacity. So we have not felt our competitors' impact on us. So if we have aroused attention from our competitors, I think this is good for the industry.

Now for the home appliance industry, I think it has been too mature and too rigid changes have been too slow. In fact, we have seen that there are a number of market behavior that are not that good for consumers. For example, some peers for the same product have just changed the model number, and they place them in different channels, selling a different price. So for us, we think that no matter which channel users go to buy the products they should, get the same product and the same right to know same price. Well, I think development or evolution has been too slow on user dimension.

So there has been some negative phenomenon. So if we have done had aroused improvement in the peers, then this is something good. For the industry, we hope that we can become a value creator in the industry and also a promoter of industrial improvement. I think for me, I don't think there has been much impact on Xiaomi and today in the large appliance business, I think we have not reached a satisfactory level so far. If you look at our strategies, we started in 2023, we have only spent 1.5 year or so time. Internally, we believe that there is still much room for improvement.

So today, I am thinking of building our large appliance factories. For example, when should we build the refrigerator factory, we have still not reached many breakthrough. So there are a lot of things that we have still not finished. So for our large appliance, high growth, I think that is just a start. For overseas, well, I don't think there would be a big difference with the tactics in China. So -- of course, the overseas share may not be as high, but then I think -- I don't think there is too much difference. There will be a difference in the competitive landscape, but 80% of the home appliances are Japanese brands not Chinese brands. I think the competitors will change for user demand. There isn't a fundamental change. I think there is a difference in purchasing power, leading to a change in the product demand, but that is not an intrinsic difference in the users.

And for SU7 for the impact on SU7, well, I think, first of all, I do not worry at all. But the sales of SU7 will be impacted, that price has to be reduced. I think capacity is very significantly inadequate. And for SU7, I think the biggest advantage is that capacity replication or replicability is very high for SU7. For these 2 models, what kind of ratio will they constitute, we don't know yet. So I think after launch for some time, then after the situation normalize, then we will know the reasonable ratio between the 2 models.

[Operator]

Next question is from CITIC, Yingbo.

[Unknown Analyst]

Congratulations management for the excellent results. I have 2 questions. One, recently, we read the news for smart factory, and also smart home appliance factories in the future for IoT plan, the plan apart from product plan. Can you talk about the smart appliance factory and also Smart EV factory in terms of efficiency and profitability enhancement, how much help will they do? That's my first question.

Let me raise the second question as well. Now looking at the expectation for LiDAR and also the safety equipment, they are in the standard configuration. This is good. But from a profitability point of view, with such standard configuration, will that affect your pricing strategy and your profitability?

[Weibing Lu, executive]

Well, your first question is about the production platform building. I don't know whether my understanding is correct. Yes. We have EV factory, smartphone factory and home appliance factories. And in the front end, you see different products in the rear end, you will see how we build our smart manufacturing platform. So for these 3 factories behind them, a lot of things are about supply chain. For example, our system HongHai system, I think it is the main so -- core so, and then there are the core suppliers, which will be shared. And so I think the overall logic and methodology, they are the same for smart production or manufacturing, basically, we have already found the commonness among different categories and also the differences as well.

When we face the future, I think we are talking about how to globalize, how to go abroad. So basically, we have gone through the initial learning curve and then now for the product strength, we are very strong. We have the standard configuration with a long range and also other functionality. So the product is very strong. You asked about pricing and profitability. Well, so far, we have not fixed the pricing yet. So we -- I cannot discuss that with you now. But for a not strong enough product capability, it is not possible to have good profitability. Profit is the result. It is not a goal or a target to pursue. So if your product is strong, then profitability should not be a problem. If we look at SU7 after launch, it is around 14 months already. And right now in the market, what other products can catch up, not even one. So I think where many competitors who try to use different tactics to fight the battle, but today, there has not been 1 which can match us not even 5%, not even 1 quarter. So you need to have good product strength and then you won't have competitor. Without competitor, then you will have the bargaining power and pricing power, then you can maintain reasonable profit margin, okay?

[Operator]

Thank you. Next question. Timothy of Goldman Sachs.

[Timothy Zhao, analyst]

Congratulations on your excellent results. I have two questions. First, about your core business, that is sometimes AIoT, I would like to focus on smartphone this year for Xiaomi smartphone shipments and also price outlook, how will that be in Q1 in the global markets. In the overall performance, there is much variance and there are many variables. In the handset or smartphone business, what are some updates in your strategies?

Second question is about EV, AI and new business. So for EV gross margin, it's above 23%. And can you analyze the reason behind. In the future, what will be the outlook for the gross margin. If we look at the new business loss, I don't know whether you can share with us about EV and AI and other new business like chip investment. How will the level be?

[Weibing Lu, executive]

Okay. For smartphone this year. I think that, overall speaking, the growth should be different from your expectation at the beginning of the year, especially in the Chinese market. I think this year, but there is national subsidy in China. So overall speaking, in the past, people were more optimistic. This year, it seems that the extent is not as big. But for product structure, there are changes in mid- to high end for global markets. I think there is just 1 or 2 points that may be even negative growth in some markets, there was negative growth already. So in Europe, for example, for Xiaomi, in terms of strategies, I don't think there would be much adjustment. When it comes to fine-tuning in the past for volume growth rate, we are more concerned. For example, in 2024, 2023, we got 20-odd million. And this year, given the current situation, we may appropriately relax our requirement on sales volume. So we should focus more on improvement of product structure, so in the past, we reduced the volume or stopped production of low-end products.

So as in Japan, in the past, well, there were many businesses that we did, but now we can stop those. For example, in Hong Kong, we also wanted to focus more on the higher-end business. Xiaomi this year or last year, RMB 170 million this year perhaps around RMB 180 million. So given such volumes, I think we need to improve product structure, that will be more important than enhancing sales volume. Of course, in Africa, there is -- we have a market share of like 13 points, given our product and brand strength, I think we can reach 20% in market share. So in other words, in this market, I think there is still big room in Africa. Basically, we have to build a bigger scale and overall speaking, I don't think that would be a big adjustment. That's the first point.

The second point is about EV gross margin. Now this -- starting this quarter, we have disclosed gross margin for 4 quarters. In first quarter, last year, we disclosed a gross margin of 15.4% and then 17.1% and then 20.4% and then 23.2%. So you can see that every quarter, our gross margin keeps improving steadily. So there are a few points. First of all, I think our product strength is strong till now for SU7, for some cars after they are launched they are being challenged. And then for us, for a single model or best seller, they would definitely lead to optimization of cost. When we look at volume, we have to look at the single product efficiency under the volume. You don't look at only the total volume. For some cases, there are only scale, but no economies of scale. And there are some also some bestsellers that you can look at. And then you should look at the efficiency. Our internal management efficiency, our expense ratio and also our channel efficiency. So for our efficiency, it may be 2 to 3x efficiency of traditional automobile companies. At same retail price in the channels, well, we have a lot more room. So all these added together will lead to the current results.

On the contrary, in the industry, there may be a lot of nodes that need to be improved. I think Xiaomi's data can serve as reference for the industry and help everyone to improve and advance. I think this is the value of Xiaomi in the industry. And you talked about loss -- the amount of loss. At present, looking at our disclosure and our current way of disclosure, there is still a loss of around 500 million.

[Alain Lam, executive]

Let me supplement. You can see that in the past few quarters, for our delivery, it has been rising. Last year Q2, 27,000 units, Q3, 40,000 units; and in the recent quarter, 70,000 quarters, now we have already delivered 75,000 units in Q1. So there is the sharing of fixed costs. So in other words, efficiency will rise, and this is helpful to gross margin.

Secondly, Mr. Lu said, we sell cars for performance already. We have not lowered price, and there is some equity that is being gradually phased and then it will lead to enhancement in gross margin. And Thirdly, in Q1, we started to deliver our Ultra products, which will help our gross margin. And finally, if you look at our peripheral products last quarter, around RMB 500 million. So, since disclosure, this is the highest number in other income. So as a result, these have brought help to our gross margins. That's all for me to add.

[Operator]

Next question is from CICC.

[Unknown Analyst]

Congratulations on your outstanding results. I have 2 questions. First, about premiumization of smartphone in Q1, Xiaomi in the Chinese market, our market share is rising for RMB 4,000 plus for your, 15 Ultra is selling well, and then you have the XRING SoC model as well. So in the past, in terms of smartphone premiumization, you have been progressing. In the future, what is your plan in this regard?

And then my next question is about AI. In April, you introduced Xiaomi MiMo first large model. And then some time ago, you said that you will increase investment into AI. So my question is, in the future for AI smartphone area, what kind of pleasant surprise can we expect or look forward to right for premiumization?

[Weibing Lu, executive]

In Q1, we conducted a premiumization seminar. During that seminar, we did two things. So we have been concluding our past 5 years of premiumization, what have we done right? And in the coming 5 years, how should we carry out premiumization. Now we have reached some conclusions in the premiumization process. We think that we have done several things right.

First, we adhere to premiumization. 5 years ago in 2020, when we started internally, there were many different views. There were many doubts on us. So this is the first thing that we have done correctly. Second, we use Xiaomi brand to do premiumization. At that time, many people are of the view that we should perhaps start a new brand to do premiumization. We decided to use Xiaomi. Xiaomi is one Xiaomi. So when we do that, all our other products will benefit. Number three, what category should we start with? And we decided to start with smartphone and EV. For other products, they do not have the capability yet. And we limit that to the Chinese market, after forming the right methodology, then we can go overseas. Now with these 4 main strategies, we think they are all correct. In the past 5 years, I think we have also paid quite a lot of price and the price has been quite high as well.

In the coming 5 years, what should we do, first of all, based on the original exploration to future planning, we cannot just pay the price again in each and every country. We need coordination and plan, we should follow a rhythm. And secondly, in terms of the premium foundation. For example, our smartphone RMB 4,000 to RMB 6,000. Our market share was 78% from 6,000-plus smartphone, we still haven't got enough layout. We only got 5%. And I think we need to do something with a higher price, and then we have to extend that to all our other categories. And the fourth thing is we need to move from China to overseas. We can adopt the Chinese methodology to overseas. So in the coming 5 years, these are things we need to do. And then for Xiaomi SU7, our air conditioner and also our recently launched tablet. They are moving towards ultra-high-end products. And so we are exploring. And so far, we have achieved quite good feedback. And then, for AI, a few days ago, we launched the MiMo Large model. We have achieved some results. Xiaomi has to do some accumulation. And I think large model is very important. We decided to invest greatly into large model. And I think this is to serve our own business. Our user base is very big. There are many user scenarios. There are many user data as well. So if we can do a good job with infrastructure, use our data and scenario as well, then I believe we will be able to explore a very good way of improving user experience. Now this is 1 of our equipment only, not the entirety for smartphones. We have to do a good job and also deeper integration with AI, then we can achieve a lot of advancements.

[Alain Lam, executive]

I want to supplement with a number of numbers. First, if you read our PPT, you can see that in this quarter, in China, our high-end smartphone market share reached 25%. Last year, whole year, 23.3%. And then Q1 last year, 22 percentage points. So in high-end smartphone market share, I think our shipment is also getting higher and higher for RMB 4,000 to RMB 5,000 smartphone market share, we are at 24.4% and #1 really.

And then Mr. Lu mentioned home appliance. In our disclosure, you can see our revenue. Revenue growth was 113% year-on-year growth and our shipments only grew 65%. So it is quite clear that our large home appliance ASP continues to rise. So for the third number, just now Mr. Lu said, we will invest into AI this year for R&D expenses, RMB 30 billion. One quarter will be focused on AI. So our AI investment will be quite huge. And last year, our CapEx was around RMB 10 billion, this year, it will increase significantly, and some growth will be in AI. So these are the numbers I would like to add.

[Operator]

Next question is from Zoe of UBS.

[Zoe Xu, analyst]

I have 2 questions first. Last week, the XRING chip was launched on 15 next use. So in the mid to long term, for the 6S Series, will you use your self-developed SoC. And then in the coming 3 to 5 years, apart from smartphones and wearables in other man, EV, home ecosystem will you see the use of your own chips? And in this quarter, you reached 25% gross margin. So in the coming quarters, Mr. Lu, do you think this is a sustainable level? You also mentioned other Chinese competitors. And before 18th of June, they will put in place some big competitive strategies. This year in Q2, what is your pricing strategy for 18th of June. Will that be very intense price competition?

[Weibing Lu, executive]

Well, for XRING processors, I think we are very clear. We started from the most difficult. We wanted to do it well. So for our flagship chips, we want to make sure that they can reach our expectation, and then we can think of or consider other areas. At this stage, we haven't considered making our XRING chip in our non-flagship series. So we are only thinking about our flagship chips. Will they be used in other products apart from smartphones, well, chip is a platform capability.

With this platform capability, you can work on other chips that won't be very difficult. On this platform capability, it is most difficult to work on smartphone flagship SoC, it has high power consumption demand and its IT is extremely complicated. So if you can have the ability of working on a flagship smartphone SoC. And then if you move to work on other chips, that won't be that difficult. So we want to focus on the flagship SoC and then we want to make our modem well and in the future. We have to work on 4G, 5G together with 2G, 3G then there would be a complete matrix. So that is what we need to do in this stage.

And for GP margin and also competition, I think right now for IoT, we just started. We are just taking off. So we still have many capabilities that are still not built yet. We have only -- we enhanced some of our capabilities, but not all. When we have enhanced our capabilities, then you will see a very good IoT big appliance as well as small appliance. You mentioned price adjustment and competition. We haven't felt too much about that. And we just adhere to our established strategy, 20% GP margin, I don't think there would be much volatility arising from competition. I think the situation will be okay. Recently, you may be more concerned about our large appliance. You also need to look at our IoT categories, including TV, tablets, wearables and also our ecosystem products. In the past quarter, they showed a high year-on-year growth, so if you only focus on 1 category, in fact, there is growth and good profit margin in other categories as well.

[Operator]

Next question is from Citi, Kyna.

[Unknown Analyst]

Congratulations on the strong results. I have two questions. Just now I heard from Mr. Lu that this year for smartphones, you have -- you are going to see some adjustments, so for smartphones. In terms of your cost structure, have you seen some change. It seems that there won't be much big cost impact affecting your profit, correct? But it seems that there are other memory vendors who are adjusting the capacity, and that will impact the overall supply situation. So in this regard, will you change your previous view? That's my first point.

Second question, regarding the EV business. Recently, some manufacturers are starting price war. Now -- right now, there is still a shortage of supply. But then in the future, for the Chinese market, there will still be some gap or consolidation and amidst this wave what position does Xiaomi has and what are your way of thinking?

[Weibing Lu, executive]

Right? I think you are talking about the cost. In Q2, I think the -- if you look at internal inventory cost decline, I think that would be a turning point to an increase. If you look at different categories. I think EFS will see a small decline in Q2 and Q3, Q4, I think that would be an upward trend. But I don't think the increase will be very drastic. I think it will be a rather slow increase. For some products there is some structural adjustment. But today, we haven't seen a big increase in demand. We haven't seen this factor. So overall speaking, our judgment is that we are quite accurate in our judgment. So we have already made some advanced planning, and I think the impact on Xiaomi will be controllable. There would be other areas or companies where costs will come down and there would be some offset for us.

Our price bargaining power is getting stronger. So to Xiaomi, for the smartphone gross margin, I think it is controllable and stable. And your next question is about EV price competition and the impact on us. In the short run, I don't think there is much impact. If you focus on strong impact, I think it is a part of market competition. I feel okay today. I think the situation is still okay. We just want to deliver the orders on hand and then our users can use our cars. And then I think from SU7, you have already seen our product strength performance.

Last year at this time, we announced SU7, you are most concerned about the excellent results of SU7, will the next model sell well? Okay, you may be able to do one model well. It is just a coincidence. There may be luck, but now you can see that we are even stronger and more competitive in our product strength. We do have some capabilities, which are much higher than the average capability of the industry. So I guess you have seen that we are not only good at making products. We have supply chain capability as well as a newcomer within such a short period, we can complete this. We have the capability to build factories. In the past, we have not done that. So we have comprehensive capabilities. So I don't think price will solve all the problems.

[Operator]

Because of time, we will now take the last question. Last question is from Huatai, Leping.

[Unknown Analyst]

Congratulations on your excellent results. My first question is about chips. Last week, you announced the XRING chip and the related products. So for your smartphone business and chip business, how do you work out your new price? In the future, when it comes to your smartphone business and your overall gross margin, what will be the impact? And then for overseas smartphone market, in this quarter, we can see that in Africa market, your market share has risen a lot. In India, there is a slight decline. So Mr. Lu for overseas markets, India, Africa, what is the change in the competitive landscape? And how do you see future growth in these markets?

[Weibing Lu, executive]

Okay. When it comes to the self-developed chips, first of all, our strategy is clearer. We have multiple brands for our chip. Well, it is high-end chip. I think it is our strategy, long-term strategy and I think this is an information about our high-end growth. It will continue to grow every year, there would be an increase of a few million cases. And then we have our high-end smartphones and tablets. We have a lot of confidence. I don't think there will be problems. We have communicated with Qualcomm, and we started from ourselves. We have good communication and for self-developed chips. So far, we only work on the flagship ones. Overall speaking, the self-developed usage rate won't be too high for gross margin. I think this is too early to talk about that. Perhaps right now, we do not pay much attention to financial targets. We focus more on whether we can make our products well. So today, we are investing without too much consideration about cost. And when it comes to smartphone big chips, we have to consider the coming 5 to 10 years in order to achieve a reasonable model financially.

And then for overseas smartphone markets, I think the decline in India is reasonable. Today, for the India market, it is quite special. There are still issues that are yet to be resolved. And also for natural -- for normal business visa with India, it has not been normalized yet. So for the Indian market, we wanted to lower risk in this market. For Africa, the issue is that the overall has declined quite a lot and amidst the overall industrial decline, we gave up some ultra low end or low-end products, and we focus on mid- to high-end products you may say that, oh, there is more decline in our market share, but we have improved our product structure. For Africa, it is an emerging market. Market share last year was 13% -- 12%, 13%. We still have huge room to improve. I think for Africa, we have to look at scale. So we have to look at the special characteristics of different markets and also our own position in those markets to determine the tactics of different markets. So we cannot have the same strategy for all markets.

Today, there are divergences among markets. So today, we divided the world into 8 big regions. For these 8 regions, we will refine our management based on the information -- local information. You can turn to our disclosure. The first time in Africa, we were up 2.6 percentage points. In Southeast Asia, we became #2. Latin America, #2. In Latin America, Mainland China, channel number one. So we have said that many times. So in these different sectors, we did well. Market share was up 0.1 points year-on-year, even though the overall is not good. So, I think there is still much demand in the international market.

[Unknown Executive]

Okay. Thank you very much. That's all for today. Okay. We will conclude the conference today. Thank you again for joining. We hope that you will continue to support Xiaomi Group. You may now disconnect. Goodbye.