V-shaped Rebound? Is It Time to Invest in Xiaomi After Its Continuous Share Repurchases?
Xiaomi Group 2025 Q3 Earnings Live Broadcast (Simultaneous Interpretation)
[AI Key Takeaways]
Financial Performance
- Total revenue in the third quarter reached RMB 113.1 billion, a year-on-year increase of 22.3%, surpassing RMB 100 billion for four consecutive quarters
- The Group's gross margin was 22.9%, an increase of 2.5 percentage points year-on-year, reaching a record high.
- Adjusted net profit reached RMB 11.3 billion, up 81% year-on-year, setting a new historical high for the group.
- Innovative business segments such as automotive AI achieved the first quarterly profit.
Business Progress
- Total sales of the Xiaomi 15 series increased by approximately 30% compared to the previous generation, with high-end models accounting for over 80% of sales.
- Achieved a historic breakthrough in the price segment above RMB 6,000, reflecting significant success in its premium strategy.
- Ranked third globally in smartphone shipments and has maintained a top-three global ranking for 21 consecutive quarters.
- The number of R&D personnel reached 24,871, accounting for 44.2% of the total workforce, setting a new historical record.
Guidance for the next quarter
- Expected to complete the annual vehicle delivery target this week, with further growth projected for next year's delivery scale.
- R&D expenditure for this year is projected to be no more than RMB 30 billion, with a five-year target exceeding RMB 200 billion.
- Rising storage costs will exert downward pressure on smartphone gross margins from Q4 this year to next year.
- Next year will mark the year of operational efficiency for Xiaomi Home, focusing on optimizing existing stores.
Opportunity
The Xiaomi 15 series has achieved a historic breakthrough in the price segment above RMB 6,000.
Overseas IoT business has reached a new historical high, and efforts to expand overseas markets will be intensified.
The progress of large AI models and applications has far exceeded expectations, which will bring surprises in the AI field.
The deep integration of AI with the physical world represents the next development direction for intelligent technology.
Risk
Storage costs have entered a phase of long-term sustained increases, putting pressure on smartphone gross margins.
Industry competition has changed significantly, and the external environment has undergone substantial changes.
The rise in storage costs may lead to a downturn in the overall smartphone market.
Market competition is extremely intense, posing significant competitive pressure.
[AI Meeting Transcript]
Operator
Welcome everyone to today's investor conference call and online audio live stream for Xiaomi Group's Q3 2025 earnings release. This meeting will be recorded. If you have any questions, please ask during the Q&A session. To cancel, press star one; to ask a question, press star two. Now, let us invite the General Manager of Investor Relations and Capital Markets to preside over this meeting.
General Manager of Investor Relations and Capital Markets
Good evening, everyone, and welcome to Xiaomi Group's investor conference call and online audio livestream for the third quarter of 2025. Before we begin, we would like to remind you that this conference may contain forward-looking statements, which are subject to various risks and uncertainties and may not be realized in the future due to multiple factors. Additionally, information regarding overall market conditions is sourced from channels outside of Xiaomi Corporation.
This presentation includes certain unaudited non-IFRS financial measures, which should be considered as supplementary information and not a substitute for the financial measures prepared by the company in accordance with IFRS. Attending this meeting are Mr. Lu Weibing, Partner and President of Xiaomi Group, and Mr. Lin Shiwei, Vice President and Chief Financial Officer of Xiaomi Group. To begin, Mr. Lu will share recent strategic updates and business developments, followed by Mr. Lin, who will review the company’s financial performance for the third quarter of 2025. Finally, we will move into a Q&A session. I will now hand over the meeting to Mr. Lu.
Lu Weibing
Good evening everyone, and thank you for joining our Q3 2025 earnings communication session. As you have seen in our earnings report, I believe we have delivered another robust set of results this quarter. The external environment in Q3 underwent significant changes, and competition was very intense. Nevertheless, across all business lines, I believe growth has remained quite stable.
Group revenue reached RMB 113.1 billion, representing a year-over-year increase of 22.3% and surpassing RMB 100 billion for the fourth consecutive quarter. The group’s gross margin stood at 22.9%, an improvement of 2.5 percentage points year-over-year, setting a new historical high. Meanwhile, adjusted net profit reached RMB 11.3 billion, growing by 81% year-over-year, also marking a new historical high for the group.
Regarding specific business operations, we have several highlights. First, the Xiaomi 15 series has been highly successful, with total sales increasing by approximately 30% compared to the previous generation. The high-end models accounted for over 80% of sales, with the most expensive Pro and Max versions being the most popular. This marks a historic breakthrough in the price segment above RMB 6,000. Additionally, our Wuhan large home appliance factory has officially commenced operations, marking another major step in smart manufacturing following our flagship mobile phone factory. In the field of intelligent manufacturing, we have taken a significant leap forward.
Internet revenue has reached a new historical high, while new business segments such as automotive AI have achieved profitability for the first time—a highly encouraging achievement. However, the external environment and industry competition have recently undergone substantial changes, raising several key concerns. For example, the rise in storage costs, what changes have occurred in the past, how we ensure the supply of smartphones, and the outlook for smartphone gross margins. Additionally, there are questions about the impact of industry competition on our IoT business and new updates regarding Xiaomi’s automotive initiatives. Therefore, today we will focus on addressing these issues and sharing insights with all of you.
Lu Weibing
First, let's look at personal devices. In the third quarter, our global smartphone shipments ranked among the top three, with a market share of 13.6%. In regions outside of China, we have achieved year-over-year growth in market share. In China, the market share of our smartphones has reached 14.9% with continuous year-over-year improvement. In Latin America and India, we ranked second, with market shares of 17.9% and 16.9%, respectively. In Europe, Southeast Asia, and Africa, we ranked among the top three, with market shares increasing by 0.5, 1.2, and 0.9 percentage points year-over-year to reach 20.9%, 16.7%, and 12.6%, respectively.
During this year's recent Singles' Day shopping festival, Xiaomi smartphones ranked first in domestic smartphone sales for the third consecutive year, including securing the top spot across various e-commerce platforms. This year also marks the fifth year of our premiumization strategy, where we have achieved remarkable results. In the third quarter, our market share of smartphones priced between RMB 4,000 and RMB 6,000 in mainland China increased by 5.6 percentage points year-over-year to reach 18.9%, which is an excellent achievement.
The ultra-premium segment is a new target for our high-end strategy over the next five years. The starting price of Xiaomi 15 Pro Max is RMB 5,999, and it became the best-selling domestic smartphone priced at RMB 6,000 during the Double Eleven shopping festival. Therefore, breakthroughs in the premium segment have helped us improve our product mix and drive sustained overall sales growth.
Lu Weibing
At the same time, I believe that behind these achievements in high-end development lies our continuous investment in system software and technology. In August this year, we officially released Xiaomi HyperOS 2.0, which introduced upgrades in system experience, AI, and other areas, further enhancing system fluidity and response speed. For the first time, we introduced Xiaomi Smart Agent, offering users an entirely new interactive experience. Additionally, following the release of Xiaomi OS 2.0, user feedback and performance have significantly improved, with notable progress in reputation.
Xiaomi 15 and Pro Max innovatively adopted a super pixel arrangement, achieving a 2K display effect. However, based on a 1.5K screen, we have pioneered a new route in display technology. Meanwhile, the global supply chain is undergoing a new cycle, and currently, storage costs have entered a phase of long-term and sustained increase.
We have experienced multiple cycles of cost fluctuations, so we have established a comprehensive supply chain management system and response mechanisms. We remain confident in ensuring the supply of raw materials for our supply chain. At the same time, the rise in storage costs will indeed put some pressure on subsequent gross margins. In the short term, we will mitigate the pressure of rising costs through improvements in product mix using ASP (average selling price).
Lu Weibing
At the same time, as you can see, our businesses outside of smartphones are making significant contributions and providing strong support to our overall gross margin. Over the past ten quarters, the gross margin for our smartphones and IoT systems has consistently remained above 20%. Moreover, I believe that our long-term commitment to advancing high-end development and improving product mix will be a very effective way to address rising costs. Additionally, our self-developed chips and proprietary operating systems will undoubtedly create differentiated product competitiveness, which will also reduce the impact of price volatility on our financials.
The second aspect addresses the impact of industry competition on our IoT business. In the third quarter, our IoT business revenue reached RMB 27.6 billion, marking year-on-year growth for seven consecutive quarters. Our gross margin was 23.9%, also showing a year-on-year increase for seven consecutive quarters. When entering each IoT category, we are clear that we aim to be contributors to the industry. Therefore, through innovation in products and technology, we create excellent products to lead the creation of industrial value.
At the same time, we do not actively engage in price wars, nor do we blindly follow them. We do not rely on price reductions to gain market share; instead, we stimulate user demand and promote the overall development of the industry by enhancing product value and increasing investment in innovation.
Lu Weibing
In the third quarter, our large home appliances, such as air conditioners, achieved year-on-year growth. In September, we launched the Mijia Triple-Zone Washing Machine. Last year, we pioneered the dual-drum washing machine, and this year, we introduced the triple-zone model, which has led and driven the entire industry. This product received a satisfaction rating of 99% on our e-commerce platform.
In October, our large home appliance factory officially began operations, marking the completion of an integrated industrial closed loop encompassing design, R&D, production, and validation for our large home appliance business. The digital factory has an annual production capacity of 7 million units, and in the future, more high-quality technological home appliances will be designed, developed, and produced at this facility to support the premiumization of our full range of products. This quarter, our overseas IoT business reached a historic high, and moving forward, we will expand further into international markets to drive the overall growth of our IoT business.
Finally, regarding automobiles, in the third quarter, we delivered 108,799 new vehicles, with cumulative deliveries reaching 265,967 in the first three quarters. In October, our monthly deliveries exceeded 40,000 units. Through continuous technical upgrades, we are improving our monthly delivery capabilities. It is expected that we will complete the annual delivery target this week, and next year's delivery volume is projected to maintain steady growth.
Lu Weibing
Our automotive AI and other innovative business segments achieved their first quarterly profit. Additionally, we continue to expand our sales network. By the end of September, we had opened 420 automobile sales stores across 119 cities in mainland China and established 209 service centers covering 125 cities. In September, we provided Xiaomi car owners with a unified luxury vehicle ownership experience.
We also believe that enabling everyone around the world to enjoy the beautiful life brought by technology should provide opportunities for individuals to express their unique selves. We recognize that the automotive industry still offers numerous rich scenarios and unmet user needs that we must address, and we are confident that our next model will win user recognition.
Overall, in 2024, Xiaomi Group was ranked 297th in the Fortune Global 500 for the seventh consecutive year. By 2030, we aim to enter the top 100 of the Fortune Global 500. We will continue to invest heavily in core technologies, with R&D expenditure expected to exceed RMB 30 billion this year. Over the next five years, our R&D spending target is over RMB 200 billion. AI is driving profound changes across industries, connecting over a billion devices globally and delivering seamless, all-scenario experiences to users.
Lu Weibing
We believe that the deep integration of AI with the physical world represents the next frontier in intelligent technology. We began laying out our AI strategy several quarters ago, and although we cannot disclose much at this stage, the progress we have made in large AI models and applications has far exceeded our expectations. I am confident that in the near future, we will continue to bring some exciting developments in AI to everyone.
Finally, I would like to thank all our users for their support, and as always, express our gratitude to our partners, employees, media friends, and analysts for their trust. That concludes my sharing for today, and now I will hand over the floor to Mr. Lin.
Lin Shih-wei
Thank you, Mr. Lu. Distinguished investors and friends, good evening. Under the guidance of the Group's robust and enterprising core operating strategy for 2023 to the third quarter of 2025, as shared by Mr. Lu earlier, all our businesses have demonstrated resilience. In the third quarter of 2025, we achieved total revenue of RMB 113.1 billion, representing a year-on-year increase of 22.3%.
Our Group’s gross margin reached 22.9%, setting a new historical high and improving by 2.5 percentage points year-on-year. The revenue from our smartphone and IoT division was RMB 84.1 billion, with a gross margin of 22.1%, reflecting a three-percentage-point year-on-year increase. For three consecutive quarters, the gross margin of our smartphone and IoT division has shown year-on-year improvement.
In terms of smartphones, this quarter we generated revenue of RMB 46.1 billion, accounting for 40.6% of our total revenue. Our global smartphone shipments for the quarter totaled 43.25 million units, achieving year-on-year shipment growth for nine consecutive quarters. Our premium strategy has yielded significant results, with continuous improvements in product strength.
Lin Shih-wei
According to third-party data, in the third quarter of 2025, the sales volume of our premium smartphones in mainland China accounted for 24.1% of our overall smartphone sales, reflecting a year-on-year increase of 4.1 percentage points. According to third-party data, our global smartphone shipment volume ranked third, with a market share of 13.6%, marking the 21st consecutive quarter that we have ranked among the top three globally.
According to third-party data, in the third quarter of 2025, our smartphone sales ranked second in mainland China, with market share increasing by 0.7 percentage points year-on-year. Our smartphone shipments ranked among the top three in 57 countries and regions globally and among the top five in 68 countries and regions worldwide. In the third quarter of 2025, due to intensifying competition in mainland China, our smartphone gross margin stood at 11.1%.
In terms of IoT, our revenue in the third quarter was RMB 27.6 billion. Our overseas IoT business revenue reached a new historical high this quarter. Our IoT gross margin for this quarter was 23.9%, representing a year-on-year increase of 3.2 percentage points. As of September 30, 2025, the number of IoT devices connected to our IoT platform has exceeded 1.1 billion units.
Lin Shih-wei
According to third-party data, in the third quarter of 2025, our global tablet shipments ranked among the top five, with rankings among the top three in mainland China. Our wearable device shipments ranked first globally and second in mainland China. Shipments of our TWS earphones ranked second globally and first in mainland China.
In October 2025, Xiaomi's smart home appliance factory officially commenced operations, marking the completion of a closed-loop integration across design, R&D, production, and validation. The total investment in Xiaomi’s smart home appliance factory exceeded RMB 2.5 billion, with an annual designed production capacity of seven million units. In terms of both efficiency and quality, the factory has reached industry-leading standards.
Regarding internet services, we continue to expand our user base. In September 2025, our global monthly active users (MAU) reached 742 million, representing a year-on-year increase of 8.2%. The MAU within mainland China reached 187 million, growing by 11.6% year-on-year. This quarter, our internet services revenue reached RMB 9.4 billion, setting a new historical record, reflecting a year-on-year growth of 10.8%. The gross margin for our internet business this quarter reached 76.9%.
Lin Shih-wei
Benefiting from the continued growth in MAU and ongoing premiumization efforts, our advertising business continues to drive the growth of our internet business. Revenue for this quarter was RMB 7.2 billion, representing a year-on-year increase of 17.4%. Our overseas internet services revenue reached RMB 3.3 billion this quarter, growing by 19.1% year-on-year and accounting for 34.9% of total internet services revenue, setting a new historical high.
In the third quarter of 2025, revenue from our smart electric vehicles and AI innovation businesses reached RMB 29.1 billion, accounting for 25.6% of the group's total revenue, including RMB 28.3 billion from smart electric vehicle sales and RMB 0.7 billion from other related businesses. The gross margin of the smart electric vehicles and AI innovation businesses segment reached 25.5%.
In the third quarter of 2025, we delivered 108,796 new vehicles, primarily driven by the ongoing deliveries of the SU7 Ultra and YU7 series. Our average selling price this quarter was RMB 260,000. For the first time, our new business achieved a quarterly operating profit, amounting to RMB 700 million this quarter.
Lin Shih-wei
We are steadily executing on the group’s ten-year goals by making large-scale investments in core foundational technologies, aiming to become a leader in the next generation of global hardcore technology. In the third quarter of 2025, our research and development expenditure reached RMB 9.1 billion, a year-on-year increase of 52.1%. For the first three quarters of 2025, our research and development spending has reached RMB 23.5 billion.
As of September 30, 2025, the number of our R&D personnel reached a new historical high of 24,871, accounting for 44.2% of the total workforce. In the first three quarters of 2025, our capital expenditures reached RMB 13.1 billion, a year-on-year increase of 87%. We have also continued to reward shareholders through stock repurchases. Since the beginning of this year, our cumulative repurchase amount has reached HKD 1.541 billion, approximately 34 million shares.
Finally, in terms of profitability, our adjusted operating profit for the quarter consecutively set a new historical high for four quarters, reaching RMB 11.3 billion, representing a year-on-year increase of over 80%.
Lin Shih-wei
Finally, in terms of ESG, our ESG rating was upgraded by MSCI from BBB to A in October 2025, achieving a third consecutive year of rating improvements since 2022. In September 2025, we achieved a historic high score of 63 points in the latest S&P Global Corporate Sustainability Assessment, marking the second consecutive year of score increases.
In September 2025, we were successfully included in the Forbes China Top 50 ESG list for 2025. In October 2025, we were also listed on the Forbes World’s Best Employers list for 2025, marking Xiaomi's third inclusion on this list. Thank you all; this is what we wanted to share with you today. We can now begin the Q&A session.
Host
Thank you, Mr. Lin. We will now move into the Q&A session. To allow more investors the opportunity to ask questions, please limit your inquiries to two questions per person. The Q&A session begins now. If you would like to ask a question, press star one on your phone. To cancel your question, press star two.
Andy (Morgan Stanley)
Thank you, host, and thank you, Mr. Lu and Mr. Lin, for your sharing just now. Congratulations to Xiaomi Group for achieving record-high profitability this quarter. I have two questions. The first one is related to smartphones. Recently, we have observed that the capital market has taken note of a significant increase in memory prices, and there is great concern about how this cost factor will impact the gross margin of smartphones. Could the management team share with us their insights on the trend of memory price changes and its potential effect on smartphone gross margins?
The second question is about Xiaomi's automobiles. We’ve noticed that over the past two months, delivery volumes for Xiaomi’s vehicles have continued to grow. Additionally, we’ve observed that the delivery lead times for Xiaomi’s SU7 Pro and Pro Max models have been significantly shortened. Could management share the reasons behind these changes and provide some insight into any strategic shifts or key areas of focus for the future development of Xiaomi’s automobile business?
Lu Weibing
Let me address the first question regarding the impact of memory on mobile phone gross margins. First, I will make an assessment: I believe that the current increase in memory costs is likely to persist over a relatively long cycle. Historically, memory cost cycles would repeat every few years, but this time may differ significantly from previous cycles.
This cycle is primarily driven by AI-powered high-performance computing (HPC). From our perspective, this cycle appears to be demand-driven and thus longer in duration. Traditionally, the growth in mobile phone storage has been supported by three main categories: smartphones, laptops, and servers. However, HPC has now been added to the mix.
As a result, the inclusion of HPC will likely lead to significant demand growth, but our supply capacity remains insufficient. In 2023, memory prices reached a low point, with costs plummeting sharply. Consequently, investments in new memory production were halted, and we do not expect new capacity to come online until 2027.
Lu Weibing
This situation creates a scenario where demand will grow over an extended period while supply struggles to catch up. This dynamic is expected to have a considerable impact on mobile phone costs. Specifically, there is currently a price gap between memory costs for smartphones and those for servers or HPC, but this gap is gradually narrowing.
Under these conditions, I believe it will significantly affect the gross margins of products with large memory requirements, such as smartphones, tablets, and laptops, where storage costs represent a substantial portion of overall costs. I view this as a critical challenge facing the industry.
Given the impact on gross margins, the fundamental solution is for companies to implement moderate price increases for their products. However, based on current observations, the extent of these price hikes is far from sufficient to offset rising costs. Therefore, the increase in costs far exceeds the rise in retail prices observed in today's market.
Lu Weibing
I think the first point is relevant. As for the second, I believe the remaining issues may need to be absorbed by the manufacturers themselves. Absorbing a portion of these costs on their own could lead to a reduction in gross margin. Additionally, I believe we can address this through product mix optimization. For instance, the cost impact of the same memory component—say, 12GB+256GB—varies between low-end and high-end models, so its influence is not uniform.
Over the past few years, Xiaomi has been actively advancing its premium strategy, continuously improving its product mix. We have consistently emphasized the need to increase ASP (Average Selling Price) and transform our product structure. These are some of the key initiatives we have undertaken in recent years. I believe they will help offset part of the rising costs.
Looking ahead to next year or from Q4 this year into next year, I believe the increase in memory costs will have a definitive negative impact on the gross margins of smartphones, tablets, and laptops. The extent of the decline will vary by company. However, speaking of opportunities, ensuring supply remains the top priority for Xiaomi. In my view, we are fully capable of securing supply for Xiaomi through 2025.
Lin Shih-wei
Let me add to Mr. Lu’s response and then address your question about automobiles. Since we reclassified our financial reporting last year into segments like smartphones, IoT, and new businesses such as automobiles, over the past ten quarters, our smartphone and IoT division has maintained a gross margin above 20%. This demonstrates our ability to hedge against these challenges to a certain degree. Our IoT segment also maintains a healthy gross margin, keeping the overall division stable at above 20%.
The second question pertains to automobiles. You have noted that our delivery volumes continue to grow. In fact, we are still a relatively young company in the automotive industry. Since the start of product deliveries, only 18 months have passed, and our total deliveries have already exceeded 400,000 units. In July and August, through technical upgrades, we increased our delivery volume by over 30,000 units, and by September and October, our monthly deliveries had surpassed 40,000 units. Hence, our delivery capacity continues to improve steadily.
Lin Shih-wei
As Mr. Lu mentioned earlier, we are on track to achieve our delivery target of over 350,000 units set at the beginning of this year ahead of schedule this week. This reflects significant efforts we have made in both production capacity and technological upgrades. You may also notice that the delivery times for our Pro and Max models have been significantly reduced recently. First, as I mentioned earlier, we have improved efficiency through technological upgrades, which has enhanced our delivery capabilities. Second, there have been improvements in the availability of some supply materials. Thus, we have prioritized boosting the delivery capabilities of SU7 and SU7 Max, and going forward, we aim to continue accelerating the delivery cycles for other products.
Kina (Citi)
Thank you, management, for giving me the opportunity to ask questions. I have two inquiries. First, following up on Andy's previous question, regarding the company’s overall strategy—based on Mr. Lu’s analysis of the current landscape, including memory costs and their impact on smartphone margins—will the company adjust its smartphone strategy next year? Specifically, will there be changes to strategies aimed at protecting profitability, potentially impacting shipment volumes?
Regarding this high-end strategy, the company has also set a target of 30 million units for high-end smartphones in the future. Will this segment be affected by the increase in memory prices, leading to updates or adjustments, or even achieving better results ahead of schedule? This is the first question related to smartphones.
The second question relates to automobiles. If the company provides tax subsidies to customers who have already purchased the SU7 model, what impact would this have on next year’s gross margin? Furthermore, given this impact, will the company’s overall efficiency improvements be sufficient to offset it, or even create additional room to further enhance the gross margin?
Lu Weibing
If the retail price of smartphones rises, our judgment is that the overall smartphone market will decline. This is a fundamental assessment. It is still difficult to quantify precisely how much it will rise or decline today. Overall, the smartphone market remains a stock market. Given the excellent quality and user experience of smartphone products in recent years, the motivation for proactive upgrades is not particularly strong. Therefore, if product prices increase, consumers may choose to wait. This is our overarching judgment.
For Xiaomi, I remember that in 2023, we consistently emphasized a shift in Xiaomi’s business philosophy—from prioritizing scale to a strategy that balances profit and sales volume. For Xiaomi today, we do not pursue market share at all costs. We must assess the overall market. In this process of evaluation, maintaining a relatively stable market share remains highly important to us.
Lu Weibing
We have repeatedly stated that in the Chinese market among international companies, we are committed to securing a certain market share regardless of cost. From current statistics, last year our overall market share was 15.8%, and this year it is approximately 17%. This one-percentage-point increase aligns with Xiaomi’s strategy.
However, we must remain steadfast in advancing our high-end strategy to increase ASP. I have mentioned that by 2030, we aim to achieve a scale of 30 million units for our high-end models. This year, we expect to reach between 16 and 17 million units. Over five years, growing by two to three million units annually seems achievable. The increase in storage costs will not affect our commitment to high-end development, its pace, or determination; instead, it may accelerate our transition in this direction.
Lin Shih-wei
Regarding automobiles, let me address this. First, when examining automobile gross margins, we note that although we delivered over 350,000 vehicles this year, this remains relatively small compared to China's annual vehicle stock of approximately 22 million units. Therefore, in the short term, our primary goal remains increasing volume rather than prioritizing gross margin as a key objective.
Of course, the introduction of the purchase tax is also a response to similar incentives being offered by our industry peers. Given our relatively longer delivery cycles, we hope that customers will continue to support our vehicles. Naturally, this purchase tax will have some impact on our ASP and gross margin next year, but I believe our current gross margin remains at a very healthy level. Thus, while ensuring sales volume, we aim to maintain a robust gross margin.
Han Jing (CICC)
Good evening, Mr. Lu and Mr. Lin. I have two brief questions I would like to ask. The first question pertains to the number of IoT connections. In the recent announcement, we noted that the total number of IoT connections has exceeded one billion for the first time, with a year-over-year growth rate of over 20%. Referring back to what Mr. Lu mentioned earlier regarding our advancements in on-device AI, including the already released MiLM model and other upcoming developments, I would like to ask: What are our plans for integrating on-device AI with our smartphones, tablets, laptops, and smart home devices? What are our thoughts regarding the AI ecosystem and its applications?
The second question focuses on the large home appliance segment. As we may see some year-over-year pressure in Q3 due to the phase-out of national subsidies and increased competition, I would like to ask about our strategy going forward in the large home appliance business. Additionally, could you share your outlook for our overall IoT business heading into next year?
Lu Weibing
Regarding IoT connections, I suggest focusing on a few key directions. First, in 2024, Xiaomi is advancing Xiaomi HyperOS, which consolidates four previously separate systems—MIUI, Vela, Mina, etc.—into a unified system. This OS will serve as the central system for all interconnected devices.
Through advanced human-computer interaction technology called Full-Domain Intelligence Connectivity, we aim to achieve deep integration of hardware and software to provide proactive intelligent services. Another important area to watch is our open-source smart home exploration initiative, Xiaomi MiLocal, announced in November.
This is a large 7B on-device vision-language model. Its release marks an important step for Xiaomi in applying large model technology to home scenarios, which we believe represents a significant advancement for the smart home industry. Based on this, you can see that we have directly integrated AI large models with Xiaomi’s IoT devices.
Lu Weibing
This approach moves away from traditional hard-coded rule limitations and transitions to conversational interactions and visual perception-based interactions. These developments, in my view, are extremely significant, and we will continue to advance along these two paths. I also believe that on-device AI will gradually gain momentum, and currently, our on-device AI capabilities are progressively improving.
I believe that Xiaomi has established a large-scale model technology team for over a year now, and we have some outputs coming out. In terms of on-device applications, I think we should aim for lighter computing power, lower power consumption, and lower costs to enable better popularization of on-device AI. But this is certainly Xiaomi's major direction, which I also consider as Xiaomi's advantage.
Regarding the reduction of national subsidies for home appliances and similar matters, my view is that national subsidies are a policy, a phase-based policy. However, I don't think it can last forever. Whether it increases or decreases, I believe it is within our expectations and predictions. From the day national subsidies began, we anticipated when they would stop, and what we should do afterward; these are all within our forecasted range.
Lu Weibing
However, if you look at some of our data from this year, even in the third quarter, you will notice that our ASP continues to grow, our product mix remains strong, our innovative products are constantly being launched, and our gross margin stays at a good level. Additionally, the expansion of our home appliance business overseas is accelerating from an exploratory phase, and I think these factors help us address external environmental changes and mitigate their impact on us today.
The third point is that in September, we announced our major home appliance launch for October in Wuhan, where our smart factory went into operation. We spent nearly a year building this factory, which is part of our home appliance manufacturing. If you have time, please visit our facility in Wuhan’s Optics Valley—it’s an excellent location with a great environment and very advanced technology.
Upon visiting, you might find that it doesn’t resemble the traditional image of a factory. It is highly advanced, extremely intelligent, with strong automation and numerous AI technologies integrated into the sophisticated layout design of this plant. These advancements demonstrate that our home appliance smart factory contributes significantly to elevating our technological capabilities, greatly improving our manufacturing processes.
Lu Weibing
Thirdly, it strongly empowers our partners, which I think is also a significant benefit. These may represent directions we are taking in the home appliance sector. National subsidies might have short-term impacts, but I believe they won’t affect our long-term strategic direction. We have set a fixed target and are moving forward with it. By 2030, our goal is to be the leading domestic home appliance brand, and this objective remains unchanged.
Li Jinchi (CITIC Securities)
Thank you, management, thank you, Mr. Lu and Mr. Lin. I have two questions. First, I am Li Jinchi, an automotive analyst at CITIC Securities. My first question relates to autonomous driving. Recently, we saw Mr. Lei’s announcement on Weibo regarding a major upgrade in autonomous driving. I’d like to ask the leadership: following this substantial upgrade, to what level will our autonomous driving capabilities reach?
The second question is about the progress of our new retail initiatives overseas. Could you share with us some details regarding the layout of our new retail stores abroad and our future plans? Specifically, I would like to ask how we plan to balance the interests of local traditional distributors in overseas markets during this process?
Lu Weibing
Regarding assisted driving, here is my perspective: intelligent capabilities will be a key determinant for electric vehicles in the future, and within that realm, assisted driving is the most crucial aspect. For Xiaomi Group, from the very beginning, we have regarded assisted driving as an extremely important area of investment and have set the goal of achieving L4-level capabilities directly. This strategic direction aligns with Xiaomi's overarching vision, and we are committed to investing and making strategic deployments accordingly.
In terms of our efforts in assisted driving, the recent launch of Xiaomi SU7 demonstrates our commitment. You will notice that across all three versions—high, medium, and low-end—we have equipped the models with the same level of intelligent driving capabilities. These include Qualcomm’s 8295 chip with 700 TOPS of computing power, standard LiDAR, and corresponding HWA highway-assisted driving functionalities.
Additionally, looking ahead, we have upgraded the camera resolution to 10 million pixels, up from the previous 3 million pixels. This upgrade significantly enhances the driving experience, with lane-change success rates improving by 57%, obstacle avoidance success rates increasing by 67%, and intersection passage rates rising by 23%. I believe users will immediately notice a substantial improvement compared to the previous 3-million-pixel system.
Lu Weibing
Recently, we have made some positive announcements. At the Guangzhou Auto Show, Xiaomi Group announced the upcoming release of a new version of end-to-end assisted driving, including an enhanced version of HWA. This release is scheduled for the 21st, and I encourage everyone to stay tuned.
Lately, there has been significant attention on foundational large-scale models. Regarding MiLM, our progress has been encouraging. In April, we released a series of MiLM language models; in May, we introduced multi-modal large models; and in September, we launched the MiLM Audio language model. All of these advancements form a strong foundation that will greatly support both our driving systems and in-cabin experiences in the future.
Moreover, we have sufficient computing power and data to further enhance our autonomous driving capabilities. Moving forward, I invite everyone to follow the progress of our assisted driving initiatives. Our ongoing internal testing will soon reveal more details, which I believe will showcase our competitive advantages effectively.
Lu Weibing
Overseas new retail is proceeding largely according to our schedule. This year, we have focused on key regions such as Southeast Asia, including countries like South Korea and Japan, where we have successfully established operations. We have also made significant progress in the European market. In the Southeast Asian market, we are building stores at a high density. Looking ahead to next year, I plan to intensify efforts in markets like Latin America and Africa.
At this stage, we can conclude that overseas new retail is entirely viable. The acceptance and operational efficiency of this model are highly advanced, and profitability is strong. Most of the new retail stores we have opened are profitable, which demonstrates that our output has been very successful.
Speaking of Singapore, during my recent visit, I observed the home appliances section at Changi Airport, which I found to be performing exceptionally well. In their first month of operation, they reported revenue reaching approximately two million dollars, which is quite commendable. However, compared to domestic coverage, our product categories in overseas markets still lag slightly behind. For instance, in Japan, the high entry barriers for certain categories require us to invest time in obtaining certifications for each product category.
Lu Weibing
I believe there is no conflict between our traditional channels and new retail development. Traditional channels tend to be more fragmented or specialized—some focus on selling mobile phones, others on home appliances. A typical department store may offer a mix of products but remains segmented by category. Xiaomi’s new retail advantage lies in consolidating all products within the same physical space. Overall, I see no major issues with our current approach.
If you visit Hong Kong, you will notice numerous Xiaomi Home stores. You can also purchase products online via Xiaomi’s website or through retailers like Broadway and Fortress. Even Tencent-related platforms might carry our products. In Europe, specifically Spain, customers can buy from telecom operators. These distribution models do not present significant conflicts and allow us to continue expanding.
UBS (Return)
Thank you, management, for addressing my question. Although we have discussed inventory extensively, I would like to follow up on one specific point. Mr. Lu previously mentioned the company’s proactive efforts in inventory management. Could you elaborate on how our current inventory levels compare to those at the beginning of this year and the same period last year?
My second question pertains to MiLocal. Since its launch, it has sparked extensive discussions within the smart home developer community. Many software and hardware manufacturers are actively adapting to it, opening up vast possibilities for AI-driven products. Could management share insights into the medium- to long-term plans for MiLocal? After the exploration phase, do we intend to maintain an open ecosystem, or will we integrate it fully into Xiaomi’s proprietary ecosystem once maturity reaches a certain level?
Lu Weibing
In terms of our overall inventory management, I think that basically during a cost-decreasing cycle, we would reduce inventory. Conversely, during a cost-increasing cycle, we would increase inventory. Currently, no company should act without considering its capacity at different stages. Today, it might be an issue of supply scarcity; there are many instances where you want to build up your inventory, but you may not necessarily be able to do so.
Overall, I think our current position is quite good. In terms of our positioning within the industry, I believe our collaborations with companies like Hynix, Samsung, and Micron are excellent. At the same time, we have very strong cooperative relationships with domestic manufacturers such as CXMT and Yangtze Memory Technologies. Therefore, for Xiaomi, I think from the perspective of supply adequacy, our situation domestically is very favorable.
So, I don't think everyone needs to be particularly concerned about our inventory situation. I believe by observing the overall trend in our product gross margins, it can be seen that we are performing well in this area. Because, as industry insiders know clearly, the extent of memory price increases each quarter actually has a much greater impact on our gross margin than what we disclose publicly today. This indicates that our management in this area is quite effective, and thus, there is no need for concern.
Lu Weibing
Therefore, the concept of MiLocal you mentioned is indeed something we consider innovative. As I previously mentioned, this is a novel technological approach that Xiaomi brings to the industry after years of IoT development and over a year of exploration in large AI models. Traditional smart home systems, in my view, operate based on fixed rules, similar to the early base stations. However, with the advent of large models, they will become significantly smarter.
Thus, you can observe a form of human-computer interaction that involves conversational, interactive, and visual perception elements. We will continue to maintain an open ecosystem, which you can also keep an eye on. In the future, we will host this year's Developer Conference, where we will share more related content. So, there is no need for concern—we will ensure our openness remains intact.
Huang Liping (Huatai Securities)
Thank you, Mr. Lu. Thank you. I have two questions, the first still related to storage. Over the past few years, the structure of the mobile phone industry has remained fairly stable, with approximately six to seven major global players, each shipping between 100 million to 200 million units annually. This wave of the storage cycle seems likely to persist for a relatively long period. I would like to ask how you perceive whether this wave could bring significant changes to the industry landscape and what kind of changes might occur in product management and pricing strategies. The hope is that, after navigating through this cycle, the industry can reach a higher level. That is my first question.
The second question pertains to the positioning of our Wuhan factory. Xiaomi’s large home appliance business has secured a top-three position across various categories domestically. With the launch of the Wuhan factory, what role will Xiaomi’s large home appliances play in the overall product lineup? How will the commissioning of the Wuhan factory elevate the competitiveness of our large home appliance business moving forward?
Lu Weibing
I believe that today, from a global perspective, the mobile phone industry has entered an oligopolistic pattern. Apple and Samsung each ship over 200 million units, Xiaomi is approaching 200 million units, other manufacturers are below 150 million units, and many are under 100 million units. I think this is roughly the basic structure, and I believe this structure will not change significantly in the short term. However, this time, the magnitude and duration of the increase in memory costs will certainly have some significant temporary fluctuations on this pattern.
Because the absorption of memory cost affects each company differently, although the absolute increase might be similar across the board, the degree of impact for each company varies. If your ASP (Average Selling Price) is particularly low, the impact will likely be greater. This may force companies to raise prices relatively more, which I believe will have a significant impact on them.
I think going forward, everyone should basically be able to see this. I believe that in Q3, we still have some leeway because the storage price increases in Q1 and Q2 were not as significant. The price hike started in Q3, and it will intensify even more in Q4. This means that in Q3, companies can digest some of the inventory carried over from Q2. By Q4, they will be dealing with inventories after significant price hikes. I believe by Q4, people will start feeling some of these market reactions.
Lu Weibing
In my opinion, domestically, there will definitely be changes in the competitive landscape. Xiaomi Group grew by one percentage point this year, but the gap between us and others remains small. In China, we mainly look at BCI data because it reflects active devices and is the most accurate metric. Looking at this year, the highest market share might be slightly above 17%, while the lowest could be around 13%. There is only a difference of one or two percentage points between each player. I don't think this represents a stable state, and eventually, the current structure will break.
I believe it is inevitable that some players will fall behind or exit the market. At this time, it depends on who has better technology, who is better prepared, and who has the real capabilities to compete during difficult times. During shortages like this, suppliers will have clear strategies within the supply chain. Besides looking at who places large orders currently, they will also evaluate who has long-term potential value.
If you talk to upstream suppliers, you can already see how they prioritize their clients. Manufacturers are making active choices in this regard. From my perspective, this round of changes will have a greater impact on the domestic market structure than on the global landscape.
Lu Weibing
Regarding the positioning and role of the Wuhan factory, Xiaomi adopts a dual strategy in both manufacturing and outsourcing for smartphones and home appliances. This is a long-term strategy. When building our large home appliance factories, we openly communicated with our outsourcing partners for home appliances. They questioned why we need both outsourcing resources and our own factories for large home appliances.
We have strong advantages here. If you visit our large home appliance factory, we would like to invite you to take a look. There are several distinguishing features about this factory: its level of intelligent automation far exceeds that of traditional factories. If you visit, you’ll notice that all equipment capabilities from our Changping smartphone factory have been transferred to the large home appliance factory. Our entire 'Surging Self-Manufacturing Platform' has been fully transplanted, and the entire control system is developed and managed entirely by Xiaomi Group.
I believe this is an extremely advanced system. First, whether it's our control systems or equipment, all are from Xiaomi, and I think we are the first to achieve this. Second, if you look at the level of automation, comparing our air conditioning production line with previous ones, you will find that our overall automation efficiency and reduction in manual labor far exceed others. This is my second point.
Lu Weibing
Third, if you look at our inspection stations, there are traditional ones as well, since I visited twice this time. In many positions, traditional inspections rely on human eyes, which suffer from high error rates due to fatigue—after a while, one’s vision really does blur. However, all our stations now use AI for inspections, significantly improving both efficiency and accuracy. I believe this is where the value of our factory lies.
After realizing the value of our factory, we aim to empower our contract manufacturers by having them upgrade and transform their factories according to Xiaomi’s standards. This is similar to Apple, right? When discussing contract manufacturing, Apple itself doesn’t own any factories—it fully relies on outsourcing. However, its approach isn’t simply handing over production to others; it involves comprehensive process control. This is what Xiaomi aims to achieve.
In such factories, I believe we adhere to several fundamental principles. Our own factories prioritize the production of high-end products, as they require higher craftsmanship and technical sophistication. Additionally, we make commitments to our partners to ensure their existing production capacity remains unaffected. If total production decreases, we will first reduce our own capacity to protect our partners’ interests.
Lu Weibing
These are the commitments we have made to our long-term partners, who understand and strongly support us. Many may worry about these aspects, but these are promises we’ve made to our long-standing partners. Once implemented, I believe this will significantly enhance our partners’ overall factory capabilities and efficiency.
If time permits, I encourage everyone to engage with our partners. After visiting our Changping smart factory this year, although it accounts for less than 10% of our total production capacity, the empowerment and management it provides to other mobile phone factories are exceptional.
Analyst (Goldman Sachs)
Thank you, management, for taking my questions. I have two inquiries. The first concerns Xiaomi Home and our new retail business. We currently operate 18,000 Xiaomi Home stores domestically. Could management share insights into how we plan to approach the pace of domestic Xiaomi Home expansion and the overall strategy moving forward? Additionally, after achieving record-high IoT revenues overseas, can we anticipate further growth in overseas IoT revenues alongside the expansion of overseas new retail? What trends should we expect regarding the growth rate of overseas revenue? That concludes my first question.
The second question concerns our overall cost structure. I noticed a rapid increase in operating expenses for the mobile and IoT segments in Q3. How should we interpret the trend in expense ratios for these segments moving forward?
Lu Weibing
Regarding Xiaomi Home, back in 2020 and 2021, due to our relatively weak technological capabilities at that time, we set an ultimate goal of opening 30,000 stores based on our broader objectives. However, our first milestone was to reach 10,000 stores, which we achieved by the end of 2021. During this expansion process, certain issues inevitably emerged, prompting us to apply the brakes between 2022 and 2023. Thus, our focus shifted to optimizing the performance of the first 10,000 stores over a two-year period.
Currently, it appears that the first 10,000 stores have performed well. Therefore, in 2024, we are accelerating store openings. You can roughly view our progress from 10,000 stores to 19,000 stores today, with plans to reach 20,000. However, we believe it is necessary to stabilize at this stage. Hence, next year will be another year focused on operational efficiency. Our goal for next year is not the number of new stores; instead, our priority is ensuring that the newly opened 10,000 stores are effectively managed while continuously optimizing existing ones.
Lu Weibing
We aim to address issues such as unreasonable store sizes, improve product displays, enhance staff training, and optimize overall store operations. This approach represents our overarching strategy. While our primary goals remain unchanged, we adjust the pace of execution based on internal capabilities and external conditions—knowing when to accelerate or decelerate accordingly.
I believe this model can also be explored and replicated overseas, although the challenges abroad may be greater than those in China, particularly in regions like Southeast Asia and India, where opportunities abound. In countries such as Malaysia, Thailand, and the Philippines, shopping malls are ubiquitous, making rapid expansion feasible. Conversely, other regions may present fewer opportunities.
Take Berlin, the capital of Germany, with a population of over three million. Despite this, you’ll find only two or three viable locations for malls, indicating a lower density compared to our markets. I believe this reflects differences at the national level. Nevertheless, I think the model works universally. Combined with our efforts in e-commerce, IoT plays a significant role in driving overseas expansion.
Lu Weibing
Our IoT products are in a phase of rapid growth, creating a mutually reinforcing relationship. Moreover, I believe there is still substantial untapped potential, with many product categories having the capacity for several-fold growth in overseas markets. This presents a highly promising opportunity.
Lin Shih-wei
Regarding the expenses, let me address your question. I believe there are two straightforward considerations. First, R&D expenses are quite substantial, and our growth in R&D spending continues to outpace the growth rate of our current revenue. This is the most critical factor. The second factor, as Mr. Lu mentioned earlier, relates to your question about the new retail network. You will notice that this quarter, we have added approximately 1,000 stores on a sequential basis, of which around 60 are large-format stores. These stores still require some time to stabilize operationally. Therefore, the primary driver of the increase in selling expenses remains store expansion, followed by the growth in R&D expenses. These are the two most significant factors.
Host
Due to time constraints, today’s meeting concludes here. Thank you all for your time, and we hope you will continue to fully support Xiaomi Group. Goodbye.
For more details:XIAOMI-W IR
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