Xiaomi (Minutes): Smartphone target lowered to 175 million, cars not participating in internal competition

The following are the minutes of Xiaomi's FY25Q2 earnings call organized by Dolphin Research. For earnings interpretation, please refer to "Xiaomi: Will Cars 'Surge' to Save the Day as Phones Face Another 'Cold Wave'?"

I. $XIAOMI-W(01810.HK) Review of Core Financial Information

II. $Xiaomi Corporation(XIACY.US) Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Core Business Highlights:

a. Xiaomi Cars: Successfully launched and set industry records for order volumes.

b. Self-developed Chips: Released the first self-developed 3nm flagship chip, successfully integrated into three terminal products for market sale.

c. Smartphone Business: Continues to rank among the top three in global shipments. In Mainland China, ranks first in market share based on activation volume.

d. Major Appliances Business: Continues to grow rapidly with strong momentum.

2. Smartphone Business:

a. Market Position and Goals: Q2 market share at 14.7%, firmly in the top three, closing the gap with the top two. The goal is to enter the "200 million club" in global sales, forming a "three-strong" pattern with Apple and Samsung.

- Mainland China: The market landscape is intense, but the goal is clear—to increase market share by 1% annually.

- Overseas Markets: Achieved rapid share growth in Southeast Asia (ranked first), Europe (second), Middle East and Latin America (second), and Africa (14.4% share).

b. High-end Strategy:

- Recognizing that breakthroughs in high-end markets must rely on core technology. Self-developed chips are seen as a core competitive advantage in consumer electronics, and the presence or absence of self-developed chips will be a key differentiator in the future.

- Seizing the variables brought by AI, breaking through from the underlying model. Released an open-source multimodal large model, with AI papers selected for top academic conference ICCV.

- In the Mainland China market, market share in the 4000-5000 yuan and 5000-6000 yuan price segments has increased to 24.7% and 15.4%, respectively, establishing a foothold.

- Ranked second in the 2025 Kantar BrandZ Top 50 Chinese Global Brands, with continued brand mindshare improvement.

3. Other Personal and AIoT Devices:

a. Tablets: Q2 global shipments increased by 42.3% year-on-year, the fastest growth among the top five manufacturers globally.

b. Wearable Devices: Ranked first in global shipments of wristband devices.

c. TWS Earphones: Ranked second in global shipments, first in Mainland China shipments.

d. Innovative Products: Released the first Xiaomi AI Glasses, with sales far exceeding expectations and a 98% positive rating on JD.com.

4. Smart Major Appliances Business: Q2 smart major appliances revenue grew by 66.2% year-on-year, reaching a historical high.

a. Air Conditioning Business: Despite the industry's "volume increase, price drop" trend in the first half of the year, Xiaomi achieved both volume and price increases against the trend. First-half shipments increased by over 60% year-on-year, with ASP (average selling price) also rising year-on-year.

b. Future Outlook: With continued deepening in products, brands, channels, and users, we believe the major appliances business will continue to maintain healthy and rapid growth.

2.2 Q&A Session

Q: The AIoT business performed remarkably well in the second quarter. Could management share specific performance details for the domestic and overseas markets? The overseas new retail system is rapidly expanding; how will this promote the growth of the overseas AIoT business in the future?

A: The AIoT business achieved good growth in both domestic and overseas markets. Domestic growth was mainly driven by the strong construction of offline new retail channels, such as the "major appliance wall" sections in stores, which greatly boosted sales. Overseas growth benefited mainly from channel expansion. Currently, due to the rapid growth of the major appliances business being almost entirely in China, the overall growth rate in the domestic market is temporarily higher than overseas.

Regarding overseas new retail, our goal this year is not to pursue speed but to achieve a "scale closed loop," with plans to open 400-500 stores throughout the year to lay the foundation for next year's efforts. We plan to expand at a rate of over 1,000 stores per year next year. Once a self-controlled retail network is established, it will efficiently integrate and promote the sales of all AIoT product categories overseas, greatly unleashing their growth potential.

Q: We observed a sequential decline in the smartphone business's gross margin in the second quarter, partly due to rising costs of components like DRAM. How does management view this short-term fluctuation, and what is the long-term outlook for smartphone business gross margins? Considering the two favorable factors of industry concentration and Xiaomi's push towards high-end, are they sufficient to help smartphone gross margins recover in the future? Additionally, what other factors might affect the long-term gross margin of the smartphone business?

A: The sequential decline in smartphone gross margin in the second quarter was mainly due to the combined effects of rising costs and product cycles. On the cost side, the price increases in memory and battery materials exceeded expectations, putting significant pressure on mid-to-low-end products. Additionally, the second quarter coincided with our product launch off-season, temporarily affecting gross margin performance.

Looking ahead, we expect gross margins to recover with the concentrated launch of new products in the fourth quarter. In the long term, the core strategy to stabilize and improve gross margins remains the unwavering push towards high-end, ensuring high-end products truly establish a foothold. Achieving this goal hinges on continued investment in core technology, with the three most important pillars being self-developed chips, operating systems (OS), and artificial intelligence (AI), which form the fundamental logic for addressing gross margin issues.

Q: The AIoT business's gross margin showed a significant year-on-year improvement, but there seems to be some pressure sequentially. Could management break down the specific sources of this sequential pressure? Considering the potential intensification of competition in the home appliance market and the potential slowdown risk in the domestic consumption landscape due to last year's high base (such as state subsidies), how does management view the trend of AIoT business gross margins in the second half of the year?

A: Regarding AIoT business gross margins, the slight sequential decline in the second quarter was mainly due to the impact of China's "618" promotional event, with no other major negative variables. The second quarter was affected by the "618" promotion, while the first quarter had fewer promotional activities, so a slight sequential decline is normal. However, it should be noted that the second quarter's gross margin of around 22% is actually the second-highest level in history, and we have maintained AIoT gross margins above 20% for four consecutive quarters. This clearly indicates that AIoT business gross margins are on a healthy upward trajectory.

As for competition in the home appliance market and the macro consumption environment, we believe these factors have little impact on the company's home appliance business. Currently, we are confident in achieving the goals set at the beginning of the year, and the overall business development trend and established plans have not been adjusted.

Q: R&D investment in the second quarter increased by over 40% year-on-year, the fastest growth rate in recent years. Could you elaborate on the main directions of these investments? The company released the "100,000+ km" assisted driving technology in the second quarter; could you introduce the latest investment directions and progress in smart driving? In the automotive and innovative businesses, will there be continued increased investment in large models and chips in the future?

A: Regarding R&D investment, we are currently making comprehensive investments. This includes not only the core technologies you mentioned, such as chips, AI, and operating systems (OS), but also covers all product lines, including smartphones, computers, cars, and even major appliances. For example, the major appliances business has achieved rapid growth, gained a good reputation, and maintained healthy profit margins due to our continued investment in technology, which is inseparable from these achievements.

As for the assisted driving technology you mentioned, we have launched the "10 million km CLIPs" training platform. This technology can process all data and driving trajectories perceived by the vehicle's sensors in about 30 seconds, significantly improving the precision of our assisted driving compared to before, with very significant results.

Overall, our investments in large models, chips, and other areas will proceed according to the original budget and pace. As for whether the investment intensity will increase, the trend is certain, with each quarter's investment being higher than the previous one. Our investments in AI and chips will definitely continue to increase. The composition of these investments is slightly different: chip investments are currently mainly focused on R&D personnel costs, while AI investments are more reflected in hardware and computing power depreciation.

Q: The EV business's gross margin reached 26.4% in the second quarter, a very impressive performance. Could you provide an outlook on the medium to long-term steady-state gross margin target? Based on the strong performance in the second quarter, the company should be more confident in achieving the goal of turning a profit in the second half of the year. However, looking ahead to the uncertainties in the second half, what potential factors might affect the final profitability level?

A: This is mainly due to two points:

1. Successful high-end entry strategy: Our average selling price (including tax) this quarter was around 286,000 yuan, which is roughly within the price range of traditional luxury brands (BBA). It can be said that Xiaomi Cars successfully entered the high-end market from the beginning, which is the foundation for high gross margins.
2. Platform-based scale effect: All our models are derived from the same highly standardized platform. This modular design brings centralized supply chain advantages, and although our overall delivery scale is not large, the scale economy effect on a single platform is already very significant, effectively controlling costs.

Looking ahead, whether such high gross margins can be maintained in the long term is still difficult to say, as it largely depends on whether we can continue to receive sufficient order volumes. As long as orders are full, we do not need to conduct many promotional activities, allowing us to maintain healthy gross margins.

Regarding the profitability target for the second half of the year, we do plan to achieve profitability on a monthly or quarterly basis in the second half of this year, and this general direction has not changed, and we are working towards it. However, it is still uncertain whether this will be achieved in the third or fourth quarter.

At the same time, I would like to remind everyone that this is just a phased profitability target. From 2022 to the first half of 2025, we have invested over 30 billion yuan in new businesses, and these investments are currently reflected as losses in the financial statements. Therefore, achieving cumulative profitability will still require a very long time. In summary, new businesses such as cars are still in a period of large-scale investment.

Q: Overseas internet revenue growth exceeded domestic growth this quarter. Besides benefiting from the growth in smartphone shipments, have we made any new and effective attempts in the revenue composition or business model of the internet business in overseas markets?

A: We have always emphasized and promoted localized operations in overseas businesses. With the construction and maturity of local team capabilities, we have been able to achieve more refined operational management in overseas markets than before. It can be said that the current growth is the dividend released by this refined operation strategy, changing the relatively extensive model of the past.

In the first half of this year, our progress in high-end markets overseas was very significant. Products priced above $600 grew by about 50%-60% year-on-year. The significant improvement in product structure directly increased the ARPU (average revenue per user), and you can also see from the financial report that our overseas ARPU has reached over 4 yuan per quarter.

As our overseas user base expands and our localized operational capabilities strengthen, our cooperative ecosystem is also changing. In the past, more domestic app developers followed us "overseas." Now, our strong local operational capabilities attract more and more local and internationally renowned brands and apps to actively cooperate with us, greatly enriching our monetization channels and ecosystem.

Q: The company continues to invest in the AI field, with self-developed large models, AI glasses, and AI functions applied in car cabins. Could management share the future development ideas and specific plans for Xiaomi in edge AI (including software and hardware)?

A: Our AI layout is mainly divided into three layers: the bottom layer is the self-developed large models with continuous investment; the top layer is various applications, such as mobile OS, car cabins, AI glasses, etc.; in the middle, there is an internal layer we call "AI-Plus," responsible for transforming and empowering the upper-layer applications with large model capabilities.

First, I firmly believe that edge AI is definitely the trend of the future. However, at this stage, the role that edge AI can play is still relatively limited. Therefore, we do not currently deliberately distinguish between edge or cloud, but rather take "user experience" as the ultimate guide—whichever way provides a better experience, we prioritize that.

Secondly, as the efficiency of large models improves and edge computing power increases in the future, I believe edge AI will experience an explosion. At that time, more and more different forms of devices will be AI-enabled and intelligent, which will be a very important opportunity point for Xiaomi.

AI is not limited to phones; we are fully leveraging the advantage of multiple scenarios to apply AI capabilities to a wider range of products. For example, the recently released car (SU7) and AI glasses have already integrated many AI functions, such as external voice control and real-time photo translation. This reflects our strategy of horizontally empowering AI capabilities across the entire ecosystem of products.

Q: In the second quarter, Xiaomi's IoT platform connected nearly 1 billion devices, which is a very large ecosystem foundation. Based on this, could management share our long-term vision and ultimate goals under the "people-car-home full ecosystem" strategy?

A: Regarding our long-term vision for nearly 1 billion IoT devices (excluding phones and tablets), our goal is very clear: to achieve a "people-car-home full ecosystem" business closed loop and ultimately form a strong network effect.

Currently, although we have achieved great success in "connecting" devices, we must admit that the stickiness between users and the ecosystem is not strong enough. This "weak stickiness" means that our network effect has not yet fully manifested, and there is still a lot of room for improvement in the value we create for users.

Our core task in the future is to transform this "weak stickiness" into "strong stickiness." If we can successfully achieve this step, Xiaomi will upgrade from a company relying on "economies of scope" to a truly "network effect" company. I believe this will be the biggest upgrade of Xiaomi's business model, and the intrinsic value of the company will undergo a qualitative change as a result.

Q: The industry performance was stable in the first half of the year, with some manufacturers experiencing a rise and fall. How does management view the growth trend of the global smartphone market in the second half of the year? Will it continue to be stable or grow? Considering potential consumer stimulus policies, what is management's view on the recovery prospects of the domestic market? Are we confident in achieving our full-year shipment target of 175 million to 180 million units?

A: Regarding the smartphone market, at the beginning of the year, the entire industry indeed held relatively optimistic expectations, and each brand set relatively positive targets as a result. However, based on the actual situation in the first half of the year, the growth of the global smartphone market did not meet expectations. When the inventory levels of each brand generally increased while market demand did not keep up, it naturally triggered a price war across the entire market, which is a basic business rule.

Now that we are at mid-year, the inventory levels of each brand have basically returned to normal, so I judge that the market will return to rationality in the second half of the year. For the full year, I believe the global smartphone market will see almost zero growth, possibly only 0.x% weak growth, which can basically be ignored.

Based on this judgment of the market, Xiaomi has also revised its target for this year, ultimately setting the full-year shipment target at around 175 million units (down from 180 million units to 175 million units). Even so, this target still represents a 5%-6% growth compared to last year, with a growth rate still far exceeding the industry market.

More importantly, I want to emphasize Xiaomi's current core strategy: in the current market environment, we place more importance on optimizing product structure and increasing ASP (average selling price), with a higher priority than simply pursuing scale growth in shipments.

Q: In a competitive industry environment (such as anti-unfair competition) that is becoming healthier, and with the company reaching a reasonable scale, what is the long-term, steady-state gross margin target for the automotive business? The company plans to enter the European market in 2027; how is the preparation work progressing in Europe? Considering the upfront investments such as overseas factory construction, will this cause fluctuations in the company's future profit margins?

A: We strongly support and agree with "anti-involution." Xiaomi has committed to not participating in price wars or unnecessary involution in the automotive business. Our current primary task is to ensure the smooth delivery of existing orders, and in the future, we will focus on the development of new models. We firmly believe that as long as we make good products and create competitiveness, healthy gross margins will be a natural result. Conversely, if the products lack competitiveness, we can only fall into a vicious cycle of price competition and promotions, and gross margins cannot be discussed.

We will firmly follow the path of "platformization, standardization, and blockbuster products." By creating blockbuster products, we form economies of scale, thereby gaining stronger cost advantages in component procurement. This is our core strategy for improving efficiency and profitability.

We firmly believe that the business model and strategy that we have explored and successfully validated in the Chinese market today will definitely be adaptable to overseas markets. Therefore, we have set a goal to enter the European market in 2027, hoping to bring the successful practices from China to Europe.

Currently, we are still in the early stages of research and preparation, and have not yet entered specific product planning, pricing, and other stages, so it is still difficult to make precise estimates of future profit margins.

We clearly understand that entering the European market means choosing the "difficult first, easy later" path, which is also one of the most competitive markets globally. However, looking back at Xiaomi's history, whether it is making chips or building cars, we have always chosen and conquered these "difficult but correct" things. We are fully prepared to strive to win this battle in Europe.

Q: In the second quarter, automotive business revenue and gross margin both showed significant sequential improvement, but net profit remained relatively stable. This seems to point to growth on the cost side (such as in R&D or sales expenses). Could management provide a detailed breakdown of the main factors driving cost growth in the automotive business? And looking ahead to the next few quarters, will these cost items see significant changes?

A: The cars we currently deliver are truly high-end products, with an average selling price excluding tax exceeding 250,000 yuan, and including tax exceeding 280,000 yuan. High ASP is the foundation for supporting good gross margins. The three models currently released (SU7, SU7 Pro, SU7 Max) are all developed based on the same platform. This high level of platformization brings very good standardization and economies of scale, allowing us to do quite well in cost control. Our factory's production efficiency is very high, which also plays a positive role in cost control and gross margins.

Looking ahead, I currently do not see any variables on the cost side that would cause significant changes, so we are confident in maintaining healthy gross margin levels.

Q: The success of the automotive business has greatly enhanced Xiaomi's brand power in China. When we push the automotive business overseas, we face a completely new market environment. How does the company plan and allocate resources to shape and enhance Xiaomi's brand power overseas (especially in high-end markets)?

A: Regarding overseas brand building, I think it can be viewed from two levels. First, Xiaomi's brand awareness as a consumer electronics brand is already very high in Europe, exceeding 95% in most countries, and even approaching 100% in core markets like Spain. So, the foundation of brand recognition is solid.

Of course, as a new category, Xiaomi Cars' brand awareness overseas is certainly not high at the moment. Our task is to effectively enhance the brand awareness and user interest of Xiaomi Cars before officially entering the European market in 2027.

However, from the current signs, the situation is more optimistic than we imagined. We have already seen some overseas users spontaneously transport Xiaomi SU7 to Europe and successfully register it, such as a Mi fan in the UK who transported a left-hand drive car to a right-hand drive market and drove it through many countries, attracting a lot of attention and photography along the way. I personally encountered the same situation during testing in Germany, where many people not only took photos but could accurately call it "Xiaomi Car." These all indicate that Xiaomi Cars' overseas brand awareness may have already exceeded our expectations.

In summary, regarding building the car brand overseas, frankly speaking, I am not particularly worried. In China, we also started from scratch and gradually built brand recognition, and the overseas market will go through the same process. We have the confidence and experience to complete this task.

Q: As a leading smart hardware company, how does management view the commercial prospects and opportunities of the robotics category (especially humanoid robots)? What role will Xiaomi play in this?

A: We are indeed very optimistic about the robotics field, especially the application prospects of humanoid robots in factory scenarios, which is why we have been continuously investing in research and development for the past four or five years. We believe this is the right direction.

Currently, our core goal is to first achieve certain specific business closed loops for humanoid robots in our own factories. In other words, to enable them to truly complete a complete workflow, and then talk about efficiency improvement and cost optimization.

However, from the current stage, the technical difficulty of this work is indeed very high. We have not yet seen a very clear time point for achieving a commercial closed loop. This may still require a considerable amount of exploration and development before we can truly see the possibility of commercialization.

Q: Xiaomi's major appliances business is growing rapidly (66% growth this quarter), especially the air conditioning business, with shipments reaching 5.4 million units, already comparable to leading industry manufacturers, and some reports even say it has become the first in online channels. Could you please share the current and future key initiatives for the company to take the major appliances business (especially air conditioning) to the next level?

A: Regarding the major appliances business, I would first like to clarify that the information you mentioned about us being the first in online channels for air conditioning is inaccurate; we are still quite far from being first.

However, our major appliances business is indeed developing rapidly, especially air conditioning. The reason we focus on air conditioning is that when scanning the entire major appliances market, we found that the market scale and value of the air conditioning category far exceed the combined total of refrigerators and washing machines. Therefore, our investment in air conditioning was two years ahead of refrigerators and washing machines, which is the main reason why the air conditioning business is more prominent today.

Despite the fierce price war in the industry this year, the performance of Xiaomi's air conditioning business is very healthy, which can be summarized in three key points: rapid growth in scale: sales increased by over 60% year-on-year. Average price increased against the trend: in fierce competition, our average selling price also increased by about 200 yuan. Gross margin continued to improve: gross margin still achieved growth compared to last year.

We have achieved these results in a "volume and price increase" healthy model. Therefore, the industry's price war has affected us, but it cannot completely stop our progress.

For the team, I always emphasize not to focus too much on short-term rankings for one or two months or a quarter, as that is more about boosting morale. What we really need to focus on is the long-term changes in the industry landscape, breakthroughs in core technology, improvements in product competitiveness, and user satisfaction after purchase. As long as these foundations are solid, the business will definitely continue to grow.

Looking ahead, we are very confident in the growth potential of the major appliances business. We believe that in the Chinese market alone, Xiaomi's major appliances business still has several times the growth potential and has not yet reached its ceiling. This year, we have just begun exploring overseas markets, and the initial sales performance in several Southeast Asian countries is also very good, indicating that overseas markets will bring even greater imagination space. In summary, there is still huge potential to be tapped in the major appliances business within Xiaomi.

Q: Could management share Xiaomi's talent strategy in the AI field? Specifically, in which key directions are we deploying talent? What types of AI talent are we more inclined to attract and recruit?

A: You can infer the strength of our team from the series of AI achievements we have recently delivered and the speed at which we have achieved these results. We do indeed have a number of top AI experts behind us. Considering that our focused investment in AI has not been particularly long, as time progresses, I believe everyone will see us continuously launching more and better AI achievements.

I can share some specific investment situations: this year, we expect total R&D investment to be about 30 billion yuan, of which approximately 25% (one-fourth) will be specifically invested in the AI field. These investments are mainly concentrated on two core elements: top talent and sufficient computing power.

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