This seems to be a perfect story, but questioning comes along. About Xiaomi is a hardware company or an internet company? What is the level of comprehensive net profit rate of hardware in the mobile phone ring and even the hardware circle? These issues have also become hot topics in the industry these days.
"Millet is not a pure hardware company but an innovation-driven internet company." Lei Jun wrote in an open letter in the prospectus: Xiaomi is an Internet company with a mobile phone, smart hardware and IoT platform as its core. The interest rate does not exceed 5%. Once it is exceeded, it will be returned to the user.
In response, some responsible persons of domestic mobile phones expressed their opinions in a low-key manner. An insider of OPPO told reporters that Xiaomi’s main business is still hardware, without hardware support. The story is hard to say. In the mobile phone industry alone, if everyone is paying more attention to market value than to a company’s products and services, this is inherently problematic.
'OPPO will not pay too much attention to the financial statements to prevent the action from deforming.' In an earlier interview, Wu Qiang, vice president of OPPO, told reporters.
The CEO of Glory, Zhao Ming, even publicly stated that if Glory can achieve this (5%) net profit level, it will be very happy. Most of the time, domestic mobile phone manufacturers still float near the profit level. Glory is internal to Huawei. An independent brand to 'slam' Millet.
'In fact, in the ever-increasing share of domestic smartphones, mobile phone manufacturers that can reach the 5% level are still very rare. ' Research analyst Canalys research analyst Jia Mo told reporters that although the use of Internet marketing, product categories in the IoT and life The growth rate of consumer products is also very bright, but at present, Xiaomi's main income is still the mobile phone business. In a sense, Xiaomi said that the intention is to show its business model, not simply rely on hardware to make money.
Controversial '5% Hardware Comprehensive Net Profit Rate'
How much is the net profit margin of hardware companies? This question has almost an open answer in the industry.
The net profit margins of several pure hardware companies are all below 5%. Compared with the household appliance industry, the reporter found that when the reporter checked the financial information, Hisense’s net profit in 2017 was 940 million yuan, and the net profit margin was 2.85%. The net profit was 3.534 billion yuan, and the net profit rate was 3.17%. Qingdao Haier's revenue for the first quarter was 20,586 million yuan, net profit was 850 million yuan, and the net profit margin was 4.05%. Skyworth Digital’s first quarter net profit was 67.45 million yuan, net profit margin 3.68%.
This is particularly true in the highly competitive mobile phone industry. According to the 2016 global smartphone profit situation announced by Strategy Analytics, a market research organization, in 2016, Huawei, OPPO and vivo accounted for 1.6 of global smartphone industry profits. %, 1.5%, and 1.3% are considered as margins; based on the operating profit of US$929 million in the data report, its operating profit margin is approximately 3.2%.
'Our gross profit margin is around 12. The net profit rate is more than 3 points. The mobile phone industry is not a highly profitable industry. ' An insider of Wentai Technology told reporters. Wentai Technology (600745.SH) is The largest ODM manufacturer in China, whose customers are mainly mobile phone brands at home and abroad, including millet's red rice series.
For Xiaomi's 'Redrawing of the Hardware Profit Red Line' on the eve of the listing, some domestic mobile phone manufacturers who are unwilling to be named told reporters that this is more like a cry to the capital market to prove that Xiaomi is not a traditional hardware manufacturer that depends on hardware for profit. But the rhetoric is not cautious, and some have passed.
So Xiaomi does not make money in the end? As a 'crossing' hardware industry and Internet industry business companies, Xiaomi’s profitability is undoubtedly the most concerned topic.
From the perspective of the prospectus, Xiaomi’s revenue business segment consists of 4 smartphones, IoT and consumer products, Internet services and others. In 2017, Xiaomi’s revenue from the smartphone industry was 80.563 billion yuan, accounting for The proportion of total revenue was 70.3%. Revenue from IoT and consumer products was RMB 24.447 billion, accounting for 20.5%; Revenue from Internet services was RMB 9.896 billion, accounting for 8.6%.
Although the proportion of Xiaomi’s smartphone business in revenue has decreased year by year, the smartphones contributed 80.4%, 71.3% and 70.3% of Xiaomi’s total revenue for the years ended 2015, 2016 and December 31, 2016 respectively. Most of the revenue is still coming from smartphone sales.
The average price of smart phones in 2017 was 881.3 yuan each, and it was 879.9 yuan per device in 2016. The gross profit rate increased by 109 percent from 7.2 billion yuan in one year to 15.2 billion yuan in 2017. The gross profit rate of the smartphone segment From 3.4% to 8.8%. For reasons, Xiaomi explained in the prospectus because of product mix changes.
It is doubtful that, from a financial point of view, Xiaomi’s mobile phone sales have increased from 55.4 million mobile phones to 91.4 million, and the sales volume of mobile phones has increased by 65%, but the cost increase is 26.7%.
Jia Mo told reporters that Xiaomi needs to ensure that its core business, that is, mobile phone products business, maintains steady growth while continuing to expand its Internet business. However, overall, with the increase in R&D investment, Xiaomi’s profitability will still be able to withstand Big pressure.
Intensified smartphone competition
Recently, IDC has just released the first quarter global sales report for smart phones. The report shows that China's first-quarter smartphone shipments fell below 100 million for the first time since the first quarter of 2013, and global smartphone manufacturers shipped in the first quarter. The volume of 336.1 million units, a decrease of 2.4%.
And Xiaomi, relying on replicating low-cost models in overseas markets, especially in India, has also achieved significant growth. However, in the domestic market, Xiaomi’s sales in the past two years have not changed significantly. The first position of Internet mobile phones has given way to glory. In the white-hot Chinese market, the heading between enterprises has not left much room for it.
Regarding the sustainability of future growth, Xiaomi also made a 'risk warning' in the prospectus. 'We cannot guarantee that we will be able to make a profit in the future. In addition, we expect that the future cost and expenditure will increase. One of the reasons is business. Continued expansion of user base and distribution network; Second, continuous investment in technology infrastructure and networks; Third, continuous expansion of user base to increase sales and promotion expenses; and introduction of other new products and services may generate upfront costs, change existing revenue and costs. Structure, postponed our time to profit. If we cannot maintain or increase our operating margin, we may continue to lose money in the future.
At the same time, according to the cash flow statement of Xiaomi in the prospectus, the net cash flow from operating activities in 2017 approached minus 1 billion yuan. At the same time, millet raw materials and finished goods increased by 2.2 billion yuan and 5.1 billion yuan respectively. Xiaomi explained that 'the demand is expected to be strong. We will increase our inventory for this purpose, which will increase the inventory payable and licensing fees.'
From a realistic point of view, the competition in the main mobile phone industry is still the biggest challenge for Xiaomi’s ecology in the short term.
'Because the technology development of mobile phones is very mature, the future development of mobile phones will not be confined to hardware, but rely on the binding of peripheral products or innovation of application software to attract popularity.' Huang Yuji told reporters.
Pan Chen, a researcher at Panwest Semiconductor of Southwest Electronics, also believes that Xiaomi’s biggest attraction is not the mobile Internet that has already been depleted by bonuses. Instead, he got the tickets for the next era of IoT. Many Internet-connected devices, including sports bracelets and rice cookers, are driving Millet's Internet business income continued to grow.
However, the linkage effect between hardware and software still has no successful cases. As an Internet mobile phone's former 'supporter', 360 founder Zhou Hongyi once stated that many companies do hardware, and they hope too much to do valuations according to Internet companies. Pursuit of 'law of the market', but the speed of iterative hardware products, and the speed at which users accumulate are difficult to compare with software. Even simple hardware, if sold 1 million, for your supply chain, distribution, Logistics is a huge test. I used to pretend that the hardware should be free. Now I'll say it again.
'This seems to be back in that sentence, the growth of Internet services is still not separated from the hardware itself, the sales of hardware determines the imagination of the Internet product. 'The OPPO insiders told reporters.