Xiaomi Corp

HKEX:1810

Earnings Call Analysis

Xiaomi's Impressive Q1 2024 Financial Performance

In Q1 2024, Xiaomi reported strong growth with revenue of RMB 75.5 billion, a 27% increase year-on-year, and an adjusted net profit of RMB 6.5 billion, a 100.8% rise. The gross profit margin grew to 22.3%. Xiaomi's smartphone division maintained its top 3 global ranking for the 15th consecutive quarter, and IoT revenue soared by 21%. Key segments like home appliances and wearables saw significant growth, with air conditioners up 60.3% and wearables securing the number one spot in China. Xiaomi's EV business, launched this quarter, aims for a gross margin of 5-10% and targets delivering 120,000 units by year-end.

Stable Growth and International Expansion

Xiaomi reported a robust Q1 2024, with revenue climbing 27% year-on-year to RMB 75.5 billion. The company's net profit showed an impressive growth of 100.8% year-on-year, reaching RMB 6.5 billion. Xiaomi continues to dominate the international market, maintaining a top 3 position in 63 countries and a top 5 position in 67 markets globally. The company saw significant growth in emerging markets, with market share in the Middle East rising by 7.1% to 20.9%, in Africa by 4.5% to 10.6%, and in Southeast Asia to 16.5% .

Rise of Xiaomi's EV Business

After three years of development, Xiaomi's electric vehicle (EV) business has finally taken off, contributing positively to the company's revenue starting from Q3 2023. By mid-April 2024, Xiaomi had delivered over 10,000 units of its newly launched Xiaomi SU7 EV, with expectations to exceed 100,000 deliveries by June 2024 .

Impressive Performance in IoT and Lifestyle Products

Xiaomi's Internet of Things (IoT) and lifestyle products experienced strong growth in Q1 2024. The segment's revenue rose by 21% to RMB 20.4 billion. AC shipments surged 60.3%, fridges by 52%, and washing machines by 47%. Xiaomi's tablet sales saw an incredible 93% year-on-year increase, earning the company a #5 global ranking and #3 in China. Wearables also did well, with Xiaomi becoming the #1 seller in China and #2 globally .

Expanding Online and Offline Retail Presence

The company is doubling down on its retail strategy. By the end of 2024, Xiaomi plans to have 20,000 Xiaomi Home stores and 10,000 Xiaomi Vehicle stores globally. This expansion is part of their effort to integrate their EV business with existing retail operations. Additionally, Xiaomi has made significant inroads in the North American and Japanese markets through strategic alliances and their unique approach to local e-commerce platforms .

Financial Strategy and Shareholder Value

In addition to maintaining a solid cash reserve of RMB 127.3 billion, Xiaomi has been actively repurchasing shares to reward its shareholders, amounting to RMB 2.25 billion in buybacks so far, exceeding the total of 2023. The company’s focus on efficiency allowed them to reduce their expense ratio by 0.7% despite increased R&D spending, which grew by 24% to RMB 520 million .

Guidance and Future Outlook

Xiaomi is optimistic about the future despite external challenges such as rising component costs. The company’s gross profit margin for Q1 2024 was up 1.1% quarter-on-quarter to 22.3%. For their nascent EV business, Xiaomi expects gross margins to stabilize between 5% and 10% as they scale production. With a strategic focus on premiumization and technological advances, Xiaomi aims to maintain its growth trajectory and deliver substantial shareholder value in the coming quarters .

Earnings Call Transcript 2024-Q1

[Operator]

[Interpreted] Good evening, everyone. Welcome to Q1 results announcements for Investor's Conference of Xiaomi for our conference call and audio webcast. Today's conference is being recorded. If you have any objections, you may disconnect at any time. [Operator Instructions].I'd now like to hand the conference over to your host today, Ms. Anita Chen, Head of Investor Relations and Corporate Finance.

[Anita Chan, executive]

[Interpreted] Good evening, ladies and gentlemen. Welcome to the Investor Conference Call and Audio Webcast hosted by Xiaomi conference regarding company's 2024 Q1 results. Before we start the call, we would like to remind you that this call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about the general market conditions are coming from a variety of sources outside of Xiaomi. This presentation also contains some audited and non-IFRS financial measures that should be considered in addition to, but not as a substitute for, in the company's financial prepared in accordance with IFRS. Joining us on our phone call today, we have Mr. Lu Weibing, Partner and the President of Xiaomi Corporation; Mr. Alain Lam, Vice President and CFO. To start, Mr. Lu will share recent strategies and the business updates of the company followed by Mr. Lam to review the financial performance of 2024 Q1. Following that, we'll move on to the Q&A session. I turn the mic to Mr. Lu.

[Weibing Lu, executive]

[Interpreted] Good evening, everyone. This is Lu Weibing, and I welcome you all to the Q1 2024 of Xiaomi's result announcement. So in 2024 Q1, our business is quite stable and robust. This is thanks to us further consolidating on our technologies or areas business we have done quite well. In the meantime, the Xiaomi EV business after 3 years has finally launched. And from 2023, our Q3 business has turned into positive and further growth of last Q4, and we can see that our revenue has grown by 27%. In addition, our profit has also continued the growth trajectory. Tonight, we will have 2 parts. One is on our business and highlights and the second part is to talk to you about the Xiaomi EV business in 2024. There are still a lot of uncertainties in the external environment. So with this, we continue to see our business are running on a high efficiency. For 2024 Q1, we have a revenue of RMB 75.5 billion year-on-year, 27% growth for adjusted net profit is RMB 6.5 billion or 100.8% year-on-year. Gross profit margin 22.3% growth. In terms of our cash resources, expenses of RMB 127.3 billion for cash resources. And in addition, our core profit has realized new highs. And do talk about our international business. And for the first quarter, thanks to our international business as well as globalization for Smartphones for continued 15 consecutive quarters, we continue to maintain top 3, and we can see that out of 63 countries and 56 markets, the top 3 and the 67 markets the top 5 for the global market. We have seen overall growth and especially in the emerging markets, and we have seen very good growth. And for instance, in Middle East, up by 7.1% to 20.9%. For Africa, it has reached 10.6%, up by 4.5%. The Southeast Asia with a market share of 16.5%, for Latin America with a market share of 15.3%, up by 2%. So for our core mobile phone business increase has also led to a further increase of our existing business. And we can see that in the China business, and we have the monthly active users to continue to grow in both China and abroad. And in the meantime, this has also brought very strong momentum for our business. And going forward, we will continue to build a very safe and active platforms and to look at the close [indiscernible] development because we have different categories of product for our core business development in terms of the synergy of the business. It has provided us with a very solid background. On the 28th of March, we have launched our Xiaomi SU7 product and through our various stringent testing and this has become a very popular product of millions of consumers. And for April, we have already delivered over 7,500 and on the 15th of April, 10,000 delivery. And in addition, we have also met the promise that we have made. And once it's launched the market, it will be delivered to the consumers. In addition, we continue to ramp up our business. In June, and we are looking at a delivering of exceeding 10,000, and we'll be looking at 100,000 delivery in the whole of June. And in terms of sales, we'll continue to further look at the selection of the sites and further expand our business. Here, we can see that we will be covering about over 80 cities, had set up about 50 different service centers covering all the provinces, cities, autonomous regions, and direct autonomous cities. And in terms of [ others ], and we continue to invest in this area for our [ others ] team and our total investment is a total of RMB 4.7 billion. And by end of 2024, we will expand the team from 1,000 to 1,500 and then to 2,000 next year. So for Xiaomi, in terms of [ others ], we have expected our expectation. In addition, in this market, I would believe that we are setting up the bar for the market and in August. So in Mainland China, we will be expanding all these services. And so we have also carried out our live streaming session and of autonomous driving between Shanghai and Hangzhou for Xiaomi, we also attention to our closed loop of business. So apart from the EV business, it also has a very long impact business. And with the Xiaomi's business, and we can see that this has led to major changes in the structure. And for instance, from a narrow group of depot and now to a wide coverage in by the end of April, and we can see that for female car owners will be 40% to 50%. And for BEV vehicle owners and they account for 29%, we believe that with our invaluable driving experience, we'll also be pulling in more BEV users with Apple leaving the auto sector, and we hope that more and more Apple users will come to Xiaomi to purchase our vehicles. And the second is on premiumization for the past few years. In Mainland China, we have already completed our premiumization strategy, and we are now cornering the market of 4,000 to 5,000 market sector. And we believe that with the mobile phones as well as the vehicles, this will continue to drive our premiumization strategies.And going forward, for Xiaomi, we will be dedicated to the development of premiumization. So thirdly is about our vehicle as well as our new retail business in the past 4 to 5 years with our core new strategies have been launched, and we can also see that for new retail business and has gone up to 9% and the new retail of Xiaomi and this is also an improvement in our closed loop business. So for this year, we will try our best to use 3 years of time by 2026. For Xiaomi Home, we will have 20,000 stores in addition for Xiaomi Vehicles, joining the Xiaomi new retail, we will be upgrading the Xiaomi Home stores, and we will be moving to the best locations to further expand the floor area here to ensure that we have a very good return. In addition, we will also be looking at changing the ecological system and so that our users would be able to fully enjoy the ecosystem products that we have to provide to them. Finally, I'd like to summarize for Xiaomi's products for our R&D delivery as well as the execution and our capability and organization capability, we are outstanding. Secondly, this also reflects that for the company's greater grasp of the demand of the consumers. And this has also reflected for the Xiaomi's models development. Even if in 2024, for the macro and the environment, we still face a lot of challenges. For instance, there is the trajectory of cost of core parts are going up, et cetera. And we are still confident that we are able to meet the challenges of the external environment. We also believe that in 2024 with our capabilities improving, we would be able to deliver an excellent result to the investors. So we now pass the floor to Alain.

[Alain Lam, executive]

[Interpreted] Great thank you, Mr. Lu and dear investors, good evening. So as Mr. Lu has mentioned and was enjoying our robust business. And for this quarter, and we can see that for our group, we have seen very good results for 2024 Q1, and we have RMB 75.5 billion for China. This accounts for about 49.8% for overseas, 50.2% for this quarter. We have realized quarter-on-quarter growth and is up by 27%. In terms of our overall gross profit, it's up by 2.8% year-on-year, 22.3%. Compared with the last quarter, it is up by 1.1%. And looking at the specific business and for our Smartphone business, it accounts for about 61% of our postal business, and it enjoys a business growth. And according to the data and for our Smartphone business, and we now currently rank top 3, and this is for consecutively 15 quarters, and we are ranking top 3. And in addition, we can see that our business compared with the 2023, it's up by 3.6% year-on-year. And for the Q1 of 2024, our IoT business, we have enjoyed the revenue and the gross margin, both improving. And for the revenue is RMB 20.4 billion, up by 21%. For this quarter, with the IoT, various segments, we have seen very good results. For instance, our Home Appliance products for AC shipment has grown by 60.3%, for fridges has grown by 52%, for washing machines has grown by 47%, in terms of pad product and tablets, we continue to see very fast growth. It is up by 93% year-on-year and it ranks the #5 globally and #3 in China. And Wearables for this quarter, in China, our shipment has jumped to #1 globally. We have been able to enter #2. And thanks to all these high growth profit margin growth at IoT and lifestyle products, this quarter has reached 19.9%, creating a historical high. For Internet business, our user base will continue to increase. In 2024 Q1, Global business, we continue to see new highs for the users, it's about RMB 658 million for the increased total customers, about RMB 17 million, in Mainland China is about RMB 160 million, about 9% with the new users. For Internet services for this quarter, it's RMB 8 billion. Again, it has creating a new quarterly high. It has gone up by 45%. And for our overseas business has grown to RMB 2.5 billion business for Internet services. This accounts for 31.2% of our total Internet business is up by 5%. For this quarter, in terms of the expenses and the expenses if we take away the RMB 2.5 billion of the new investment, our core expense is RMB 9.6 billion. For the expense ratio, 12.8%, it is down by 0.7%. And whilst controlling the expense, we continue to further expand our R&D, and we continue to invest in R&D. For our R&D expenses, it's RMB 520 million. It is up 24% for net profit. And for the adjusted net profit is at RMB 6.5 billion. It is up by 100% year-on-year, creating a new high. And in terms of our core business, it's about RMB 8.8 billion. And again, this is a new historical high. And in terms of cash position by end of March and our cash resources is RMB 127.3 billion. In the meantime, we have also been very active to repurchase shares in the open market to give back to our shareholders. And so far, we have already purchased about RMB 2.25 billion, exceeding that of the whole year of 2023. Finally, I would like to talk to you about ESG. So in April, we have gone to ESG report, and this is the sixth year that we continue to launch our ESG report a few different targets. The first one is no later than 2030 for our main business. The commission will be about 30% of the benchmark year. By 2035, we will be realizing 100% usage of renewable power in our own operations. By 2040 for our own operations, we will realize carbon neutrality as well as 100% adoption of renewable resources. In addition, 2 weeks ago, we have 2 female corporate VPs, and we have Ms. Zhang Jianhui and Ms. Xu. And this is something that for Xiaomi's company, we continue to push forward for gender diversity and for better professional management of the company and a very important step that we have moved forward. Thank you, everyone. This is what we have to share with you all. And we can now go into the Q&A session.

[Operator]

[Interpreted] Thank you, Alain. We now go into the Q&A session so that more investors have time to ask the questions. Please limit your questions to 2. Thank you. [Operator Instructions] So the first question comes from Andy from Morgan Stanley.

[Andy Meng, analyst]

[Interpreted] Thank you, management team. First of all, we would like to congratulate on the success of Xiaomi EV. So going forward, for the synergy between your Human plus EV and plus your ecosystem, and what are the pressure for your other Smartphone business? In the meantime, for your traditional IoT and Internet business? And how are they going to empower your EV business?

[Weibing Lu, executive]

[Interpreted] Thank you, Andy. Well, in terms of the synergies, we can look at to like this. And one is from the product level or technology level. And secondly, we will look at it from different dimensions. So for Smart EV cars, and for this part, and in terms of the consumer sector, we have a lot of experience in terms of technology as well as product, and we are already starting our work in this area. For instance, you can see that for consumer electronics products, we are simply just at the starting point later on, we still have a lot of room for further growth. So this is one area. Another area is looking at the user's perspective. I have already shared with you all, and you can see that whether it is myself or the various lady or female consumers, all of this is something that we were not able to achieve with the simply Smartphone in the past. So this is on the consumers. And the third part, which is the stickiness of customers. So if we look at the system today and is that the stickiness of the customers were the cost that it would contain. And we can see that it's a very low and in addition, in this closed group for Xiaomi, in this Xiaomi's Ecosystem, and we can see that the cost for the users leaving the ecosystem loop will be very high. So for people who purchase our cars, and we can see that they will have quite a lot of Xiaomi products already. So these are all synergies. And of course, with time goes on, it's only going to be further enhanced. And with respect to this, I think that we still have immense potential for us to reach there. And we will continue to make progress.

[Andy Meng, analyst]

[Interpreted] Thank you, Mr. Lu. My second question is with respect to smartphones growth margin. And when we communicate with the investors, and we do talk about this and in terms of some of the costs going up and what are your measures to keep the cost down and efficiency up and compared with your peers, what are your advantages?

[Weibing Lu, executive]

[Interpreted] So this is an old topic. And people will ask me about this every quarter. And for this, with the component price are going up, people will say whether our Smartphone business will be affected. So for the core components, cost going up, it started from last year Q3. And for Q1, the profit margin, you can see that our gross profit margin is quite good. And for Xiaomi, I think that a few things we have done. One is for strategic reserves to get ready for our industry, especially for instance, the cost and whether we will need to increase our inventory and whether we need to reduce our inventory and for the memory parts, and that's very important. And we know this all very well in the industry. And today, for Xiaomi's scale, everybody can see this. Before us, we have Samsung and Apple, the scale difference is being bridged becoming smaller and smaller. And the difference between us and the people behind us is actually getting bigger and bigger. So Xiaomi's efficiency is now emerging actually. So for Xiaomi, for our domestic peers, and they all have some advantages. But if we're talking about camera module and memories and all of these important components to all have some advantages, and this business will be quite big. So I think this is an area that we will be able to conduct the business on. And thirdly is that for Xiaomi for the past few years, and it's about the product structure. So we continue to optimize our product structure. And in terms of the product structure, once optimized, they will also help us to cover some of the impact from the cost going up. And the number four is a Smartphone plus AIoT plus EV Cars at the moment. So you can see that AIoT, our gross margin has actually gone up quite well. And for Non-Mobile Phone business, and we can see that we are trying to move towards this direction and to try and get everything to be along the same page.

[Operator]

[Interpreted] And our next question is Timothy from Goldman Sachs.

[Timothy Zhao, analyst]

[Interpreted] Thank you, Mr. Lu and we would like to, first of all, congratulate you on your excellent results and the 2 questions. And the first one, Mr. Lu, you talked about new retail. This is a new year, and you will also be adding another store. So if we look at China, so can we please talk about the expansion as well as the scale, what are the ones that you are directly running? And what are the franchise? And in terms of overseas expansion. So we want to ask about the expansion in which areas from what SKUs. And secondly, from Q1, we can see that our overseas Internet business has grown quite a bit by 40%. Can we please know more about the reason of this growth?

[Weibing Lu, executive]

[Interpreted] Well, let me have Alain to supplement, and I will take the retail business first. And so what is the further expansion and which is that in 2021, and we can see that in 2021, 2022, and 2023 for the retail business were the efficiency of single customers, it is not enough. So we have done some consolidation last year. And basically, we have been able to improve its efficiency. For this year, we're looking at further expansion in the next '24, '25, '26, and we will be adding another 10,000 stores. So our total store number will be 20,000. And second is upgrading. In 2021, we opened the stores very fast. We have also noticed that some of the stores and the quality is not very high. It's not the best location and the floor area is not really in line with the development of our business. So we need to upgrade these stores. And for upgrading these stores, we need to move them into the best locations, we need to further expand the area, et cetera. So this is something that we have done well this year. And thirdly, for the EV new retail, and we need to build it up. And for this year, and we have 59 stores. So we can see that when we do go and obtain these cars, people need to wait for 1 to 2 hours. So it shows that we don't have enough stores. Therefore, for our EV stores, so we need to be expanding it to over 50 cities at the moment and some of the customers, for instance, people need to take a train and to get across town for 300 to 400 kilometers to get to the stores. So we're looking at building more shops and more stores. So this is something that we are talking about in China. And in terms of our progress, we have been making good progress, I would say. So I would think about this in terms of our shopping malls, stores and we'll expand them to 500 square meters and right now, and so for 500 square meters, we can fit possibly 3 cars in there. Right now, we also have a lot of different colors for instance, the light purple one is very popular. And in a lot of other peers, you can't find this color. So we think that we are going to further expand the floor area and to expand to the construction. So for the overseas market, and we also have, for instance, over 2,000 of these stores. And for these stores, in terms of its building of these stores as well as efficiencies and controls, et cetera, and it's different from China. Is it still lagging behind. I happen around 25 countries looked at a lot of markets. And finally, so for Xiaomi's new retail, and we do think that this can be replicated in the overseas market. And regardless of their GDP size, there is the potential. So we need to look at the next 5 years, whether we would be able to open up 10,000 Xiaomi Home Stores and apart from the support for our Smartphone business for our IoT business, overseas expansion will also be very convenient. In the China market, it's about 50% on mobile business, about another 50%. And for overseas, the AIoT business, it's less than 20%. And I think a very important part of that is for overseas, and we do not have these highly efficient channels. And therefore, for our IoT business, this is very important. If we then further look forward into the next few years, and we also need to have Xiaomi new retail and its initial infrastructure buildings, et cetera. So those are some of my thinking. And for Internet business, we have Alain to answer.

[Alain Lam, executive]

[Interpreted] So for overseas Internet business, and if you look at this for this quarter compared with the last year, and we have basically grow by about RMB 5 million and RMB 50 million and from RMB 450 million and to now RMB 500 million. So this is quite a good growth and for ARPU this year and it's about RMB 5 per customers. And so we are able to improve our ability to turn this into cash. And the first one is that with our shipment and controlling in to grow, and we are looking at the revenue growing. And in the meantime, we are also expanding some of the new customers, and we are now putting these new customers on to our [Audio Gap] In addition, for our users because they have quite a big size. And so that's why it's helpful. And finally, so for these customers, and in terms of our share of the profit and we'll be increasing. And so this is also why that going forward for our business overseas will continue to grow

[Operator]

[Interpreted] Our next question is from Citibank.

[Unknown Analyst]

[Interpreted] Thank you giving me this opportunity. So first of all, congratulate you on your excellent results. And second, for the IoT business, what's your gross margin? And we have heard that Mr. Lu are using the Internet business and to offset the pressure. And from the IoTs business and from 20%, and do you think that this is a gross margin that can be sustained.In addition, so for the company and you continue to optimize your business for this area, what is your very ideal gross margin that you would like to achieve? And another point is that in terms of your overseas IoT business expansion, for instance, Home Appliance and other Wearables, et cetera? And what is the deployment strategies that you have. And in terms of the product as well as in terms of your product launches and what's your plan? That's my first question.

[Weibing Lu, executive]

[Interpreted] Well, in terms of AIoT and this year, our strategy is that is with the human and the vehicle as well as the ecosystem. So one is that our industry-leading strategy and why we say this? And it's because our AIoT industry in the past, it started from our ecosystem chain. And in the past, it's basically this ecosystem. And so for our team, we continue to build this with the eco chain. And so with this model, and it's very fast to deliver products, we have also been able to achieve very good results with the development of our business. We do see that this system is encountering some difficulties in the floors. So this model, for instance, we simply go by light asset, it's not enough. And in the past few years, we have added some new examples, for instance, for laptop. And we now look at by different -- we now have given it to the smartphone and for AC business, it used to be in the ecosystem department, ODM, and now we are now doing completely self-research. So you can see that we use these capabilities, and we use our product running capabilities, et cetera. And only when we do this, the only one we have them in our hands that we are able to realize the growth in this sector. So in the past few years, and we are gradually doing these things. And for this year, and we are realizing all these products, and I can say that, that should cover most of the products. And for this year, you can see that for our AC has been selling very well. And we are now able to grasp all these key proponents and for tablets, you can also see that it's a 100% Wearables resources and again, excellent performance. So these are some of the decisions that we have made 3 years ago. And going forward, and we will also be looking at our TV and for instance, the mini LED and our new TV and these are all growing. And why is it so fast? It's because we are doing this one thing. And when I tell people about this, I think I'm confident that this is sustainable. And in terms of the results that we have, if we look at this, this is just the beginning. And whether specifically, do we have a gross margin target because for different products that have a different gross margin.For instance, laptop versus AC is very different, huge. So we do not have a very specific situation. And however, what we can see is that we will be looking at, for instance, each of these other companies, we will benchmark them. For instance, AC will be looking at [ Agree ]. And for TVs, we'll be looking at Samsung and Hisense, et cetera, but we don't have a general standardized gross margin target. Talking about going global, there are 2 points. And one is that for one product, whether you can sell it to the global market. And I think that there are 2 points. One is the compliance of your product. So we need to be able to have this compliance and to implement it in each of the markets. And secondly, and how well is this matching with that market and looking at admin, it's still quite big. And for instance, in certain countries we have quite a few different SKUs. And so we are looking at this to resolve the problem. Secondly, I need to say that for the product goes out, are you able to sell this product at a high efficiency? I think that's very important. And Xiaomi and for instance, Xiaomi Home, Xiaomi new retail, and these are all very important and excellent platforms. So this is what I have to say. And I think that from this perspective for the overseas market, AIoT has a huge potential. And from the market size of the growth, a huge potential and whether we are able to resolve Xiaomi's problems and to build up our capability and that's we need to focus our energy on. So basically, we would be able to continue to see high gross margin.

[Unknown Analyst]

[Interpreted] Okay. My second question and for your EV business. So recently, we can see that some of the orders have been given to some others. And we have seen that perhaps you are encountering some problems of receiving orders, and you also talked about your service centers and stores. And do you have any other ways for instance, in terms of your marketing, et cetera, and can continue for the market party and to receive more orders because for this party, and we want to see a continuous momentum of the orders.

[Weibing Lu, executive]

[Interpreted] Well, let me say this today, for Xiaomi's business and the biggest problem that we encounter is delivery. If you turn on Xiaomi's app and it will actually remind you for the delivery time right now, it's still about 30 weeks plus. So that will be after new year of next year. So I think that the lockup of orders, that's the biggest challenge for us. And what we can do now is to improve our output and shorten our delivery time. So for instance, our Pro, we were going to be deliver this in mid-May and originally planned with that, we can't overcommit to the users. So we hope that our actually delivery time is shorter than what we have presented in the PowerPoint. So there are a few solutions. And number one is that looking at our factories and at the moment, it's about 3 shifts, and we have spent some time in working on the transformation of this business and the factories. So in June, we will be able to double our productibility and which will help us to deliver and basically for the customers when they place their orders, they can see that the delivery time has shortened. So this is the biggest problem today, and it is not about our service network, and it is really about the delivery network. And at the moment, what we can see is that our target is that we ensure 100,000 of delivery. And our challenge target is 120,000. So we would like to achieve 120,000 delivery by end of this year. It's very challenging. If we were to resolve this issue, and I don't think that the order will be a major issue because we continue to enjoy very good of mouth at the moment. Okay. Do you understand?

[Unknown Analyst]

[Interpreted] Yes, I understand that.

[Operator]

[Interpreted] So our next question comes from Zoe from UBS.

[Zoe Xu, analyst]

[Interpreted] I have more questions. And the first one is on and congratulate you on your premiumization business and optimization percentage has improved. And for 56,000, we can see our market share has increased in a short period of time. So starting from 18th of June, and we can see that including iPhone and for this business, and there's a lot of competition for the company and in the short period of time for June 18, and in terms of the price as well as the volume and what are the impacts in addition for the premiumization of the market and what are the impacts? And I also have some small questions in Q1 in terms of inventory levels, we can see that compared with the last year, and we see a lot of growth there. And so we want to ask that is this because that you have done some strategic reserves of the inventory because of the components price going up. And in terms of the finished products and what are the inventories or core components?

[Weibing Lu, executive]

[Interpreted] So I'll have Alain answer your inventory question. I'll take the first question. So for June 18, we started on the 20th of May and in the past, basically, it's about end of May. So it's ahead of time at this year, and we can also see that e-commerce is very competitive. And for June 18, and if you look at all these ranking and Xiaomi, we are often top 3. So for June 18, what we can see is that it's roughly on schedule within our expectation, I would say. So this is the #1. And second is that on competition. So end of last year, we actually talked about this. And we know that last September for Xiaomi, and we talked about whether we would be able to have a good result for the premiumization, and we can see that Xiaomi has grown quite a lot. And for Xiaomi and for the figure that we are looking at and from MIS and from Q1, there are 3 brands that are on the decline and the 3 companies are on the rise. So this is the situation. And in this competition, with all this pressure and for Xiaomi, we think that for our market share continues to improve. So we still believe that for Xiaomi, we would be able to cope with the impact from all these external environment. And if we then go back to look at the budgets that we have done last year is actually faster than what we considered today. And you can think of this simply. And for Q2, and we believe that for our business running would not be affected by the June 18. It's all within our expectation. So this is my view on competition and whether it's on Q2 or whether it is for the whole year, I would say that I am very confident and as well as what we have discussed in the past.So Alain, please further comment.

[Alain Lam, executive]

[Interpreted] So on this, our inventory, and we can see that inventory, we have seen some growth and a few points. And one is that as you have said. So that the strategic inventory was stocking up. And based on our estimate, if the raw material will continue to go up, as Mr. Lu has said, and we will have some strategic stocking office. So this is something that we are doing. The second point is that you know we started selling our cars in April. We also have some better addition, so 5,000 of these. So these 5,000, we have already produced them, and they will appear on our inventory on the 31st of March that they have already been produced, but they have not been sold. So that has also taken up some of its inventory. And thirdly, some of the product categories, we are about to enter into the peak season, for instance, ACs. End of March, in Q2. You know that we started the peak season, and we are now preparing the inventory for AC so that they can do well in Q2. And the last point is June 18, and we have started some of the stocking up to get ready for the performance and shipments on the 18th of June. So these are the 4 points.

[Operator]

[Interpreted] We have our next question comes from CICC.

[Unknown Analyst]

[Interpreted] So 2 small questions. The first one is still on Smartphone, and we can see that we have some regional breakdowns. And for the Middle East and it's 113.3% growth. Can you please talk to us more about Middle East and some of the overseas market, we haven't yet paid so much attention to in the past. And what's the successful experience telling you? And my second question is on AI and for Xiaomi on AI recently, we can see a large model, a lot of the improvement. So in this area, we want to understand about your views as well as your long-term vision on AI.

[Weibing Lu, executive]

[Interpreted] So from what we can see is that for overseas markets, emerging markets, we're growing very fast. And starting from last year, a few things we have done. And one is that from 2020 to 2022 because of the pandemic. And for our face-to-face communication, basically that had been interrupted and therefore, our headquarter, we think that I started telling the team, and we started going on trips every time.It's about 3 weeks per trip, and we've begun to over 20 countries. So with all these countries, and we believe that with the business and we can see that. So first of all, we have made a lot of human resources adjustment. And for instance, in Western Europe and Latin America and Southeast Asia, and we have made a lot of adjustment in important countries, we are making adjustments. After the adjustments for the team in terms of the execution from the headquarter and we can see that it has improved greatly. So that's action what we have taken. Second, strategy. In the past 2018 to 2019 strategy to today's point, and we are making a lot of adjustments. So in terms of human resources as well as strategies adjustment, with these 2, we believe that we'll be developing faster and faster. So this is behind the excellent results in Q1 what we have done. In addition, in terms of potential, we have a huge potential. I can give you an example, Saudi Arabia is only single digit at the moment. So for a market such as Saudi Arabia, based on our experience, we would be able to achieve 20% to 30%. So for this with the Middle East, we still continue to see a lot of high potential market. And in addition, we also have a Central America market in Mexico is about 34%. So any major market that we open up, for instance, South Africa. And in Africa, we have doubled our business. It's 10%. And I think that with the shopping's brand capability to go to 20% in Africa, it's something that we should be able to achieve. So in this regard, and I do think that a lot of potential again. And I am looking at my next trip and I had been overseas for 3 weeks already, and we are now looking at my next overseas trip. So we are making a lot of adjustments. So I think that from this perspective, we talked about AIoT and AIoT is less than 20% of our overseas. And for AIoT, and it's actually very high efficiency. So for overseas market, I believe that we do have a lot of very strong markets. And once you go overseas to take a look at all these markets, and you will know what I mean. And for Xiaomi, for a product that we sell 6,000 in China and in Japan, we sell for 9,000. And a lot of people would buy it for a large TV. People used to say that Japan, they have a small home and you can't sell large TVs. But now like it's been taken up in one go. Everybody has swept up our product that we have opened to Japan. And we all know that in Japan. So for a product in Japan and the gross margin is about basically 100%. So the product comes into the shop for 1,000 and then we saw a 2000. So we know that there's a lot of future possibilities. And for AI, and maybe I go first, and Alain can supplement.

[Alain Lam, executive]

[Interpreted] And for AI, for last year, and we continue to talk about this. So last year, we talked about this a very simple principle, and one is that Xiaomi does not go into the common large models and we have shown some of these areas, and we can see very good results. And second is that we develop end to end areas. And for this part, and we can see that it's developing very fast. And thirdly is that together with these companies, we continue to work with them and to continue to launch something that is very common, can be connected with the generative large models. And for today, for the AI smartphones and they are not really AI smart phones, and they are basically AI feature phones. So I don't really think that they would be able to push forward for some major progress in this area. And I think that for AI, a few points, and as Mr. Lu has just said that for cloud, and this is a process of getting used to each other and want to use AI, want to use the cloud. And on the cloud, we will also be utilizing using our own investment to work with different companies to utilize the best models here.And secondly, we will also be looking at AI and Human plus Car. And for instance, we will be looking at others driving for this area and how do we use AI more. And for instance, in these areas, and we see some differences. So in addition, we can also see that for our product, how do we use the Hyper Mode so that people will be to enjoy the beautiful life brought to you by technology. And finally, it's the one thing that we continue to launch, which is start using AI to improve the company's efficiency. So how do we use AI into our smart manufacturing for the factories and how to use these AI and use these materials. And so this is just a simple supplement from my side.

[Operator]

[Interpreted] So we have one next question coming from [indiscernible].

[Unknown Analyst]

[Interpreted] Mr. Lu, I want to ask about IoT channel strategies, and we can see that North America and Japan. So the impact is very big. And you talked about something that's very interesting and overseas is 20%. If we say that it's 50%. Do you need to work with more platforms in addition, I can also see that for some of it, the Chinese brand? And in terms of their gross profit is very different from Xiaomi and whether you guys are willing to go into the different markets and different channels.

[Weibing Lu, executive]

Well, for AIoT think that for Xiaomi and we have our own set of ways we work well on Xiaomi Home and Xiaomi channels. We also work with different distributors and looking at expanding our channels and markets. So this is something that's very quiet certain. We will also have our principles that we go by. For instance, we would adhere to the cost efficiency and value for money. And for instance, in Japan, and we did not go into offline. And we basically insisted on going into the Xiaomi network, and this is something that sets us different from some of the companies that go globally, and we can see that, for instance, they have 50% of the margin, and they need to pay various fees and for their product competitiveness is largely very low. So this is not something that Xiaomi would want to do. So for this area, and what we are doing is that we run the Xiaomi network well in each countries, in the core countries. And in addition, in the core countries for the Xiaomi Home to do it well, apart from Amazon, these e-commerce giants that cover all of the global countries. We can also see that in certain countries, they have their local platform. So we will also be working with them. In addition, we also see that, for instance, in Europe, we work with a lot of people, and they are also very well recognizing our brand. So this is for AIoT. This is what makes us very different from others. Thank you.

[Operator]

[Interpreted] In the interest of time, we welcome the last question. The last question comes from JPMorgan. Robert, please.

[Unknown Analyst]

[Interpreted] Very quickly, one question from me. For our EV business, we also see that a lot of orders. Can you please tell us about your gross margin for EV business? Do you have a gross margin target for this year or next year as well as your production ramping up, please?

[Alain Lam, executive]

[Interpreted] For growth margin for Smart EV, I think that Mr. Lei has also announced this about 5% to 10%. What I want to say is that for gross margin, we would need some time because for this industry, and we would really need time to be able to have some results. So let's say, give us 3 months to June, and we will have a better and more accurate profit margin. And for gross margin, there are a few factors involved. One is that scale. Mr. Lei, I believe he has disclosed to the market that recently, we talked about delivery of 100,000, and then we can calculate that into our revenue. So today, we are looking at whether we can increase that to 120,000. So from 70,000 to 120,000, you can see the scale has changed. So thirdly, which is about your component parts and for your core component parts from this year, next year, et cetera, and this would also decide your procurement cost. This is very important. So I think that we need some time to really have our profit out and then we can look at the profit margin and to set a reasonable target. And I think that up until today, you can think of it as we do not have a specific target that we have to reach. So I'm talking about this product and going forward in terms of the product portfolio, the possible impact, et cetera. So Robert, in our Q2 for our EV business, we will have some single segments taking out. So Robert, let me also update you. And in Q2, in our August result announcement, and you can see that for this new business and in terms of the revenue and profit and they will be split. So people can see that for our EV business, it's gross margin versus other categories and sectors of products. So in Q2, we will be more detailed and more accurate about the disclosure.

[Operator]

[Interpreted] Thank you, everyone, for attending. This is the end of today's call. Thank you for your time. We thank you for your continued support for Xiaomi, and we look forward to seeing you next time. Thank you, everyone. Goodbye.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]