Key Takeaways:

• Xiaomi’s smartphone shipments dropped 26% to 33.2 million units in the fourth quarter, bringing its full-year shipments down 20% to 153 million units
• The company hopes to rekindle its growth by going upmarket and expanding into more countries outside its home China market

By Trevor Mo 

The past two years haven’t been kind to Xiaomi Corp. (OTC:XIACY), a former smartphone rising star that has suffered from weakening global demand compounded by lack of buzz for its latest products. Any potential comeback for its core smartphone business will depend not only on the macro environment, but also execution of ongoing plans to jumpstart growth by going upmarket and expanding its global presence.

The company’s latest woes were center stage in new data released last week from IDC, which showed that Xiaomi is far from alone in suffering from plunging sales. The situation is unlikely to improve anytime soon, with the report painting a bleak picture for the year ahead as well. 

IDC said worldwide smartphone shipments declined 18.3% year-on-year to 300.3 million units in last year’s fourth quarter, marking the largest-ever decline in a single quarter and contributing to an 11.3% decline for 2022. Global shipments for the year stood at 1.21 billion units, the lowest annual shipment total since 2013, according to the report.

The picture was even bleaker in Xiaomi’s home China market, which accounts for nearly a quarter of global sales but struggled last year as the country implemented tough measures to control the spread of Covid 19. China smartphone shipments fell 13.2% for the year to 285.8 million units, dropping below the 300 million mark for the first time in 10 years, IDC said in a separate report released earlier this week.

IDC forecast 2023 will be challenging as well. “With 2022 declining more than 11% for the year, 2023 is set up to be a year of caution as vendors will rethink their portfolio of devices while channels will think twice before taking on excess inventory,” it said.

In such a bleak landscape, Xiaomi stands out for performing even worse than the broader market. Its fourth-quarter shipments of 33.2 million units represented a 26% year-over-year decline, the worst decline among the top five global players. That pulled its full year shipments down 19.8% to 153 million units. Xiaomi managed to retain its status as the world’s third-largest brand for both of those periods, behind global leaders Samsung(005939.KS) and Apple (NASDAQ:AAPL), which both posted smaller shipment declines of about 4% last year.

Xiaomi’s stock actually rose 12.5% on the first trading day after the IDC fourth-quarter report came out, indicating perhaps investors were prepared for even worse data. But the stock is still down about 17% from a year earlier.

It’s not hard to see why investors have become lukewarm on the company, which is China’s biggest homegrown smartphone maker. The company’s revenue growth has been stuck in reverse since at least early 2021, including a 9.7% decline to 70.47 billion yuan ($10.5 billion) in last year’s third quarter. The company has also fallen into the red, reporting a loss of 1.47 billion yuan in the period, according to its latest financial report.

Growth strategies

Three years later, the upmarket strategy has produced mixed results. The company’s Mi 13 series of phones – with a starting price of 3999 yuan, or about $600 – quickly gained traction after their launch in December 2022. Sales of the models propelled Xiaomi to the top of China’s premium smartphone market for final week of last year with 21.7% share, according to local business news portal Jiemian, citing data from a third-party research firm.

Still, it’s safe to say that lower-cost phones account for most of Xiaomi’s sales. In last year’s third quarter, its overall smartphone average selling price stood at just 1,058.2 yuan, which was down by 3% from a year earlier and is a far cry from premium levels. Gross margin for the company’s smartphone business also dropped 3.9 percentage points to just 8.9% for the period.

Xiaomi now gets about three-quarters of its unit sales from overseas, but that global expansion has also faced some setbacks lately. In India, its biggest overseas market, the company was locked in a dispute with the country’s taxation authority through 2022, leading Indian authorities to seize $676 million worth of its local assets.

Government scrutiny and broader competition have taken a toll on Xiaomi’s share of the world’s second-largest smartphone market. Xiaomi was still India’s top smartphone seller in last year’s third quarter with 21.2% of the market. But that figure was down significantly down from the more than 30% it held back in 2018, according to IDC.

Xiaomi has had better success in its campaign to move into other countries. In its last quarterly report, the company said it has increased its market share in regions including Europe, Latin America and the Middle East. It cited Europe as an example, saying its market share there increased by 1.8 percentage points to 23.3%.

Xiaomi earned 35.6 billion yuan from overseas markets in the third quarter of 2022, accounting for about half of its total revenue. The fact that half of its revenue still comes from China, even though the country only accounts for a quarter of Xiaomi’s unit smartphone sales, seems to show the company has achieved much more success going upmarket at home than abroad. 

Looking ahead, Xiaomi has said it will continue pushing ahead with its upmarket strategy, while concurrently expanding its overseas footprint. Given the industry’s current sluggish environment, the company will need to prove it can implement those strategies quickly in order to return to a growth track that was once a given.