Xiaomi is taking over most of Meitu’s smartphone business

Meitu, a Chinese tech brand best known for its selfie-enhancing apps, is dramatically cutting down on its smartphone and hardware business.

The company announced in the Stock Exchange of Hong Kong that it has granted Xiaomi exclusive global licenses to the Meitu brand as well as “certain technologies and domain names in relation to all future Meitu-branded smartphones (other than the Meitu V7 model) and certain smart hardware products.”

In addition, Xiaomi will be responsible for the “design, research and development, production, business operation, sales and marketing” of these future products. However, Meitu will retain ownership of certain image-related algorithms and technologies related to the cameras of these hardware.

Photo credit: Meitu

In exchange, Meitu will receive a share of the gross profit for each smartphone sold under the new agreement, provided that it meets an unspecified sales target. The arrangement will last for 30 years.

The announcement states that Meitu has sold around 3.5 million smartphones since 2013, when it started this line of business. It’s small compared to Xiaomi, however, which has sold over 100 million phones in 10 months this year.

Meitu is at a crossroads. While it makes most of its money from “smart hardware,” revenue from that division has declined by 23 percent in the six months ending in June compared to the same period last year. Meanwhile, its internet business – represented by its portfolio of apps – has more than doubled in the same time frame.

Overall, Meitu has been seeing a six percent decline in revenue (US$295 million for 1H18) and a net loss that widened by 3.4 percent (US$18.3 million for 1H18). It’s sitting on US$187 million in cash and cash equivalents as of June 30.

Meanwhile, Xiaomi has been reporting robust sales. Profit for the three months ending in September 2018 hit US$357.23 million, compared to a US$1.6 billion loss in the same period last year.