Xiaomi pushes global smartphone expansion amid Huawei blacklist

Xiaomi Corp, the world’s fourth largest smartphone supplier, said it was closely monitoring Google’s recent move to curtail some business with Chinese rival Huawei Technologies as the company accelerates its international expansion plans.

“We are paying a lot of attention to this issue, but it has no direct impact on us,” said Chew Shou Zi, chief financial officer at Xiaomi, in a conference call with analysts after the close of trading in Hong Kong on Monday.

Xiaomi’s flagship store in Shenzhen / Photo credit: Xiaomi

Chew said the Beijing-based company, which shipped 27.9 million smartphones in the first quarter, aims “to serve 70% of the world’s population” as part of its expansion strategy. He did not provide a timeline on when that goal would be achieved.

Google’s action came in the wake of a decision last week by the US Commerce Department’s Bureau of Industry and Security to place Huawei and 70 of its affiliates on an export blacklist, which restricts the Chinese firm from buying hardware, software, and services from American hi-tech suppliers.

That followed US President Donald Trump’s signing of an executive order that barred the use of telecommunications equipment made by companies that are deemed a threat to national security. Huawei, the world’s largest telecoms network gear supplier, has repeatedly denied US accusations that its products can be used for spying by Beijing.

Xiaomi on Monday reported a net profit of 3.2 billion yuan (US$462 million) in the quarter ended March, rebounding from a 7 billion yuan (US$1 billion) loss in the same period last year. It saw steady handset shipment growth overseas as well as increased sales at its internet of things and lifestyle business, which offers products that range from smart TV sets and home appliances to photo printers and smart door locks.

The Hong Kong-listed company posted better-than-expected revenue in the first quarter, up 27.2% to 43.8 billion yuan (US$6.3 billion) from 34.4 billion yuan (US$4.9 billion) a year ago. That beat analysts’ consensus estimate of 42 billion yuan (US$6 billion).

Its shares were down 2.6% to HK$9.89 (US$1.26) at the close of trading on Monday, representing about a 40% decline from the price of its initial public offering in June last year.

Lei Jun, Xiaomi’s founder and chief executive, said in a statement on Monday that the latest quarterly results showed a satisfactory start to the implementation of the company’s “smartphone plus AIoT dual-engine strategy,” which covers increased handset sales in overseas markets as well as development of new artificial intelligence and IoT opportunities.

“Looking ahead, we will be investing 10 billion yuan [US$1.4 billion] in the development of ‘All in AIoT’ in the next five years,” Lei said.

Xiaomi last month announced that it will set up a technical committee comprising 19 members as part of its efforts to transform the company into an AI-driven company, and promised millions of yuan in rewards and compensation for exceptional and innovative engineers.

That strategy has come amid investor concerns about ongoing headwinds for smartphone makers, including saturated markets and slowing economies as the telecoms industry gears up for the rollout of next-generation 5G networks.

“With new models rolling out amid a sluggish market, we expect Xiaomi’s global [smartphone] shipment to grow just 2% year on year [in 2019],” wrote Bernstein analyst Mark Newman in a report last week. He projected Xiaomi’s smartphone shipments to reach 121 million units this year, which would give it an 8.6% global market share.