While Xiaomi’s smartphone sales are meager, its earnings growth in Q2 of 2023 is expected to beat expectations given a better-than-expected recovery in Internet of Things (IoT) sales and advertising and improving margins, Daiwa Securities said in a note.
Xiaomi’s China market share fell to 13% due to competition and its changing strategy in India continued to weigh on its 15% market share in the country, however, Xiaomi’s share in overseas markets remains resilient, it said.
The broker expected Xiaomi’s smartphone revenue to drop to 35.8 billion yuan with average selling price flat year over year and smartphone gross margin to reach 12% in Q2, higher than expected due to falling materials costs.
Xiaomi’s internet revenue is expected to be supported by a revival in China’s advertising budget, mainly advertisements for e-commerce, games and internet services, as well as pre-installation revenue from shipment growth. The broker forecasted the gross margin of internet business to recover to 73%.
Excluding investments in electric vehicles, AI and other new areas, Xiaomi is expects to maintain a core operating margin of over 7% this year, compared with 4% last year. The broker the revenue forecast by about 3% in 2023-25 on an expected drop in smartphone shipments, but raised its earnings forecast by 7%-16% due to higher gross margins.