Xiaomi Chairman’s Letter to Investors, 2019

Posted in Apr 4, 2020 in News, no comment

Xiaomi Chairman’s Letter to Investors, 2019.

Letter to Investors

Dear investors and friends:
The world is still under the dark shadows of COVID-19 pandemic, and during this difficult time, nothing is more important than your well-being. As such, I sincerely wish good health for you and your loved ones.
We have just released our full year financial results for the year ended December 31, 2019. Besides reporting on our growth, I believe it is equally important for us to share our vision and strategies on how we can overcome economic “black swan” events.

A year of prudent management and proactive progress
In 2019, Xiaomi exceeded RMB200 billion in revenue for the first time, reaching RMB205.8 billion, an increase of 17.7% year-on-year, as well as adjusted net profit of RMB11.5 billion, an increase of 34.8%. Against the backdrop of uncertainties related to Sino-US trade tensions, Xiaomi’s commendable results stood out in strong contrast.

In 2019, Xiaomi hit a series of significant milestones. We made our inaugural entry into the Fortune Global 500 list, becoming the youngest company on the list. We entered BrandZ’s global brand TOP100 for the first time, ranking 74th. We also accomplished an unprecedented record, becoming the first smart TV brand to ship more than 10 million units annually in China ever.

Foresight, confidence, resilience and strong execution are key to our continued progress
Mobile telecommunications is at a critical juncture globally, as the industry transitions from 4G to 5G. We have adopted a sound business strategy, focusing on product quality, innovation, and delivery, while making key adjustments to our brands, product portfolios, organizational structure, and management systems. Combined together, these initiatives have paved a solid foundation for our future.

We have officially launched a dual-brand strategy for our smartphones business, with the brand separation of Redmi from Xiaomi. Their independent operations have brought us great success. Our market share is consistently ranked among the top four globally, while our healthy and prudent inventory levels have enabled us to step forward boldly with our 5G game plan. At the end of 2019, close to half of our revenue are derived from overseas markets, making Xiaomi a truly global company. Our Internet Services business has become more dynamic and diverse, while our AIoT business maintained its global leadership, becoming recognized across our industry as a “first mover in smart living”.

Business success on the back of technological innovation
At Xiaomi, we firmly believe that our business success is underpinned by technological innovations, and to that effect, we have continually increased our R&D investment. In 2019, our R&D investment reached RMB7.5 billion, a 29.7% year-on-year increase on the back of substantial R&D expansion for the three prior years. In 2020, we expect our R&D investment to increase to RMB10 billion.

At the same time, we are also proactively attracting top R&D talent from around the world. Recently, we have successfully recruited Daniel Povey, a top international expert in artificial intelligence, to join Xiaomi. Starting from 2019, we have set up the Xiaomi Annual Technology Award, which awards a US$1 million bonus to core R&D project personnel with the highest technical achievements each year. Last year, the award was shared by 10 engineers from the Xiaomi MIX Alpha project.

Our strategic roadmap of “5G+AI+IoT and next generation super internet”
To us, 5G is not merely about a faster smartphone network, while AIoT is also not just about AI technologies or IoT platforms. Instead, “5G+AIoT” will be a revolutionary combination that will fundamentally change all Xiaomi’s products, platforms and user scenarios, catalyzing the next stage of our growth in the next generation of Internet era. At the start of last year, we first proposed our “All in AIoT” initiative, allocating an investment of RMB 10 billion in AIOT over the next five years. One year in, we believe we are moving in an important strategic direction. As such, we will increase our investment to at least RMB 50 billion over the next five years in “5G+AIoT”, to ensure our absolute dominance over the new smart living era.

This bold initiative will enable us to create greater value for you and is a tangible reflection of the philosophy we adhere to: By making a connected world a reality for billions of people globally. We believe technology can be a force for good to improve lives everywhere.

We firmly believe that a connected world is better than an isolated one. We also firmly believe in the economic value created by global collaboration, and how the world can truly change when technology is freely accessible. During the COVID-19 outbreak, as we witnessed people in isolation connecting with their family, loved ones and even their pets through their smart devices, we could feel the very human desires to connect and to care.

It is famously said that no man is an island. At Xiaomi, we deeply believe in this. As we build the next generation super internet, we will continue to use technology to connect and improve lives everywhere.

Operational efficiency as the ultimate way to overcome crises
While our industry and the entire world are currently facing huge challenges, we have absolute confidence in navigating through these extraordinary times together with our partners. During this period of adversity, the strength of our operational efficiency will be more obvious than ever.

At Xiaomi, we have always been very focused on efficiency. We believe that the pursuit of efficiency is an exercise in self-discipline and contingency planning.

Having experienced the SARS epidemic and global financial crisis in 2003 and 2008 respectively, my colleagues and I know crises are the ultimate litmus test that separates successful companies from others. Our efficient operations, strong execution capabilities and consumer trust will enable us to seek out opportunities during crises and stay on a sustainable growth trajectory.

During our IPO, we said that a company that is able to achieve world-class efficiency will have the ability to survive multiple economic cycles, continuously seize new opportunities and sustain excellent operational performance in the long run. Now more than ever, we want to reiterate this.

We are also safeguarding our competitiveness through a series of organizational restructuring. Over the past year, we have established the Department of Group Organization to improve our management processes. We have also set up our employee training campus and ramped up our college recruitment efforts. These initiatives form a key part of our overall effort to grow and sustain our operational efficiency.

In the face of challenges, perseverance is key
Our mission is to relentlessly build “amazing products with honest prices” to let everyone in the world enjoy a better life through innovative technology. In order to ensure that we stay true to our mission, our board of directors passed a special resolution before our IPO last year. According to the resolution, we pledged to our existing and potential users that the overall net profit margin of Xiaomi’s hardware business will never exceed 5%.

A commitment to our consumers and a testament to our efficiency
As we stay true to our commitment to our users, we are pleased to share that, similar to last year, our hardware business net margin in the year ended December 31, 2019 maintained positive and less than 1.0%.

It is also worth highlighting that Xiaomi as a standalone smartphone brand has been re-launched early last year. With the release of Mi 9, Mi 9 5G and Xiaomi CC 9 Pro last year, and the release of the Mi 10 series earlier this year, it is proven that the Xiaomi brand can move upscale while continuing to win over our users via “amazing products at honest prices”.

Despite the impact of COVID-19, we remain optimistic about our future prospects. To date, our supply capacity has recovered to 90% of normal levels and we are seeing light at the end of the tunnel in China. Fortune favors the brave and this year, Xiaomi will continue to act swiftly and decisively.

In a few days, we will celebrate our tenth anniversary on April 6th. Over the past ten tumultuous years, Xiaomi has created a series of miracles. In the next ten years, we will continue to steadily move forward, turning Xiaomi’s vision into reality. Thank you for trusting us, investing in us, and joining us in our journey to let billions of people around the world enjoy better lives through innovative technology.

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