Xiaomi Corporation
Q3 2021 Earnings Call Transcript

Published: 23 Nov 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Xiaomi 2021 Third Quarter Results Announcement Conference Call. Today’s conference is being recorded. If you have any objection, you may now disconnect. I would now like to hand over the conference to your host today Ms. Anita CHEN, Head of Investor Relations. Please go ahead Ms. CHEN.

[Anita CHEN:]

Good evening, ladies and gentlemen. Welcome to investor conference call hosted by Xiaomi Corporation regarding the company’s 2021 third quarter results. Before we start the call, we would like to remind you that the call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company’s financials prepared in accordance with IFRS. Joining us on the call today are Mr. Wang Xiang, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and CFO of Xiaomi Corporation. To start, Mr. Wang will share recent strategic initiatives of the company. Thereafter, Mr. Lam will review the business and financial performance for the quarter. Following that, we will move on to the Q&A session. I will now turn the call over to Mr. Wang.

[Wang Xiang:]

Yes. Thank you. Thank you, Anita. Hello everyone. Thank you for joining our 2021 third quarter earnings call. This quarter actually ended the background of global supply shortage. All our business segments continued to grow. Total revenue reached RMB78.1 billion up about 8.2% and adjusted net profit reached RMB5.2 billion up 25.4% year-over-year and our global smartphone shipment remain strong despite the shortage of key components. In the third quarter, we rank number three globally in terms of smartphone shipments. In the first three quarters of 2020, our global smartphone shipment reached 146 million units, equivalent to our 2020 full year shipments. This allows us to support our market positions as much as possible across our key market globally. At the same time, our smartphone gross margin reached 12.8% this quarter and increased by 4.4% year-over-year and 1% quarter-over-quarter. We continue to strengthen our opposition in the premium smartphone market. In the first three quarters of 2021, we shipped around 18 million premium smartphones globally. It accounted for more than 12% of total smartphone shipment compared with less than 8% in the same period of last year. The growth of premium smartphone shipment has also led to an increase in our overall ASP. Meanwhile, we are using different product lines to penetrate different target market segments and to attract new Xiaomi smartphone users. Among our new smartphone product launched this year, over half of users are new users. Similarly our stylish Xiaomi Civi attracted over 50% female users. We remain committed to technology innovation to deliver best product and user experience. In China Telecom’s 5G smartphone performance test in November, we ranked number one across all price categories, a result of our relentless focus on user needs and R&D investments. In the first three quarters, our R&D expenses reached RMB9.3 billion, up more than 50% year-over-year. As we continue to make amazing products, actually we are also strengthening our distribution channels. In online channel, we were the clear leader in the years, Double 11 Shopping Festival we ranked the number one smartphone brand by sales volume. At the same time, we continue to expand our offline channel. By now we have over 10,000 stores in mainland China. Going forward, we will cease the growth opportunity in lower tier offline markets and continue to strengthen our market share. This quarter, internet service performance remains strong. In September, our global MIUI MAU reached 486 million. At the time, our mainland China MIUI MAU increased for the four consecutive quarters reaching 127 million. As we grow our user base and increase our premium smartphone shipments, internet service revenue and our pricing revenue both achieved record highs in this quarter. Furthermore, our overseas internet services revenue contributed to nearly 20% of total internet service revenue. And we are happy to share that as of yesterday, our global MIUI MAU exceeded 500 million users. It took only 10 months for our global MIUI MAU to increase from 400 million to 500 million and this marks an important milestone for our Smartphone × AIoT strategy. Now I’d like to invite Alain to discuss our third quarter earnings result in a greater details. Alain, please.

[Alain Lam:]

Thank you, Xiang. Good evening, everyone. Thank you for joining us today for our third quarter 2021 earnings call. Our total revenue and adjusted net profit continued to grow despite the global shortage of key components. In the third quarter, we ranked number three globally in terms of smartphone shipments. Our MIUI user base in mainland China, as well as globally, both reached record highs as of September, driving our internet services revenue to set another record. The number of connected devices on our AIoT platform exceeded 400 million for the first time and the number of users with five or more connected devices also surpassed 8 million for the first time. In the third quarter of 2021, our total revenue reached RMB78.1 billion, up 8.2% from a year ago as all business segments continued to grow year-over-year. Adjusted net profit increased 25.4% year-over-year to RMB5.2 billion and adjusted net profit margin was a robust 6.6%. By further refining our smartphone user segmentation, we have been attracting users to Xiaomi. Notably from many of our new smartphone launched this year, over half of the users are new Xiaomi users. For example, over 70% of Xiaomi MIX FOLD users and over 60% of Xiaomi 11 series and Xiaomi Civi users are new users of Xiaomi. These new users help us increase our internet MAUs in China from 111 million in December of 2020 to 127 million in September 2021. We continue to improve our competitive position in the premium smartphones market. In the third quarter of 2021, our premium smartphone shipments reached approximately 18 million units globally, significantly higher than the 10 million units in all of 2020. In the first three quarters of 2021, we’ve expanded our premium smartphone market share in mainland China across all price categories. For example, in the RMB3,000 to RMB4,000 category, our market share grew 6.4% year-over-year; in the RMB4,000 to RMB5,000 category, our market share grew by 7.7% year-over-year. At the same time, models such as Xiaomi 11 Pro, 11 Ultra and MIX FOLD continue to attract new premium uses and improve our market share in the RMB5,000 or above price category. The outstanding performance of our 5G smartphones has also been very recognized by the industry. In the most recent China Telecom 5G smartphone performance test in November, which included tests on speed and stability, Xiaomi and Redmi smartphones ranked number one across all price categories against all of our peers. The result shows the competitiveness of our 5G phone products. As Xiang mentioned, we have achieved remarkable result during the Double 11 Shopping Festival. We set new records as our cumulative GMV exceeded RMB19 billion, an increase of 35% year-over-year. We ranked as the number one smartphone brand by sales volume across the major e-commerce platforms. In the Android RMB4,000 and above category, our premium smartphones ranked number one on JD.com and Tmall. Furthermore, our AIoT products achieved 208 number one rankings across different categories. Also as Xiang mentioned earlier, we are very happy to share that as of yesterday our global MIUI MAU exceeded 500 million users. This marked another milestone of our history and demonstrating the strong growth momentum of our user base. We continued to step up our investments in R&D. In the third quarter of 2021 our R&D expenses increased by 39.5% year-over-year to reach RMB3.2 billion. For the first nine months of 2021, our total R&D expenses reached RMB9.3 billion, up 51.4% year-over-year. At the end of the third quarter, we had approximately 14,000 R&D personnel accounting for more than 44% of our total employees. In addition, our total patent application exceeded 48,000 globally. Our Smart EV business has been progressing ahead of schedule, since we officially announced our entry in March of this year. So far we have a team of over 500 people. We expect to continue to execute on our strategies and begin mass production in the first half of 2024. Now let us dive deeper into each of our segments starting with smartphones. In the third quarter of 2021, despite the global shortage of key components, we managed to increase our smartphone revenue by 0.5% year-over-year to reach RMB48 billion while our ASP increased 6.7% year-over-year. Our smartphone market share has maintained an upward trend. In the third quarter of 2021, our smartphone market share was 13.5% globally and 13.8% in mainland China, both were above our historical averages. In this past quarter, we launched our Xiaomi Civi for fashion conscious uses with a lightweight and attractive design Xiaomi Civi has been well received. Since launched, based on our data, over 60% of Xiaomi Civi are new Xiaomi users and over half are females demonstrating our ability to penetrate new user segments. The Redmi Note 11 series is another exciting new product that offers cutting edge technology to a wide user base. The Redmi Note 11 Pro+ comes equipped with a high refresh rates display, ultraclear camera and 120W fast charging. Since launched, at the end of October, sales of the Redmi Note 11 series in mainland China have already exceeded 1 million units. We continue to expand our offline network in mainland China. We currently have over 10,000 offline retail stores covering over 95% of cities and over 80% of counties in mainland China. We’re focused on expanding in lower tier market as well as improving the efficiency of our offline stores in the future. In the overseas markets, our premium smartphone have gained wide popularity. In the third quarter, our overseas premium smartphone shipments grew more than 180% year-over-year, mainly driven by growth in Latin America, Western Europe and the Middle East. As a result, our overseas smartphone ASP also saw a year-over-year increase. We maintained the number one position in 11 markets globally and was among the top five in 59 markets in the third quarter according to Canalys. Now let’s move on to the IoT and lifestyle products. In the third quarter, our IoT and lifestyle products, revenue reached RMB20.9 billion, up 15.5% year-over-year. In particular, overseas IoT and lifestyle products revenue reached a historical high, even though there were challenges with respect to overseas shipping logistics costs, which had impacted some of the IoT products overseas. As the global leading consumer AIoT platform, we continue to expand our global IoT user base. By the end of September, the number of connected IoT devices on our AIoT platform exceeded 400 million for the first time, up 33.1% year-over-year. Moreover, the number of users who had five or more devices on our AIoT platform exceeded 8 million for the first time, up 42.8% year-over-year. Our AI assistant MAU reached 105.1 million in September, an increase of 34.1% year-over-year, also our Mi Home App MAU reached 59.9 million, up 39% year-over-year. In the smart TV category, we are rapidly expanding our global footprint. In the third quarter, global shipments of our smart TVs reached 3 million units, despite the impact of increased panel prices. And we ranked top five globally. In India, our smart TV ranked number one for the 13th consecutive quarter. In Mainland China, we ranked number one overall for the 11th consecutive quarter. And since launching our new OLED product in August, our OLED TV have ranked number one for two consecutive months, demonstrating our achievement in the premium segment. We have made continuous effort to penetrate the high end white goods market. We believe we can capture significant opportunities by enhancing traditional white goods with smart technologies. While making our premium products available to the mass markets. As an example of this effort, we launched our first premium smart refrigerator in October, 2021, which supports connectivity with our Mi Home App, as well as our AI smart assistant. Also during the Double 11 shopping festival, our home appliances products achieved record sales. On JD.com, as you can see, we ranked number three in the overall home appliances category by sales value, outpacing other players like Chile. Notably in a smart AV with ventilation category, which we have talked about in the previous earnings call, Xiaomi ranked number one in terms of both sales volumes, as well as sales value. We’ve continued to make progress in the variable areas. In the third quarter, according to Canalys, who were the global number two vendor in variable events. As we execute our smartphone times AIoT strategy, we strive to use offer our users the coolest variable products such as our Xiaomi Buds 3 Pro and Redmi Watch 2, our enhancing connectivity with our smartphone. Now let’s talk about our internet services. In the third quarter, our global internet user base continued a strong growth momentum to reach another record high. Our MIUI global MAU increased by 32% year-over-year to 485.9 million in September. While our MIUI MAU in Mainland China reached 127.3 million and increased our 3.3 million users from June of 2021. And as Wang Xiang said earlier, our global MIUI MAU exceeded 500 million couple of days ago. Just to recap in the first nine months of the year, the MIUI MAU in Mainland China increased by more than 16 million. Our global TV MAU also continue to grow rapidly increasing over 33% year-over-year. As our global and Mainland China user base continues to grow, revenue from internet services achieved another record high, reaching RMB7.3 billion in the third quarter, up 27.1% year-over-year. Our advertising revenue reached another quarterly high of RMB4.8 billion, up 44.7% year-over-year. Gaming revenue also grew 25% year-over-year to reach RMB1 billion, our first year-over-year growth in the past year. Let me elaborate further on our advertising and gaming business. Our advertising revenue is mainly derived from after installation, our search and by performance based and brand advertisements. In the third quarter, pre-installation revenue per smartphone in Mainland China increased by over 50% year-over-year, driven by increased premium smartphone shipments. In the overseas market, search revenue increased over 200% year-over-year and performance based and brand advertising revenue increased over 100% year-over-year, driving our significant growth in advertising business. For online games, contract terms are now comparable with the same period last year. Furthermore, higher ARPU contribution from our premium as well as our gaming smartphone users help drive solid revenue growth. Our overseas internet services revenue also continued its rapid growth and achieved a record high. In the third quarter, overseas internet services revenue increased 110% year-over-year, accounting from 19.9% of our total internet services revenue. Going forward we’ll deepen our collaboration with global business partners and further enrich our overseas services offerings. Now let’s move on to more detailed financials. As we mentioned before in the third quarter, total revenue reached RMB78.1 billion. Our segment smartphone revenue grew 0.5% year-over-year to 47.8% – for RMB47.8 billion. IoT products revenue grew to RMB20.9 billion and internet services revenue grew 27% to RMB7.3 billion. Overseas revenue increased 2.8% year-over-year to RMB40.9 billion, accounting for 52.4% of our total revenue. Our overall gross margin increased year-over-year and quarter-over-quarter to 18.3%. This increase was mainly driven by highest market gross margin, which reached 12.8% in Q3 and increased contribution from the internet services segments, which achieved 73.6% gross margin. As we mentioned before, we continue to invest in R&D in the third quarter. As you can see our overall operating expense ratio was 12%, which was mainly driven by R&D expense ratio increased to 4.1%. In the third quarter, our cash resources remain – at RMB98.1 billion. Let me provide you with an update on our ESG initiative. Number one, we’ve continuously strive to protect our users data and privacy and hold ourselves to the highest standards. Our efforts have been recognized by the British Standard Institution, which has granted Kitemark certification to our Mi 360 degree Home Security Camera. Furthermore, in this quarter, we screen more than 85,000 apps in our Mainland China Xiaomi APP store for data collection violations and rectify any issues immediately. We also understand our social responsibility extends far beyond our products and services. In responses to natural resources in the Henan and Shanxi Provinces, Xiaomi Foundation donated RMB50 million and RMB10 million to the respective areas. In July, we also donated €1 million to those affected by the flood disasters in Germany, Netherlands, and Belgium. We also strive to get back to our community through education. In November, the Xiaomi Scholarship was launched to the second batch of universities in China to support eligible students. In the future, as we grow our business, we’ll continue to get back to our communities and fulfill our corporate social responsibilities. This concludes our prepared remarks. We now like to open the call for questions from investors.

[Anita CHEN:]

Thank you, Alain. We will now proceed to the Q&A session. Please limit your questions to a maximum of two, so that we could allow more investors to ask the questions. Operator?

[Operator:]

Thank you. The question-and-answer session is now open. And our first question is come from Kyna Wong with Credit Suisse. And please go ahead.

[Kyna Wong:]

Thank you. Thank you for taking my question. I have two questions. The first one is about the internet business. We see that a strong momentum in the advertising business and also gaming is like picking up and we see overseas contribution also increase like over 100% over a year in the third quarter. Could management give us some kind of like outlook in the internet business in the fourth quarter and also first half of next year, because the overall, we – as we think that it’s important to know the growth momentum going forward as the MAU has already achieved the kind of like certain level that potentially contributes the internet business in the next few quarter as well. The second question is about smartphone side. I think we know that is spontaneous right, how to release in the later, any improvement in the fourth quarter and what should we expect on the full year shipment is the 119 million reasonable target for us. And should we also expect – what should we expect the target for 2022, if the chip tightness is actually improving in the second half next year. Thank you.

[Alain Lam:]

Thanks, Kyna. Let me try to take the first question and then I’ll let Xiang take the second question. Respect to the growth in the internet business, number one, I think is driven by the increase of our global internet users, right. As we said before our Q3 MAU reached 4.86 – 486 million, which means an increase of over 100 million in 2021 alone, right. In the first three quarters, our China MAU increased by 16 million, right. And so I – a huge part of the increase in internet services, obviously driven by the increased number of our user base as well as our shipment base. I think that’s number one. Number two is the increased percentage of our premium smartphone as a overall premium smartphone portfolio. As we demonstrated in the chart – one of the charts premium smartphones do drive higher gaming ARPU, also drive higher pre-installation revenue. And so the move towards more – for more premium smartphones for Xiaomi will also increase our advertising internet services revenue. Number three is also the gaming avenue, as we talk about in the past four quarters, we’ve been hit by some changes in the contract terms with some of our providers, suppliers and Q3 is the third quarter – is the first quarter that we are able to compare apples-to-apples in the last – in the past five quarters. And so as a result, we are very encouraged to see that our gaming revenue has increased year-over-year. Number four, you talk about overseas, I mean obviously overseas is a function of the user base in the overseas market. We talk about the increase in revenue from our search business in the overseas market. And so I think that that will continue to contribute to our revenue as well as our net income. Lastly, I think the TV, I should mention that – we mentioned, we talk about the TV MAUs, the TV internet revenue has also contributed to the significant increase due to some of the memberships, et cetera, that that we’ve seen a year-over-year increase, right. In the future, we continue to be optimistic. So obviously, I think as you mentioned, there’s a lot of regulatory headwind, which are facing some of our peers as well, which we’re well recognized, but at the same time, I think given the strong shipments that we have the increased number of new users on Xiaomi’s platform, the premium users on Xiaomi’s phones and to the extent that we can continue to improve customer experience, customer services, we believe that we’ll continue to see – hopefully continue to see a healthy growth in the internet business.

[Wang Xiang:]

Yes, yes. So the second question is related to the supply, and also the forecast, actually, everybody knows during the entire year 2021, we are facing the challenge of the supply shortage. Actually the second half of 2021, the challenge even bigger. So but even with the serious supply situation actually, we have achieved actually a record high shipment in the first three quarters. Actually, the total shipment is over RMB146 million is equivalent to the entire last year’s shipment actually is a – I think is a very, very good result actually Q3 and also Q4, the challenge is even bigger as I mentioned earlier. But I think we can – we are working very closely with our suppliers try to get more supply as much as possible. I think – so I think 190 million is a good number, but we still work very hard to try to get more. So I think, yes – so it is getting the middle of the Q4, right, we are working very hard. So for the next year, actually, we see very good, how to say, at the momentum of the improvement. But unfortunately in the first half, actually, we still see some structural challenges in the first half Q1 and Q2, but the entire year 2022, the supply situation will be very much improved. So we are working very hard for the supply for Q1 and Q2, especially, for the 4G devices, right. We are still – right now, we are in the more than 100 different markets actually, many of our markets, the consumer are really need a lot of acute via 4G devices even in the developer market like Europe. So we are working very hard for that supply. So overall it’s good, but yes, as I mentioned the first half will be a challenge. We’ll maintain very high growth for the year 2022.

[Alain Lam:]

I think just to contextualize some of what Wang Xiang just said, right? I mean, if you look at our shipments in the first three quarters of the year. We’ve already reached 146 million, which was comparable to the entire 2020. If you look at our revenue from smartphone in the first nine months of this year has already exceeded the whole of 2020. So despite overall shipments being flat in the global market we have achieved very considerable growth in our smartphones this year. So that’s why we are very encouraged by the result. So I think that that’s point number one. Point number two is obviously, as we mentioned in the last couple of conference calls already, in the global supply shortages situation we are also able to maintain a fairly healthy gross margin. So if you look at our smartphone gross margin this quarter is back to 12.8%, which is comparable to what we achieve in the first quarter. So I just want to point those numbers out to you.

[Kyna Wong:]

Got you. So 2022 sounds good growth – to maintain good growth for 2022. I understand that. Thank you. Thank you.

[Operator:]

Thank you. And our next question is come from Andy Meng with Morgan Stanley. Please go ahead.

[Andy Meng:]

Thank you, Wang Xiang. Thank you, Alain Lam. I have two questions. For the first question is related to the AIoT business, we have seen the margin slight decline on quarter-over-quarter basis. So is it possible for Xiaomi to raise the ASP of the AIoT product and try to pass from the cost pressure? And can we say this will help us to improve the margin or basically the margin is more likely to stay at the current level without much improvement in the current quarters. Okay. This is my first question. My second question is relate to the smartphone. We have highlighted two product in our presentation, which is the Xiaomi Civi and the Redmi Note 11 series. So basically I want to check, you mentioned about the positive feedback on those new products. But compared with the models we launched early this year what’s the key improvement we have achieved on those two models. And one of the key areas we want to do better in the future. And also if you can share a bit more regarding the offline channel, which like a product is selling better, and why is that? And do we figure out how to play this offline promotion or this like setting the popular models, et cetera, that will be very helpful. Thank you.

[Wang Xiang:]

So yes, the first question related to the AIoT profit margin. So during the entire 2021 actually, we have – I just mentioned the challenges the supply, right? But on the AIoT side, I think there is another challenge with the logistic transportations. The transportation cost is very high increased significantly. So that will give us some impact on the international profit margin generally from the international market. And also because of the slow response of the transportation, so they also give some impact on the revenue side for the international market. And also because of the supply shortage, so some of the cost of our AIoT devices increased significantly that give us a temporarily impact on the profit margin. This is what I see probably, Alain, you can…

[Alain Lam:]

Yes. I think, Andy, on the IoT side, as Wang Xiang mentioned, we do have some products that we normally sell to the overseas market that’s been delayed or that’s been canceled due to the shipment costs into the overseas market. So I think that’s the first point. And what that means is also shifted some of the product mix between China as well as the overseas market. That’s the second point, right. And China, as you know, predominantly dominated by some of the larger white goods product, but such as TV right – such as TV and laptops. And obviously TV and laptops are due to kind of the high IoT prices carry lower margins. And so I think it’s just a math function, right. I think as IoT price, people already seeing IoT price dropping a lot significantly, in fact. And so – it does help in terms of the gross margin in future periods. And as we can see, the overall shipping cost has been normalizing. And so it will also help the overall margin in the future period.

[Wang Xiang:]

So I think that’s the first question. I think the second question is respect to Civi and Redmi Note 10 – Note 11. I think, first of all, the Civi products really made for a different demographics, a demographics that we haven’t really targeted previously, which is the fashion conscious female demographics. And as I mentioned in my prepared remarks, the female users we estimated to be around half of the buyers. Probably some of the other buyers give it to their girlfriends and wife. We don’t know, but that percentage could be higher. And so I think from our data, we already targeted a – kind of a new demographics that we haven’t touched before. Second is we targeted the Civi products a lot into the offline channels. And so this is also our first try into trying different types of products into a different channels. We are very encouraged. I mean, obviously I think it take time for us, like, our premium products to get used to serving the high end premium users, as well as the female demographics. So hopefully the next series of the Civi products will be much more competitive. I think that that’s something that we like to see, right. In terms of the Redmi Note 11 series, so obviously, we’ve been improving the performance, but at the same time, we also increase the price. I think the price range that we offered our Redmi Note 11 was much higher than previously. So I think you can see that we are also trying to broaden the reach using this Redmi Note 11 product. And so this is something that we are trying. Your last question is respect to the offline channel. The offline channel, I think this year we’ve added a lot of new stores. We are over 10,000 now. I think the next stage for us to focus on is really to increase the efficiency of these stores or increase the productivity of these stores. I think that a lot of these new stores are open for less than three to six months and that it takes time to ramp up these stores, I think an important focus for us is to improve the productivity of each of these stores in the near future.

[Andy Meng:]

Thank you very much.

[Operator:]

Thank you. And our next question is come from Piyush with Goldman Sachs. Please go ahead.

[Piyush Mubayi:]

Thank you for taking my question. Just speaking up from the store point that you talked about, Alain, could you take us through, you’ve expanded the store number by more than a factor of three. Could you take us through what’s prompted that expansion that we’re observing and give us a feel of whatever the initial feedback has been on the ability to sell through in market share gains you’re seeing in the offline space. And also give us a feel for whether this is coming in at a higher end versus overall ASP or at another price point versus the overall ASP. Second is what have been the key learnings for you from building out this retail presence. From the standpoint of how effective your sales force has been. And how could the quality of the smartphone overall is versus the high end of the market? And third is more specific to how we should be thinking of the expenses related to EV, where I noticed you’ve flashed out how many people had applied for, and how many have been – have started to work in that segment. Could you take us through what that cost point is at this stage and how that’s likely to evolve and how we should think about that and baking that into our numbers? Thank you.

[Wang Xiang:]

Thanks, Piyush. On the offline store expansion, as we mentioned previously, we are significantly lower in terms of number of stores versus our peers, right. If you look at OPPO and Vivo, each of them has probably 20,000 sales points in China. At this point, we are still very, very low in terms of where we are. I mean, obviously we believe that we can be more efficient and we don’t need to have that many stores to achieve their market share, right. But I think for – if you compare the market share store, I think we are much higher versus OPPO and Vivo at this point. Key lessons learned, obviously, number one is that these stores needs time to ramp up. If you think about 10,000 stores, we are hiring 10,000 employees into Xiaomi, we assume one store manager per store, right? And that put significant pressure on training these people on getting them up to speed on getting them familiar with selling Xiaomi product, et cetera, et cetera. So we have to implement a lot of training sessions for them to learn about our style, our culture, how to sell the product, et cetera. So obviously, it takes longer – it takes a while for these stores to get ramp up. I think that’s one of the key lessons learned. And so for the next few months, I think, what we are spending consider efforts, trying to ramp up the profitability, the productivity of these stores. I think what we’ve been encouraged to see obviously is our business partners, because a lot of these stores are not open by us – open by our business partners. And we are – and they’re only open more stores with us if they make money, right. And we’ve been talking about this how I model for a while now, which we think is working, because if you look at the number of average stores open per partner, that number has been increasing. So at the beginning, each partner probably opened like three-ish stores for us. In the most recent data we collected, they’re opening more than five stores with us. And that’s something that we want to – we are encouraged to see, because obviously they’re making money, otherwise they won’t be opening that many stores with us. So that’s something that we’ll continue to work on, increase the productivity of each store, improve the returns of each partner so that they will continue to build their network with us. In terms of EV expenses, right now it’s still relatively small compared to other parts of our business. So that’s why we are not breaking that out at this point. I think this year will continue to be low versus where our other businesses are. But as we grow the business, we think – we also thinking about how to better disclose the expenses related to EV, so that analysts and investors will have a better view. So stay tuned on that. We are not quite ready yet, but when we are ready, we let you know. I think – sorry, one last point you mentioned. So obviously, we do see higher percentage of premium products sold in our offline stores. I think that that’s something that we’ve observed as well. So that’s why, as we continue to push our effort into the premium side – premium smartphone side. These stores will also be very, very helpful in that distribution.

[Operator:]

Thank you. And our next question is come from Gokul with JPMorgan and please go ahead.

[Gokul Hariharan:]

Thanks for taking my question. My first question is about competition in China. It seems like Honor has come in and taken a fair bit of market share in a short period of time. How do you see competition evolved now that there are four local brands are all competing for market share, how does Xiaomi plan to kind of gain for the market share in addition to the offline push in the next let’s say 12 months to 18 months. I think previously we’ve talked about potentially getting to high teens to 20% market share. We were there in first half of the year, seems like there has been a little bit of a slippage in Q3. Can you talk a little bit about how we think market share evolves in China? Second is on the overseas internal business. Alain, I think you talk a little bit more in detail about advertising growth in overseas. Could you also get some more details on where is the revenue coming from overseas? Is it primarily coming from the higher ARPU areas like Europe, or is it more broad based in terms of the overseas internal revenues? Thank you.

[Wang Xiang:]

Yes. Regarding to the competition, actually we have a lot of competition. Actually, we respect every competitors in this market. China is the most competitive market. I think, we instead of looking what competitors are doing, actually, we should focus more on ourself to improve the user experience, the quality of our product improve the channel coverage. I think that’s the way we are doing it. So actually focus on our key strengths. I think one of the strengths we have is we have to scale right? Right now, we have – last year, we have almost 150 million smartphone shipped to the global market. We are – we have that scale, scale means we have a higher efficiency, right? We have a better cost structure. That’s the key strengths we have. And also we are – we optimized everything in terms of the R&D and also the channel cost. So that’s the – what we are doing now. I think we are confident that in the future while we are building our coverage in the offline in China, we’ll continuously improve the efficiency and we we’ll – I think we are confident we can compete with anyone more efficiently. It takes a little while for us to establish the offline channels in China, but we are actually, we are still the leader in the online market. And also we have a very broad global market. So I think that’s all our strengths.

[Alain Lam:]

I think, Gokul, a couple of other points. Obviously, in Q3, our market share was lower than Q2. I think one of the key reasons was really the strong performance by the iPhone 12 – the iPhone 13, right. I think it actually managed to squeeze all the Android players down in terms of their market share. So I think that’s the first factor. They’re still very, very strong. I think, second thing is obviously if you look at some of the recent market share that we have in the Chinese market, we’ve seen – last week we’ve seen 16.5%, two weeks ago we’ve seen 18.6%. So, as the November 11 festival plays out, we’ve been able to achieve a pretty high market share on a weekly basis in China. Our third point is also, I think this is a point that we made for the past couple of quarters already as we are facing supply shortage. We are also trying to optimize our product portfolio globally, because we do have 100 markets to take care of. And so we’ve also been strategically, I mean, allocating our resources globally to make sure that we are satisfying as much as we can all the channel demand under the constraint supply that we are getting. So I think that’s kind of address your question on the market share. With respect to the overseas internet revenue, I mean, frankly speaking, we haven’t been doing a lot of monetization, although some of these search revenue, per installation revenue comes naturally. But obviously we’ve been focused on growing our user base. And as I mentioned earlier, I think this past nine months we increased our user base by over 100 million. And so the user base increase is actually helpful to our internet revenue. In terms of regions, I do think that if you look at the breakdown, the higher ARPU obviously comes from the more developed market, right such as Western Europe, part of Latin America than over Southeast Asia et cetera. So, I think you do see similar trends with respect to the economic development reflected in the overseas internet services revenue.

[Gokul Hariharan:]

Got it. Thank you.

[Operator:]

Thank you. Our next question is come from with CICC. Thank you.

[Unidentified Analyst:]

Okay. Good evening, management. Thanks for taking my question. And I have two questions. The first one is about the overseas smartphone markets, especially in India and Europe. So could management share the future channel strategy of these two markets and how well Xiaomi increase the SP of smartphone in these two markets? And the second question is a follow-up question about either business. We see that recently the company registered the second car company. So could management update either business such as the number and focus area of R&D team and the construction of supply chain? Thanks.

[Wang Xiang:]

Yes, I think, yes, every market actually is different, specifically in Europe. Actually, we continue to execute the channel strategy we’re using right now. So in Europe, actually there are half a half market in terms of the market share half as the open market, we sell the product, our smartphones, our ALT products through the open channel. That means the big chain stores like a medium market and others, right. We sell our product through that channels and other smaller channels that’s open market. That’s still represent 50% of the European market. Another half will be the carrier market. Actually, we have been establishing a partnership with the global carriers, especially European carriers. So we’ll continue to grow that market. Still up to now our market share in the carrier channel, they still have a lot of room to grow. So especially in the higher tier product, this high end product, we’ll continue to strengthen the partnership with our partners – with our carrier partner to help them and help ourself to increase the market share in the high tier segment. That’s the very important thing to do. India market is a different. Indian market actually online market is close to 40%. The online market is a highest market share globally among all the countries. So we’ll continue to strengthen our position in online market, through the dot com and also our partners including the Amazon and Flipkart. But at the same time, we’ll continue to grow the offline channels in the India market. In India market actually is the mom-and-pop stores. There are thousands of those stores covering the cities and also the rural area. So we’ll continue to improve the coverage. We use a very high efficient methodology to cover those areas. We’ll continue to do that. So this year, actually our challenge in India is the shortage and also pandemic give us a very big challenge in the – on the manufacturing side, as well as the channel side as well. So I think next year is they are going to be improvement in supply and also the pandemic we hope. We see a very big potential to grow our market share in both Europe and India, as well as Latin America and the Southeast Asian countries.

[Alain Lam:]

Yes, on the EV side, unfortunately, there’s not much to update. I think we’ve been spending time and efforts on defining our product as well as the product design as well as reaching out to some of our supply chain partners. We are starting to reach out to our supply chain partners. But beyond that, I think that there’s not much to do. I mean, obviously not much to say. I mean, obviously, you’ve seen that we’ve registered a couple of companies, obviously from a corporate structure perspective. We also need to set up the corporate structure. And so that’s been progressing on schedule.

[Unidentified Analyst:]

Okay. Thanks a lot.

[Operator:]

Thank you. Now, you might have last question and the question is come from Xu Yingbo with CITIC, and please go ahead.

[Xu Yingbo:]

Thanks for taking the question. My first question is about oversea internet revenue. We are very glad to find that oversea internet revenue keep on acceleration on increase. And also when we calculated, oversea ARPU, it keep on increasing quarter-on-quarter. So my first question is that, could you please give us some color on the forecast of the internet business, especially the oversea internet business. And my second question is about AIoT business. We find that we have launched a new refrigerator and washing machine has been launched for a while. So could you please give us some forecast for the next year’s AIoT revenue increase? So thank you.

[Alain Lam:]

On the overseas internet question, again, we’ve been trying – what we’ve been trying to do is to increase our number of users in the global market at this point in time. Again, if you look at the average ARPU in the overseas market, it remains quite small, quite low, but at the same time, because we have such a large user base. We’ve been able to get a pretty significant revenue from the internet services side. And going forward, we are optimistic that we will continue to increase the number of users that we have in the overseas market. And as a result, I think it’ll continue to grow quite naturally. So I think that answers your first question. On your second question with respect to the AIoT business, I think we’ve been trying to – try to improve our product mix as well as improve each category of our products over time. So for example, this year we’ve seen a very popular product on the air conditioner side. We’ve seen very good responses on the premium refrigerator. We’ve seen very good responses from our Pad. And we’ve seen very positive feedback from our variable business as we improve the interconnectivity between them as well as our smartphone. So we’ll be encouraged by some of these product lines that we have continued improvement and continued popularity among our users. And that’s something that will continue to do. But as you know, AIoT is a very diversified business line. We do have a lot of SKUs. Some of them will be doing better. Some of them will be doing worse in one year. So over time, I think it kind of we will continue to see, we are quite optimistic. We’ll continue to see growth in this area overall.

[Wang Xiang:]

And also I think the – as we ship more and more high end product in the – to the overseas market actually will improve the international service as well.

[Xu Yingbo:]

Thanks Xiang and Alain. Thank you.

[Operator:]

Thank you. Thank you. This concludes today’s conference call and thanks again for joining us. You now disconnect.