Optimistic expectations for Xiaomi's growing overseas business has been curbed by the effects of the epidemic in China. Investors sold Xiaomi stocks after Apple released its revenue warning.
It is time for Xiaomi investors to rethink their bet on the Chinese phone and smart device maker. Image: Credit to photoblend on Pixabay
Apple released a late-night statement on February 17, stating that the phone maker will no longer be able to reach its quarterly revenue goals due to the new coronavirus-originated disease COVID-19, worrying Chinese phone maker Xiaomi's investors about their firm's ability to deliver its goals as well. Xiaomi (01810: HK) stocks were down over 3% as markets opened in Hong Kong.
The company had recently seen an over 4% surge in its stock prices after a third-party research company's optimistic expectations about the company's global sales, particularly driven by the Indian market.
The Honk Kong-listed phone maker has long been scrambling to increase overseas markets' contribution to its revenues, in a move not to be restrained by the well-saturated smartphone market in China, and its smartphone revenues from India and MENA has been surging. The company has generated over CNY 18 billion in the first quarter of 2019, CNY 21 billion in the second and CNY 26 billion in the third quarter of the year, representing around 34%, 33%, and 17% YoY increase respectively. EqualOcean had exclusively announced the company's Japanese expansion as well.
Another strategic change in the company's long-term revenue generation model has been its transition from a smartphone company to an IoT provider. Xiaomi's IoT and lifestyle products segment rose by 44.4% YoY to RMB15.6 billion in the last quarter. The firm described this as a “smartphone + AIoT” dual-engine growth strategy in its quarterly filing. Yet, the firm's smartphone revenues still represent its largest stream.
The company's physical stores have been closed since the end of January in the entire mainland – presumably representing the first lead indicator in Xiaomi's injured revenues. It is a company that invests in offline small stores, both in China and in its overseas markets.
Xiaomi's business was also affected by the supply side after the outbreak. Hon Hai Precision Industry, known also as Foxconn (2354: TP), the mass manufacturer that produces both Apple's and Xiaomi's smartphones, halted its operations temporarily during the peak time of the epidemic and has yet to reach its regular production capacity.