Xiaomi Expects Chinese Smartphone Recovery After Profit Beat

(Bloomberg) --

Xiaomi Corp. reported profit that beat analysts’ estimates thanks to robust growth in internet services and overseas business in the quarter before the start of the coronavirus pandemic.

Adjusted net income jumped 27% in the three months ended December, to 2.3 billion yuan ($324 million), compared with the 1.98 billion-yuan average of estimates compiled by Bloomberg. Sales increased 27% to 56.47 billion yuan, versus estimates of 54.88 billion yuan.

China’s No. 2 smartphone maker said that smartphone sales rebounded quickly in late March, underpinning resilient consumer demand. And its production capacity is already back up to between 80% and 90% normal levels. It warned however that the full impact of the pandemic on its international sales -- now about half its business -- won’t emerge till the second quarter.

Xiaomi may be less exposed to the spread of Covid-19 than its competitors. That’s because its focus on e-commerce sets it apart from rivals who depend heavily on revenues from brick-and-mortar stores, Citigroup Analyst Andre Lin said in a recent research note. “Xiaomi also has a strong balance sheet and sufficient working capital to develop its business even with the prevailing headwinds,” he added.

Manufacturing of its flagship phone Mi 10 was hit in February due to labor shortages at factories and thousands of its engineers at its newly built R&D center in Wuhan had to work from home for weeks. Just days following the reopening of more than 1,800 of its retail stores in China after a month-long shutdown, Xiaomi was forced to close its factories in India until mid-April. Its smartphone business in Italy, Spain and other European markets may also suffer as economies there grind to a halt.

Xiaomi recorded a 31% surge in shipments in the fourth quarter, while others in the top 5 either lost ground or logged single-digit growth, according to research firm IDC. The holiday sales boom in overseas stronghold India, as well as gains from the higher-margin internet services businesses such as online video streaming and advertising, fueled Xiaomi’s growth.

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