ABC News Today

The benefits of Xiaomi Corp. fell more than expected after the global smartphone slump wiped out the Chinese mobile giant’s growth. Net income fell 83% to 1.39 billion yuan ($204 million) in the three months ended June, missing estimates of 1.5 billion yuan. Revenue fell 20% to 70.2 billion yuan, compared with an average projection of about 70 billion yuan.

Once China’s biggest smartphone brand, Xiaomi has ceded ground to local rival brands such as Honor and Vivo, which have won over young and tech-savvy consumers with stylish designs and aggressive marketing. Xiaomi’s efforts to expand into the premium segment, where Apple Inc.’s iPhones they maintain a solid position, they have also made slow progress.

Inflation, recession fears and the war in Ukraine have squeezed Xiaomi’s smartphone business. Its global device shipments fell by more than a quarter in the second quarter, the steepest drop among the world’s top five vendors, IDC said. In China, shipments of Xiaomi devices fell 22% in the June quarter, faster than the market average decline of 14.7%, according to research firm IDC.

India is also trying to restrict Chinese smartphone makers from selling devices cheaper than $150, dealing a blow to brands like Xiaomi.

What Bloomberg Intelligence says

Xiaomi’s free cash flow could recover in 2022 and 2023, in our scenario, despite margin pressure from smartphone demand. Inventory may decline from the record in 2021, which should help working capital. Cash flow can also get a boost from early capital investment amid the market downturn.

– Steven Tseng and Sean Chen, analysts

Market-wide discounts offered during a major online sales promotion during the period also hurt Xiaomi’s profitability, Bloomberg Intelligence analysts Tseng and Nathan Naidu wrote in a note ahead of the earnings release.

Billionaire co-founder Lei Jun is on a mission to transform his 12-year-old company into an innovation-driven behemoth that makes everything a family can use, from dishwashers to luggage to surveillance cameras. His biggest effort is a $10 billion electric vehicle project spearheaded by Lei himself. But Xiaomi is having trouble getting approval from Chinese regulators, Bloomberg News reported in July. Lei said at a company event last week that he is still committed to the car project.