The following are the main contents of the Q & a session of this conference call:
In addition, Huayun, the new T40 overseas price has been announced, and the global ranking of micro net also rose against the trend last year. I would like to ask you what kind of layout we will have for our strong competitors in terms of domestic sales strategy? The third problem is that we now account for more than 40% of our overseas revenue. I'd like to ask you, under the influence of the epidemic, what measures will our overseas market take? Will the overseas strategy change? Thank you.
Zhou Beizi: OK, thank you for your question. I'll answer the second and third questions first, because it's about the overseas market, and I just recently took on the responsibility of our overseas business. Let me answer your last question first. Our overseas revenue has accounted for more than 40% of our group's revenue. What will be our strategy overseas?
Since our founding, Mr. Lei has proposed to build a famous company that can serve the world, so he wants to be a global enterprise as soon as he comes up. I think Xiaomi has gradually entered more than 90 countries and regions in the past six years. In fact, what we need to do is to bring our rich, moving and well priced product lines into more markets step by step. This may take time to accumulate, because each product needs to do a lot of preparatory work before it goes online, but we think the big strategy is unshakable.
Second, you asked about some overseas friends and businessmen. In fact, first, we believe that full competition will ultimately benefit consumers. There are enough choices, and it is the consumers who ultimately benefit. So competition is healthy for us. We have our unique values, that is, we are the only company that proposes to be a moving, price friendly and good product, which means that we will always give priority to the combination of innovation and efficiency, which is our unique point.
Second, whether we are in the overseas market or the Chinese market, the whole layout of our ecological chain has gone far. So our dual engine strategy of mobile phone and aiot will not only spread in China, but also in the world. Therefore, combining these two points, we feel that we have a very unique competitive advantage. In the future, we believe that our international business will continue to grow.
As for your first question, our cash reserve has been very healthy. Today, our 4G and 5g exchange period has basically reached a stage of charge. For us, sound operation is the right choice. In the last year, we chose the chance to play 5g without 4G products. We chose to achieve the vision of 5g plus aiot super Internet in China in the 5g era, through our K30 5g version, through our M10, including our next 10 5g products. This strategy is not wavering at all.
Reporter: Hello, management. I'm a reporter from Hong Kong Economic Daily. I have three questions to ask. The first one is to focus on the impact of the epidemic on the Indian market, because in the past, India has always been a very important market for the group, and then the market has always been in the front. But now India's blockade has lasted for 21 days. How much is the impact of the current assessment? This is the first question. And then the second question, I want to ask you, what is the expectation of recovery after the whole outbreak? Including the Chinese market and overseas market.
Then the third question, I want to ask you, many Internet companies have mentioned that they may face a negative growth situation in the first quarter, and then do you have such a prediction? Thank you.
Wang Xiang: let me answer the questions. The first one is about India. Since March 25, the government of India has taken a very decisive measure to avoid the development of the epidemic. Personally, I think this measure is helpful to control the epidemic in India. I believe that the Indian government has learned from the experience of many countries in dealing with the epidemic and made such decisive measures. So in the short term, in the next 21 days, this measure will affect consumers' purchase of mobile phones and our products, because most of the factories and sales in India have stopped. But in spite of this, we still see a lot of users. Through other channels, we don't know what kind of channels we are purchasing our products from.
Sales did not return to zero, once again proving that smart phone products are a product with rigid demand, especially during the epidemic, you need a very good communication tool to communicate with the outside world, so I believe that after the epidemic is stable, the Indian market will also rebound in sales.
According to China's experience, after more than a month's rapid decline in smartphone sales, sales gradually began to pick up and enter a recovery state. So far, the whole market has recovered nearly 90%, so the recovery speed is very fast. So we are still very close to the development of the epidemic in India. At this stage, we wish the people of India and the world a speedy control of the epidemic.
Then your second question is about when the overseas market will recover. So again, we think that because most of the overseas markets, taking Europe as an example, are still in the outbreak period. I think March and April will have a great impact on the business. But we think that from May, based on China's experience, we should see signs of recovery. So the mobile phone is such a product with rigid demand. We hope that in two to three months, the market will recover gradually.
So here we also wish all institutions, including the people of all countries in the world, to join together to resist the epidemic.
So the third question is about Internet business. According to the operation figures we have seen so far, the Internet business of Xiaomi has not been greatly affected so far. As I have just explained, there are some areas, such as advertising, that have been seriously affected. Many advertisers or some consumer brands have reduced their budgets, mainly because the retail industry as a whole has been in an abnormal state in the past month or two. But because of the epidemic, everyone lives at home, so other Internet consumption has increased a lot. For example, games, such as content related Internet applications, their dau and Mau, including the use time, have increased. This also provides another opportunity for Internet services. So Xiaomi uses our own advantages to develop these businesses.
I think at present, the Internet industry has not been greatly negatively affected.
Reporter: I'm sorry to ask. Maybe it's because I didn't make it clear just now. My third question is mainly to ask, now there are some technology or Internet enterprises, and the guidance they give now says that because of the impact of the epidemic, the first quarter's revenue may be negative growth, and the profit may also be impacted. So, from the overall level of the group, what I want to know is whether Xiaomi group will have similar forecasts or give some relevant conclusions? Thank you.
Wang Xiang: OK. According to our current analysis, our judgment is that our Internet business or other businesses will not be affected by the epidemic, and we still maintain the growth expectation.
Wang Xiang: my answer to our question about the decline of smartphone revenue in the fourth quarter is as follows. We did a lot of marketing and promotion in the fourth quarter, and we have a lot of low-cost products in overseas markets - many developing countries. So AIP decreased.
As for IOT, due to the fourth quarter of 2018, our IOT has a very large growth and the overall scale is very large. So in the fourth quarter of 2019, for us, this base is very large.
At the same time, our TV and other products have achieved a very large scale. In 2019, our TV sales in China have exceeded 10 million. So in the fourth quarter, our overall growth and month on month growth did not improve, mainly because of the large base.
Reporter: Hello, everyone. I'd like to ask you two questions. First, do we have any expectation on the global mobile phone sales in the first half of the year? In addition, I know that we still want to do Internet services business with overseas companies, and the recent growth is also good. But I want to know in the future, after the epidemic, where will our growth in this area, especially in Europe come from? Are there any specific arrangements?
Zhou Beizi: let me first answer your first question about our global mobile phone sales in 2020. Our company's policy is not to give guidance, so we will not say specific figures. Of course, I know that the impact of this epidemic on the global market is of great concern to all of us. However, throughout the year, our current judgment is that Xiaomi group will still grow, which is the first problem.
Second, our overseas Internet service business is expanding steadily and growing rapidly. Whether it's in Western Europe, India or other regions, we have continued to lay out. This strategy is the same as that of the previous quarter. First, we need to have enough users to accumulate and enough users. On this basis, we need to provide better Internet services, including Xiaomi music, Xiaomi browser, Xiaomi information flow and so on. The speed of progress in each country is a little different, but they are steadily expanding. We will not consider how to realize it until we have provided good service to users. So these three steps are all carried out at the same time.
In the long run, we are a hardware and Internet company. So the Internet business is very important to us, including worldwide.
Reporter: Hello, I'd like to ask Mr. Xiang. First, we want to know that the impact of the epidemic on mobile phone manufacturers may be more reflected in the production side of the product. What is the situation of millet supply chain resumption now? Secondly, what will be the impact on Xiaomi's supply chain due to the accelerated spread of overseas epidemic? What measures do you have to deal with it? The second is about intellectual property. Because Xiaomi, as a global enterprise, how do you protect your intellectual property in the process of going to sea?
Wang Xiang: let me answer the first question, about the resumption of production. On February 13, production began to resume nationwide. At that time, we faced very big challenges, mainly workers. There were many obstacles for workers to get from where they lived to where the factory was located, because the epidemic situation was very uncertain at that time. In this case, the whole group has made great efforts, together with local governments and our suppliers and partners, to fully promote the resumption of production, and to prepare protective materials for our workers and brothers, including masks, nutrition products, and transportation solutions, and made great efforts.
I'm very glad that up to now, our capacity has recovered to about 90% of the normal level. That is to say, we have basically met our normal supply. February is the most difficult time. Now the most difficult time is over. This is about capacity. Of course, with the development of the epidemic in the future, there may be some challenges. For example, some suppliers, such as Tier 3 and Tier 4 suppliers, may be distributed in different countries and regions around the world. If those countries and regions encounter closure or other epidemic problems, they may have an impact on all of us.
For example, the factories in India will encounter some problems recently. So we will gradually deal with this problem. Fortunately, we have factories not only in China, but also in other countries and regions. For the downstream of the supply chain, we will continue to pay attention to the issue of resumption of production.
Another question is about intellectual property. Xiaomi has always attached great importance to intellectual property. In the early days, we had some challenges. We had some challenges at the end of 2014, but after 2014, we gradually developed a more correct strategy.
Since 2014, we have gradually signed many cross licensing agreements with our partners. We also play a lot of games with many NPES in the market. So far, we have maintained a record of total success in every intellectual property negotiation. Xiaomi's intellectual property strategy consists of two parts. One part is to establish the strategic relationship of intellectual property rights through cross licensing with reasonable, long-term and sustainable prices and agreements. This is one aspect.
On the other hand, we build our patent assets and strengthen our patent barriers by increasing investment in R & D. In recent years, we have applied for many patents, including 5g technical standard patents. Our investment in patent field is increasing year by year, and our patent quality is also gradually improving. We are very confident that patents will not be an obstacle for Xiaomi to go to sea. In Europe, we have dealt with a lot of patent disputes and even lawsuits in recent period. As you can see from the media, so far, we are still in a winning state.
Reporter: if I have any questions, I'd like to ask you next week. Xiaomi disclosed some investments before, some of which have attracted the attention of the market. Then I noticed that the financial report also mentioned that Xiaomi's investment expanded to the supply chain company. Can you introduce Xiaomi's investment strategy for the supply chain? And what impact will these investments have on Xiaomi? Thank you.
Zhou Beizi: we formally established our industrial investment department in 2017. This industrial investment department mainly evaluates and invests our suppliers and other high-quality Chinese manufacturing enterprises. Because we still believe that there are a number of excellent companies in China's manufacturing industry. In the past three years, in fact, we have made a lot of investments, including several listed on the science and Technology Innovation Board recently. If you pay attention to these information, you may see that we have invested in quite a lot of similar companies. Basically, our investment is mainly for strategic purposes. First, to support China's high-quality manufacturing industry and continue to be strong in the field of technological innovation, to make more diversified choices for our supply chain, and to pave a different way for the technological development of our whole millet. So this is our overall strategic value. We will continue to invest in our upstream and high-quality Chinese manufacturing enterprises, so we will continue to invest heavily in the next few years.
Reporter: I see that in your financial report, the profit of this year has decreased by about 25% year on year. What I want to ask is, why has it fallen so much? Will there be a similar drop in profits next year, or will profits grow?
Zhou Beizi: I think you may be wrong. Non IFRS data that you should focus on. Because we've explained it many times in the previous quarters. So, in terms of non IFRS data, our net income increased by as much as 34%.
Reporter: I have a few questions to ask. First, as for the global outbreak just mentioned, it has already been mentioned for your supply chain, in fact, on the issue of India. Will it have an impact on the procurement of the supply chain? For example, you work closely with Qualcomm on the chip. What's going on in Qualcomm's work will affect you. For example, will 5g mobile phones use some of their newly developed chips in the future, or will there be any procurement problems? Will you increase your stock or do you have such actions?
Second, as for the subsequent introduction of mobile phones in Europe, although the demand aspect has just been mentioned, you don't think there will be a big problem, but based on the epidemic or the rapid spread, will the pace or strategy of introduction slow down or change?
Third, I would like to ask you that the market now expects that in the second half of the year, more and cheaper 5g mobile phones will be launched in the mainland, especially those less than 2000 yuan. So for Xiaomi, as far as the competitive strategy is concerned, it will be similar to one of your prices. How can you break through? Thank you.
Wang Xiang: the first question is about supply. So far, we haven't seen a very serious supply problem. For example, Qualcomm, our core supplier. At present, the main problem we solved in the previous period is that we still have supply problems in assembly, production and manufacturing. We will continue to focus on the global supply chain. So far we have not seen very serious problems. The second question is about the European market. I'd like to ask President Zhou to answer it.
Zhou Shouzi: OK, thank you, Mr. Xiang. As for our European market, there are several countries in Europe where the epidemic situation is really serious. The first step we took was that Xiaomi also donated a lot of masks and other prevention and control materials. At last Friday's ME10 European Conference, I also announced to you that we will donate 1 million masks to Europe. As of today, nearly all of our 1 million masks have been sent to Europe, including Italy, France, Spain, the Netherlands, and Poland five days ago. So at this moment we will do our best to support Europe. We also do our best to support our rice noodles and friends in Europe.
As for our business, first of all, we firmly believe that Europe will be able to overcome this epidemic. Of course, the actual rhythm, we also need to be realistic, we are also closely concerned. At this time, the key is to support Europe to overcome this epidemic. OK, thank you.
Wang Xiang: the third question is about 5g competition. We spent a lot of time preparing 5g. From the beginning, we started to adopt a stable operation mode, which is to promote 5g in the world's major countries and regions with 5g deployment in the best and most efficient way. Of course, the most important market is China, including Europe. We will continue to promote the popularization of 5g products. When we want to deploy 5g in the early stage, the relatively expensive cost can be quickly brought to the level that the mass consumers can afford through our strength, which is our established strategy. Together with all partners, we will continue to promote the global popularity of 5g. This strategy will not change. And we are also very confident that we will have more than 10 5g mobile phones, all kinds of mobile phones at various prices to the market.
Xu Jianyun: This is Xu Jianyun. I will add a few words to this question. We adopted the strategy of steady operation last year, in fact, in order to further adjust our status on the basis of last year and fully promote 5g in this year.
You just mentioned about 2000 yuan of mobile phones. In fact, at the end of December last year, we released the K 355g version. We have taken the lead in bringing this price within 2000 yuan in the industry. Its price is 1999 yuan.
You just mentioned about competition. In fact, for us, we really hope that the whole industry can work together to promote the all-round progress of 5g mobile phones in the market. In this way, on the one hand, we can speed up the layout of the whole 5g network and the laying of 5g communication network. On the other hand, we can rapidly expand the industry and reduce the cost. As for the competition you mentioned, competition is actually our advantage. Because we have a lot of experience in making cost-effective products, which is also determined by our business model. This is our innovation ability.
In fact, you can also see in the competition. From last year to this year, especially in the mobile phone competition in the Chinese market, the change is that it is not so difficult to achieve relatively outstanding performance price ratio on one or two mobile phones for a while, but if we can do it all the time, it is a very strong ability, which is just our advantage.
Reporter: good management. I'd like to ask you something about the growth of advertising in the fourth quarter of last year, because we know that the whole advertising industry in China last year was actually in recession. I'd like to ask, what's the reason for Xiaomi's growth in this situation? Then what's the expectation of advertising revenue in 2020?
Zhou Beizi: I'm Zhou Beizi. I'll answer your question. As for the growth of our advertising revenue, it's true that last year's overall environment was challenging. We also shared it with you a few quarters ago. The first one we are doing is the diversification of customer clients. The advertisers we faced a few years ago are mainly from other Internet companies. In the past few quarters, we have made great efforts to expand new vertical areas, including small and medium-sized enterprises and so on.
The second is that we are continuously promoting various Internet services. As you may see in our announcement, our monthly activity of information flow has reached 76 million, and the year-on-year growth rate is also very fast. These new services let us have a more accurate advertising model. Third, we have also made great efforts in the whole advertising recommendation system to further improve the construction and construction of the whole advertising recommendation system. In this way, we can achieve more accurate advertising. So in combination with these three points, under the premise of the pressure of the environment, we have achieved a month on month growth.