Wang Xiang – Partner and President, Xiaomi Corporation replies to the question raised by a shareholder in the earnings call, on why in the third quarter, the gross profit margin of smartphones dropped a lot, and there is no significant improvement quarter-on-quarter.
Wang Xiang. “I think there are a couple of factors, right? Number one is, a global supply constraint that resulted in the smartphone shipment as well as smartphone gross margin decline, we were enjoying pretty healthy growth as well as margins. This year the situation has changed quite dramatically.
In terms of quarter-over-quarter, re three regions. Number one, China business. The gross margin, has gone to a pretty healthy level given that we have launched some of our premium products over in China.
Second area is India. So obviously, India third quarter is Diwali, right? As we’re preparing for Diwali, as we are launching into Diwali, the gross margin in India in the third quarter tends to be much lower than the second quarter because of the — as well as the fact that we are trying to clean up our inventory, some of the inventory in India. So as a result, I think quarter-over-quarter, we’ve seen a decline in terms of gross margin.
Overseas market, It continues to remain healthy despite the fact that we’ve been trying to also make a big effort in terms of clearing our inventory over there. So the overseas market, excluding India, remains reasonably healthy. Again, there was some degradation compared to last year given that we’ve been trying to clean up our inventory as well as the fact that there’s some degradation probably over the last quarter, again, because we are making a more enhanced effort to clean up our inventory. Overall you get the result of China better — much better; India, a little bit worse; and then overseas kind of flat to a bit worse-ish, to get to that level of Q-over-Q comparison.
Overall, in terms of gross margin, Q3 gross margin has increased from Q2 gross margin, partly due to the fact that the premium products that we launched in China in Q3 carried pretty health margins. And that has helped our gross margin overall.
In terms of how we look at Q4, we hope that our gross margin will continue to improve. As we work through our inventory level, as we have less impact of provisions of our existing inventory, our gross margin on our smartphone business will get back to a much more healthier level in Q4.”