Xiaomi profit surges on higher sales despite hike in costs due to chip shortage

Xiaomi, the world’s third-largest smartphone manufacturer, reported a 36.7 per cent surge in fourth quarter net profit on the back of strong smartphone sales but the company’s top executive warned that a global chip shortage could increase the prices of its products.

The Beijing-based company’s adjusted net profit rose to more than 3.2 billion Chinese yuan ($490.8 million) in the three months ending December 31, beating analysts' expectations of 2.9bn yuan.

Revenue during the period increased 24.8 per cent to 70.5bn yuan.

“We are facing the [chip] shortage ... it is affecting not only us but the whole industry. This is very normal in semiconductor industry. Every couple of years ... the industry faces similar challenges but this time it is very serious,”  Xiaomi’s president Wang Xiang said during an earnings call with investors.

“To be honest, we will do our best to offer the best price we can to consumers … but sometimes, we may have to pass part of the cost increase to the consumer in different cases,” Mr Xiang added.

“We will continue to optimise the costs of our hardware devices, that’s for sure.”

Xiaomi is one of several manufacturers dealing with a severe shortage in semiconductor chip supplies as demand for gadgets picked up amid the coronavirus pandemic.

Industry experts said chips are expected to remain in short supply in the coming months as demand remains higher than ever.

Global chip sales are forecast to surge 8.4 per cent this year from last year's total of $433bn, according to the Semiconductor Industry Association. This is up from 5.1 per cent growth witnessed in 2020.

Last month, Lu Weibing, vice president of Xiaomi, wrote on Weibo, China's Twitter-like social network that “it's not a shortage, it's an extreme shortage”.

Last week, Samsung also admitted that it is dealing with a chip shortage and it could delay the launch of new flagship products. The shortage first hit the car industry and gradually spread across the electronics industry.

Xiaomi, which sold 43 million smartphones in the fourth quarter of 2020, surpassed its Chinese counterpart Huawei in sales for the first time during the period.

Its share of the global smartphone market was 11 per cent in the fourth quarter, according to Counterpoint Research. US-based Apple was the market leader with a 21 per cent market share, followed by South Korean technology giant Samsung with 16 per cent.

Xiaomi, which went public on the Hong Kong Stock Exchange in July 2018 at a $54bn valuation, has cemented a strong position in the smartphone industry by making low-priced devices that draw comparisons to Apple and Samsung phones.

“Our smartphone business grew significantly and we increased our market share in mainland China,” Xiaomi said.

“We further solidified our position in the premium smartphone market. In 2020, we sold approximately 10 million premium smartphones globally with retail prices at or above 3,000 yuan,” it added.

Xiaomi, which sells its products in more than 100 markets globally, earned 122.4bn yuan – almost 50 per cent of its total revenues – from international markets last year.

The company said its global business recovered quickly from the impact of the Covid-19 pandemic and maintained steady growth.

“Since the outbreak, Xiaomi collaborated closely with upstream and downstream business partners to accelerate the resumption of work and production … our products and services helped people enrich their lives and stay connected, and demand for our products remained healthy,” it added.