&#34;Xiaomi, in the new decade, has reached a crucial 'moment of breakthrough.' Going forward, you will witness the emergence of more concentrated and advanced technologies from Xiaomi, presenting a brand new Xiaomi before you,&#34; wrote Lei Jun on his social media before the release of Xiaomi's Surge OS.
From 2010 to 2020, the first ten years of Xiaomi's establishment were a period of verifying and developing its business model, rapidly scaling up the company.
Facing the new decade of 2020-2030, Xiaomi's next ten years will be a period of long-term focus on foundational technologies and gradually becoming a leader in the industry. In line with the development stage of the new decade, Lei Jun also proposed the goal for the next ten years: &#34;Continuously invest in core foundational technologies and strive to become a global leader in hardcore technology.&#34;
On November 20th, coinciding with the release of Xiaomi's Q3 2023 earnings report and conference call, a more detailed interpretation of the company's future strategy was presented.
What will the &#34;brand new Xiaomi&#34; that Lei Jun mentioned look like?
In the Q3 2023 earnings report conference call, Xiaomi Group's partner and president, Lu Weibing, summarized the company's development, stating that the company had performed well in the first three quarters of 2023, and Xiaomi's comprehensive capabilities have undergone a qualitative change, with business revenue entering a new period of positive growth.
To support this viewpoint, Xiaomi demonstrated the aforementioned transformation with several &#34;record highs&#34; in Q3:
Firstly, at the business level, Xiaomi's global smartphone shipments in Q3 increased by 27% compared to the previous quarter, surpassing 40 million units for the first time in a single quarter this year, and continuing to rank among the top three globally for 13 consecutive quarters. Among the top three global smartphone manufacturers, only Xiaomi achieved positive growth. Additionally, the company's global monthly active internet users reached a historic high, with a YoY growth of 10.5% to reach 623 million.
Secondly, in terms of performance, the company's advertising revenue increased by 15.7% YoY, reaching 5.4 billion RMB, a historic high. Among them, overseas internet service revenue increased by 5.8 percentage points YoY, also setting a historic high.
In terms of profitability, the company's gross profit margin reached a historic high, increasing by 6.1 percentage points YoY to 22.7%. Among them, the gross profit margin of the smartphone business was 16.6%, an increase of 7.7 percentage points YoY, and the gross profit margin of IoT and lifestyle consumer products business was 17.8%, an increase of 4.3 percentage points YoY, both setting historic highs.
At the bottom line, the company's adjusted net profit reached 6 billion RMB, a YoY growth of 183%, and the adjusted net profit margin reached 8.4%, also setting a historic high. Among them, the profit from core business reached 7.7 billion RMB, also setting a historic high.
On the financial level, after continuous refined management of inventory, in the third quarter of 2023, the company's overall inventory amount was RMB 36.8 billion, a YoY decrease of 30.5%, reaching the lowest level in the past eleven quarters. Operating cash flow was also significantly higher than the same period last year, reaching RMB 33.5 billion. As of September 30, 2023, Xiaomi's cash reserves reached RMB 127.6 billion, also a historical high.
It is worth noting that in the global smartphone market, which has been sluggish in the third quarter, Xiaomi achieved MoM growth in all regions worldwide, especially in Europe, Latin America, and Africa, with significant increases. It became the only manufacturer among the top three global market share companies to achieve growth against the trend. In the words of Lei Jun, this is a manifestation of Xiaomi's own growth capabilities.
In recent years, with the dual improvement of Xiaomi's product strength and brand power, the steady advancement of Xiaomi's internationalization strategy has been driven. In the third quarter of 2023, Xiaomi's smartphone market share in Europe reached 23.3%, an MoM increase of 2.1 percentage points. In Latin America, smartphone MoM growth reached 1.8%, with a market share of 18.3%. In Africa, smartphone market share reached 10.7%, a YoY increase of 4.7 percentage points. The market share in the Middle East also increased to 17.7%.
According to Canalys data, in the third quarter of this year, Xiaomi ranked among the top three in smartphone shipments in 55 countries and regions worldwide, and among the top five in smartphone shipments in 65 countries and regions.
In terms of product strength, after three years of high-end strategy layout, Xiaomi has also achieved phased results. Among them, the Xiaomi 14 series released in October this year performed strongly, marking a new milestone in Xiaomi's high-end smartphone strategy.
In terms of performance since its listing, the Xiaomi 14 series sold six times the total sales of the 13 series in the first 5 minutes of its launch. During the Double 11 period, the Xiaomi 14 series won the championship in the domestic smartphone category on four major platforms, becoming the only product that can compete with the iPhone 15. It also helped Xiaomi achieve a total channel payment amount of over RMB 22.4 billion during the Double 11, setting a new record for annual promotions.
In addition, in terms of progress in new businesses, Lei Jun stated that the current progress of Xiaomi's car business is in line with expectations, and the production target for the first half of next year remains unchanged. The second winter test is also about to begin.
In the challenging external environment, the steady development of Xiaomi's various business lines in the third quarter reflects the resilience of its business in the long-term cycle. From the data results, the company also adhered to the operating philosophy of emphasizing both scale and profit in the third quarter. While investing in the new car business, it still maintained a solid foundation and performed well in its main business. The reason for being able to deliver such a report card lies in Xiaomi's solid polishing of its business model over the past decade.
The three underlying conditions build Xiaomi's &#34;People, Car, and Home&#34; ecosystem.
As Lei Jun said, Xiaomi is currently at a critical &#34;crossing moment.&#34; To imagine what the &#34;new Xiaomi&#34; will look like in the next decade, we need to return to Xiaomi's recently upgraded &#34;People, Car, and Home&#34; ecosystem group strategy.
During the third quarter earnings conference call, Lu Weibing introduced Xiaomi's strategic layout as follows: Xiaomi currently has several very important strategies. First, it is solidly investing in core underlying technologies. Second, it is firmly committed to pursuing high-end development. Third, it is steadfastly pursuing internationalization. These three important strategies ultimately merge into one overarching strategy, which is the &#34;People-Car-Home Full Ecosystem&#34; strategy.
According to Zhitong App, the formation of Xiaomi's &#34;People-Car-Home Full Ecosystem&#34; strategy is supported by several underlying conditions: the listing of Xiaomi's car division, the unification of underlying systems, and the intelligent empowerment of AI. Lei Jun chose to propose the &#34;People-Car-Home Full Ecosystem&#34; strategy at this time precisely because all of these conditions will be realized and come together between 2023 and 2024, forming a closed loop.
Among them, the listing of Xiaomi's car division signifies the completion of Xiaomi's hardware device portfolio. The unification of underlying systems enables more efficient cross-device connectivity. The intelligent empowerment of AI provides Xiaomi's hardware network with intelligent thinking and multimodal perception capabilities across multiple devices. These three factors have a progressive relationship, and they all point to the direction of the &#34;People-Car-Home Full Ecosystem.&#34;
Firstly, in terms of hardware devices, Xiaomi launched its first smartphone in 2011 and began its IoT layout in 2013, which was upgraded to AIoT in 2017. Xiaomi has expanded its presence in the fields of smart wearables, smart homes, and health travel. The layout of the past decade has made Xiaomi one of the most solid companies in the consumer electronics industry in terms of building a hardware ecosystem.
As a large-scale intelligent terminal device with wheels, Xiaomi's car division completes the last piece of the puzzle in Xiaomi's intelligent terminal ecosystem. If Xiaomi's car division successfully goes public in 2024, Xiaomi will become one of the most comprehensive global manufacturers in terms of intelligent mid-end ecosystem layout, without a doubt.
Secondly, after completing the hardware device portfolio, the next step is to complete the unified operating system architecture. As a result, Xiaomi's Surge OS was born. The launch of this system is also seen as the &#34;largest-scale bottom-layer reconstruction&#34; in Xiaomi's system history, and some even call it the biggest change in Xiaomi's ecosystem.
Looking back at the history of Xiaomi's operating system: in 2010, Xiaomi released MIUI; in 2017, Xiaomi gradually unified the IoT device ecosystem with its self-developed VelaOS; in 2019, Xiaomi started parallel development of the self-developed universal system MinaOS; in 2021, Xiaomi began developing the in-car OS.
In early 2022, Xiaomi decided to unify the software architecture of the MIUI, Vela, Mina, and in-car OS systems, completing the consolidation of Xiaomi's operating system at the underlying level.
According to Lu Weibing, the entire underlying architecture of Xiaomi's Penglai OS has been merged to cater to different devices and user scenarios. It took more than 5,000 engineers and two years of collaboration to finally complete the development of Penglai OS.
Currently, Penglai OS has the capability to connect to over 200 categories and more than 800 million devices. This new system not only empowers smartphones and IoT businesses to operate more efficiently, but also provides a strong foundation for innovative businesses such as electric vehicles, enabling the integration of the &#34;people, cars, and home&#34; ecosystem.
Ultimately, the true value of the &#34;people, cars, and home&#34; ecosystem can only be realized when interconnected smart devices possess intelligent thinking capabilities. According to Zhitong App, the future of Xiaomi's &#34;people, cars, and home&#34; ecosystem lies in the intelligent empowerment of AI.
Recently, Xiaomi released an upgraded version of the Penglai OS development edition, which now supports HyperMind. With HyperMind, Penglai OS gains a cross-platform intelligent thinking center, enabling powerful on-device AI algorithm deployment capabilities. It can comprehensively utilize environmental, visual, auditory, and behavioral perception capabilities through multimodal perception, allowing surrounding devices to automatically operate and collaborate based on user habits. It can also learn user habits and preferences to provide proactive intelligent services in the future.
The AI-empowered interconnected public base
Regarding the development of intelligent experiences, Yu Yanyun, the co-founder of Aqara, one of Xiaomi's ecosystem companies, has divided the development of smart homes into three stages: &#34;1. Completing tasks you don't want to do, 2. Doing things you can't do, 3. Anticipating what you want to do.&#34; Ultimately, the third step aims to achieve personalized intelligent experiences for every individual, which is also applicable to the intelligent ecosystem.
When it comes to an intelligent entity with an intelligent thinking center, people may have an intuitive impression of MOSS from the movie &#34;The Wandering Earth,&#34; playing the role of an intelligent butler in every corner of living spaces. Today, with the rapid development of AI intelligence, the value and utility of intelligent butlers will continue to grow.
Looking at the current development of AI, achieving the aforementioned scenarios is no longer just a mere statement. Since the release of ChatGPT, AI has been widely used in various scenarios such as image generation, language tutoring, translation, language refinement, code questioning, and personality simulation.
On November 7th, OpenAI announced GPT-4 Turbo and Assistant API at its developer conference. The new generation of GPT not only significantly improves performance but also has the ability to accept different types of inputs, such as code, PDFs, and images. It can understand and analyze images shared by users, perform object detection, and recognize faces, as if it has been given a pair of eyes.
During the developer conference, OpenAI also demonstrated a travel website that was integrated with its AI technology. Users only need to say, &#34;I want to go to Iceland,&#34; and the intelligent AI can immediately introduce famous attractions in Iceland, arrange a multi-day itinerary, and help plan hotels, tickets, and routes.
In the future, such scenarios can spread to every aspect of human life, from ordering takeout, booking hotels, traveling, to learning skills and daily conversations, all of which can be seamlessly completed through a single entry point of intelligent AI. And all these scenarios are inseparable from the &#34;People, Cars, and Homes&#34; ecosystem.
As intelligent AI becomes smarter and provides more convenient and intimate services and assistance to human life, the &#34;Universal Base for Everything Connected&#34; built under Xiaomi's People, Cars, and Homes ecosystem strategy will become more valuable and attractive.
Currently, in the field of intelligent ecosystems, the uniqueness and comprehensiveness of Xiaomi's &#34;People, Cars, and Homes&#34; ecosystem are unparalleled worldwide. All smart devices come from its own ecosystem, which is currently only achieved by Xiaomi. As Xiaomi gradually completes the landing of the People, Cars, and Homes ecosystem in all scenarios, achieving organic integration from devices to systems and then to intelligent brains, combined with Xiaomi's continuous integration of technology investment, high-end development, and internationalization strategies, it will eventually form a solid &#34;moat&#34; that is impregnable.
From this perspective, looking further into the future, the &#34;People, Cars, and Homes&#34; ecosystem strategy will become the biggest &#34;one more thing&#34; in the history of Xiaomi's product launches. And perhaps, this can be worthy of being called the &#34;great leap of Xiaomi's new decade&#34; as mentioned by Lei Jun.

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"XIAOMI-W, in the new decade, has reached a crucial 'leap moment'. In the future, we will witness the emergence of more concentrated and advanced technologies from XIAOMI-W, presenting a brand new XIAOMI-W before all of you." Before the release of XIAOMI-W's surging OS, Lei Jun wrote this on his social media. From 2010 to 2020, the first ten years of XIAOMI-W's establishment were a period of validation and development of its business model, rapidly scaling up its operations."

Analyzing the "First Decade" and "New Decade" of XIAOMI-W from the 2023 Q3 Earnings Report