Xiaomi's Q2 slumps as rival Huawei nabs market share

Xiaomi’s total smartphone shipments rose in the second quarter, but the Chinese vendor lost market share at home as consumers rally around rival Huawei.

Xiaomi posted second-quarter net income of CNY1.96 billion ($276.8 million), a drop of 87% year over year. Adjusted net profit of CNY3.63 billion ($514.6 million) was up from CNY2.12 billion ($299.6 million) in Q2 2018.

Results show (PDF) revenue for the quarter was up 14.8% to CNY52 billion ($7.36 billion), including a 5% bump in smartphone revenue, which reached CNY32 billion ($4.53 billion).

Xiaomi’s smartphone sales reached 32.1 million units in Q2, but the company faced a slowing market at home and increased competition from Huawei. As Huawei remains blacklisted on the U.S. Entity List and centered in an ongoing China-U.S. trade war, the vendor has gained increasing favor among consumers in its local market.

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According to research firm Canalys, Huawei’s market share in China soared 31% in Q2, shipping 37.3 million units as Xiaomi lost ground. Xiaomi’s market share tumbled 20% after the vendor shipped 11.5 million units. Xiaomi was the fourth biggest smartphone vendor in China in the quarter, capturing 11.8% market share, compared to 38.2% for leader Huawei.   

Canalys analyst Mo Jia noted that the U.S.-China trade war has caused international uncertainty but created new opportunities for Huawei in China.

“Huawei’s retail partners are rolling out advertisements to link Huawei with being the patriotic choice, to appeal to a growing demographic of Chinese consumers willing to take political factors into account when making a purchase decision,” Jia said in a news release.  

In addition to Huawei’s renewed focus, Xiaomi faced a slowing smartphone market in China, where consumers are holding onto smartphones for longer periods and awaiting 5G launches and devices according to Canalys. Overall shipments in the country fell for the ninth consecutive quarter and were down 6% year over year.

While Xiaomi faced challenges at home, the vendor took advantage of political impacts abroad and grew its European smartphone market share by 48% to 4.3 million units in Q2, according to Canalys.

As the No. 4 smartphone vendor with a 9.6% market share in the region, Jia said Xiaomi s now “a major force in Europe.”

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In the second quarter, Xiaomi’s revenue from overseas markets grew 33.1% to CNY21.9 billion ($3.1 billion)

“Its core strength remains price-sensitive countries across Europe, in online and open market channels, but it is increasingly being trusted and ranged by important mobile operators,” Jia added.

Xiaomi’s Redmi Note 7 ranked third among Europe’s top-shipping smartphones in Q2, with 2 million sell-in shipments, Canalys analysis shows. In its earnings results Xiaomi said sales of its Redmi Note 7 series reached 20 million units in the seven months since its January launch.  

Canalys noted Xiaomi has benefited from its early work in 5G, which “is helping foster new operator partnerships while the range of available 5G smartphones is limited.

Xiaomi has already launched its first 5G smartphone model, the Mi Mix 3 5G, in certain European countries and its second 5G handset is slated to launch in China in the second half of the year.

The Chinese vendor is also diversifying in IoT and lifestyle products, including smart home appliances. Revenue for Xiaomi’s IoT segment rose 44% in Q2 to CNY14.9 billion ($2.1 billion).