China’s leading domestic phone company ‘lost sleep’ due to declining demand

Recently, Chinese phone company Xiaomi has announced its business situation for the past quarter. Xiaomi Corp.’s quarterly revenue fell nearly 10% as it grapples with a shrinking global smartphone market and weak consumer demand at home.

Mobile device sales fell 11%, leading to declines in business divisions including internet services and smart electronics. The Beijing-based company recorded sales of 70.5 billion yuan ($9.9 billion), slightly higher than estimates. However, they unexpectedly announced a net loss of 1.5 billion yuan in the third quarter.

China’s Zero Covid policy has caused chaos in the country’s technology sector and supply chains, undermining economic activity. At the same time, demand for electronics is cooling as consumers tighten their spending in the face of rising inflation and slowing economic growth. Global smartphone shipments are at their lowest level in years due to falling demand, but the bright spot is that Xiaomi has gained market share in Europe, the company’s executives share.

Chairman Wang Xiang said: “The challenge in China is that the pandemic situation is still volatile. Fortunately, there is still room for growth overseas.”

Multinational investment bank Jefferies has predicted that global smartphone sales will fall 2.9% next year after a 12.2% slump in 2022. Jefferies also forecast that sales Xiaomi’s shipments will decline this year and next before recovering slightly in 2024.

Jefferies analysts including Edison Lee and Nick Cheng say it’s partly because the phones sold in recent years are well-built, leaving consumers with no need to buy new phones. Xiaomi reported its first drop in sales in the first quarter, followed by a 20% drop in sales in the following quarter.

The Chinese market is making big companies like Samsung Electronics not help but be affected. The world’s largest maker of phones, displays and memory, says falling handset sales in China are a drag on its components business. Apple is also expected to produce at least 3 million fewer iPhone 14 units than originally forecast this year, mainly due to weak demand for cheaper versions of the model.

Shares of Xiaomi have lost half of their value over the past year, bringing the electronics giant’s market capitalization down to $31 billion. However, it’s still better than some of its domestic phone makers like Oppo and Vivo thanks to its wider international footprint and distribution.

Co-founder and CEO Lei Jun has made electric cars a guideline for Xiaomi’s future development. He pledged to invest $10 billion and set up a separate company for the venture. However, that project will take years to materialize, leaving the company reliant on a recovery in consumer spending on electronics. Sales of Android handsets, where Xiaomi is competing with Samsung in the international market, are not expected to recover anytime soon, especially in its home country of China.

According to Bloomberg