Xiaomi is growing at a dizzying rate, and its large investment in R&D is the weapon that explains how to continue to do so in the future
That Xiaomi’s growth was being spectacular was something we already knew from analysts such as Counterpoint or Canalys, who have offered reports that the company was already the first mobile manufacturer in the world and in Spain.
Now it is the company itself that has announced to investors spectacular growth in revenues and profits in its second fiscal quarter of 2021. One so large that we have to go to 2018, when it was in full international expansion, to find similar figures.
Xiaomi is growing at an astonishing rate, at the level of the quarters after its international expansion
Now, the situation has stabilized and they are already in most of the markets in which they intended to land, but that has not slowed things down in this year still marked by COVID. Revenues have grown 64% over the same period of the previous year, and adjusted net profit 87.4%. These may seem like standard figures for a company that is still maturing, but in many quarters of previous years it has not even reached 20%.
This is how Xiaomi makes money – they attract you and they catch you
Xiaomi is not satisfied and is doing what Samsung, Apple and Huawei did before: investing more and more in R&D
Behind the growth there are many factors of each division. In smartphones, for example, they are growing in all segments, and not only in entry-level ones, despite the fact that prices have risen since last year. Altogether, it enters 86.8% more than last year with its smartphone sales. But the same is true in its connected ecosystem and in Internet services, which fOutside of China they have grown in revenues by 96.8%.
It is a very important large figure, but especially if we take into account that Internet services is, by far, its most profitable area, giving it a 74.1% gross margin, compared to 11.8% of smartphones. This is how you understand the emphasis that the company has been placing outside of mobile phones for a long time.
In its communications to investors, Xiaomi makes many mentions of how its products innovate, and although this is subjective, what Yes we can measure is what the company is doing to improve internally to make growth, as it depends on their products, does not decline or even grow. That is, see how much you are investing in research and development (R&D).
This is key for any great technology, and growing exponentially there is one of the variables that explains how, in a few years, companies such as Samsung and Apple, and especially Huawei, have changed so much, moving the last one from a very generic offer in telephony to a truly premium one. This is the same thing that Xiaomi is perhaps pursuing to get away from a brand that still has a certain copier label in terms of trends.
In the second graph we can see how Xiaomi’s income has grown since 2017, along with the annual figures for spending on research and development. In the third row (% of R&D over income) we can see that the company is not only spending more on research, but with each passing year, its rate of investment increases and it is spending a little more than it enters, adding more than one percentage point since 2017, and in total, almost tripling the total investment from one year to the next.
Xiaomi’s R&D investment figures are still a long way from those of other big players, but the key is that what you spend on it increases faster than what you get in overall
The dollar figures are still a long way from those of Apple, Samsung or Huawei, which are much larger companies and conglomerates, with more muscle and that require investment in research in many more areas, such as components beyond the product itself. , but the trend is similar to that followed by these companies.
In dollars, Xiaomi’s R&D figures (about 1,500 million) are Apple’s from more than a decade ago, but what is relevant is the annual growth of investment. And, in that sense, Lei Jun, CEO of Xiaomi, affirmed that they would invest between 30% and 40% more in 2021 than in 2020. Some percentages that, looking at the first table and comparing the two quarters that we have of the year with respect to the same of 2020, they have already been far exceeded.