With a single product and numerous rivals, how can Huami break through Xiaomi?

On August 18, Beijing time, Huami Technology released its Q2 financial report for fiscal year 2020 ending on June 30. As China’s first smart hardware innovation company to log into the US capital market, what is the latest report card of Huami Technology?

-Quarterly revenue was 1.137 billion yuan, a year-on-year increase of 9.5%, exceeding the upper limit of the performance guidelines.

-The net profit attributable to Huami Technology was RMB 13.3 million, compared with RMB 89.4 million in the same period last year, a year-on-year decrease of 85.1%.

-The basic and diluted earnings per ADS attributable to ordinary shareholders are RMB 9.40 (approximately USD 1.35) and RMB 8.95 (approximately USD 1.29).

It can be said that Huami Technology’s financial report data this time is not satisfactory, and this has also hit the confidence of investors and the capital market. After the release of the financial report, Huami Technology’s pre-market share price fell by nearly 10%; as of the close of the US stock market on August 19, Huami Technology reported $13.62 per share, with a total market value of $844 million.

In the face of this underwhelming financial report, how should we look at it?

二季度净利同比下滑85%,华米科技为什么如此“瘦弱”?

The revenue decline has a large fluctuation range, and the product line is single or the main reason

Although the quarterly revenue of Huami Technology in the second quarter rose by 9.5%, it exceeded the performance guidance shown in the previous quarter’s financial report. But in the second quarter when the performance of many technology companies rose in succession, this data was not impressive.

And from a longer timeline, Huami Technology’s revenue growth is rapidly slowing down, which has to be a message worthy of alert for investors. It can be said that the revenue growth rate of Huami Technology has shown a straight decline in the past four quarters. As shown below:

二季度净利同比下滑85%,华米科技为什么如此“瘦弱”?

The decline in Huami Technology’s revenue growth is closely related to the decline in the market growth of smart wearable devices . According to the report of China’s smart hardware products in the first quarter of 2019, from 2017 to 2019, although the total sales of smart wearable devices are increasing (3000, 32, and 35 million units), the growth rate has slowed down year-on-year ( The order is 20%, 9%, 8%). As the market shifts from incremental to stock, it will become increasingly difficult to rely on original products to capture the market.

The US Stock Research Agency believes that the biggest reason for the slowdown in growth is probably because Huami Technology’s product line is too single. At present, Huami’s revenue mainly comes from the sales of its own brand of wearable device Amazfit and the costs incurred for the production of Xiaomi Mi Bands .

As a link in Xiaomi’s ecological chain, Huami Technology tries to get rid of the influence of Xiaomi, but it always relies on Xiaomi’s “halo” in terms of revenue. According to historical data, in 2015, 2016, 2017 and 2018, the revenue contributed by Xiaomi Mi Bands to Huami Technology was 870 million yuan, 1.434 billion yuan, 1.927 billion yuan and 21.2 billion yuan, respectively. 76 yuan, accounting for 97.1%, 92.1%, 82.4% and 59.7% of Huami Technology’s revenue in the same period.

In order to get rid of a single source of revenue, Huami Technology is also actively developing new products. The financial report shows that the R&D expenses for the second quarter of 2020 will be RMB 117.2 million, a year-on-year increase of 25%, accounting for 10.3% of revenue, and 9.0% in the same period last year. The growth of R&D expenses also squeezed the net profit margin to a certain extent.

In October this year, the three-year strategic cooperation agreement between Huami and Xiaomi is about to expire. How Huami will decide in the future is still unknown. However, from the current situation, Huami is still unable to completely get rid of Xiaomi to achieve “de-Xiaomi”.

There are many rivals in the overseas market, and the road to Huami’s breakthrough is still hindered

The second-quarter financial report shows that overseas shipments accounted for 47.9% of total product shipments, and in the first half of the year, overseas shipments accounted for 55.8% of total shipments. The management also stated that overseas markets will be the focus of Huami Technology in the future. In the first quarter of this year, Huami Technology’s Amazfit brand products ranked fifth in global shipments, and unit sales in the United States, Western Europe and Southeast Asia increased by triple digits.

However, competition in the global smart wearable device market is surging. According to the latest data from the research organization GlobalDate, the smart wearable market will grow substantially in the next few years, and is expected to grow from nearly 27 billion US dollars in 2019 to 64 billion US dollars in 2024. Faced with this big cake, there are many players eyeing this big cake.

According to the latest data from Strategy Analytics, Apple Watch expanded its lead in the first quarter of this year, with shipments of 7.6 million units and a market share of 55%. South Korea’s Samsung ranked second with 1.9 million shipments, with a market share of 13.9%. The third-ranked American Garmin shipped 1.1 million units, with a market share of 8%.

From the comparison with the world’s top players, Huami Technology’s shipment volume is still in a low position, and its market share is far from comparable to Apple and Samsung. Moreover, from the perspective of product market positioning, Huami Technology’s main market is the low-end market, and its profit margin is lower than that of Apple and Jiaming, which are positioned in the high-end market.

From the domestic market, Huami Technology has the home field advantage, but it cannot be ignored that Huami Technology and its parent company Xiaomi Technology have a high degree of overlap in business. Xiaomi itself has a larger brand in the consumer market. Influence, taking advantage of the trend to enter the wearable device field has not a small impact on Huami, which also makes it not establish enough right to speak in product bargaining.

As a part of Xiaomi’s ecological chain, Huami Technology’s life seems to be unsettled. In the future, how to get rid of its dependence on Xiaomi and rely on itself to create a “blood” path in the global market of smart wearable devices is a question that Huami Technology should consider urgently.