Xiaomi recently posted its Q1 2023 financial results, revealing substantial profits and gross margin percentages. These figures appear to contradict the company’s 2018 pledge to cap its net profit margin for hardware at 5%. This has led many to question whether Xiaomi’s 5% profit margin cap is a thing of the past.
Xiaomi’s 2018 Pledge
In 2018, Xiaomi pledged to cap its net profit margin for hardware at 5%. The company stated, “We will always hold to an overall 5% profit margin across all of our hardware business.” This pledge was reiterated by Xiaomi to Android Authority in 2021.
Xiaomi’s Q1 2023 Financial Results
Xiaomi’s most recent financial results show that its gross profit margin across the board hit a high of 19.5%. This is up from 17.3% in Q1 2022. Meanwhile, the company says its gross profit margin on smartphones reached a high of 11.2%. This is up from 9.9% a year ago. The company also highlighted a record 15.7% gross profit margin for its IoT and lifestyle products, as well as a 72.3% margin on internet services.
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What does all this mean?
So, does this mean Xiaomi’s 5% profit margin cap is no longer in effect? In a 2021 financial presentation, the business states that if the net profit margin for hardware surpasses 5.0%, it will “return the excess above 5.0% to our users.” This is similar to a previous claim made by the brand.
The same 2021 earnings presentation noted that the company’s hardware business made less than 2.o% net profit in 2021. So it’s possible that Xiaomi is coming up with a loophole to tout a low profit. However, we are not sure whether this 5% profit cap is a thing of the past in light of these recent earnings. We’ll update the article when the company clarifies this.
Conclusion
Xiaomi’s Q1 2023 financial results show impressive growth and profit margins. These figures raise questions about the company’s commitment to its 5% profit margin cap on hardware sales. Despite concerns, Xiaomi’s continued growth and market position demonstrate its ability to thrive in a competitive industry. Going forward, the company must sustain its growth trajectory while balancing consumer trust and industry scrutiny.
What’s your take on this? Do let us know in the comments section below.
