Xiaomi Corporation (OTCPK:XIACF) Q3 2022 Results Conference Call November 23, 2022 6:30 AM ET
Company Participants
Anita Chan – Head of Investor Relations and Corporate Finance
Wang Xiang – Partner and President, Xiaomi Corporation
Alain Lam – Vice President and Chief Financial Officer and Chief Executive Officer, Airstar Digital Technology
Conference Call Participants
Andy Meng – Morgan Stanley
Timothy Zhao – Goldman Sachs
Kyna Wong – Credit Suisse
Gokul Hariharan – JPMorgan
Operator
Ladies and gentlemen, thank you for standing by, and welcome to Xiaomi 2022 Third Quarter Results Announcement Conference Call. Today’s conference call is being recorded. If you have any objections, you may disconnect at this time. [Operator Instructions]
I’d now like to hand the conference over to your host today, Ms. Anita Chan, Head of Investor Relations and Capital Markets. Please go ahead, madam.
Anita Chan
Good evening, ladies and gentlemen. Welcome to investor conference call hosted by Xiaomi Corporation regarding the company’s 2022 third quarter results.
Before we start the call, we would like to remind you that the call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not realized in the near future for various reasons. Information about general market conditions is coming from a variety of sources outside of Xiaomi.
This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company’s financial prepared in accordance with IFRS.
Joining us on the call today are Mr. Wang Xiang, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and Chief Financial Officer of Xiaomi Corporation and Chairman of Air Star Digital Technology. To start, Mr. Wang will share recent strategic update of the company. Thereafter, Mr. Lam will review the business and financial performance for the third quarter of 2022. Following that, we will move on to the Q&A session.
I will now turn the call over to Mr. Wang.
Wang Xiang
Thank you. Thank you, Anita. Good evening, everyone. Thank you for joining our third quarter earnings call. Since 2022, our whole industry faced many challenges, including rising global inflation, foreign exchange fluctuation, a complex geopolitical environment and COVID resurgences in Mainland China. These challenges have not changed materially in the third quarter of 2022 and have continued to impact overall market demand significantly.
The global smartphone market declined nearly 10% year-over-year in the first three quarters of the year. And in this quarter, global smartphone shipment reached lowest point compared to the third quarter over the past nine years. Despite the challenging environment, due to our global scale, our long operating histories in global markets and our brand and channel advantages, our business remained resilient.
In the third quarter, our total revenue — our total revenue, adjusted net profit, smartphone shipments and the smartphone margin all achieved growth quarter-over-quarter, more so than any other time. In times of difficulty, it is vital to invest in our long-term capabilities to lay the foundation for high-quality sustainable growth.
With this in mind, we continue to advance our business strategies and strengthen our foundation. Our third quarter total revenue reached 72 — RMB70.5 billion with smartphone revenue reaching RMB42.5 billion. IoT and lifestyle products revenue of RMB19.1 billion and Internet services revenue of RMB7.1 billion. Meanwhile, we have been actively investing in advancing our smart EV and other new initiatives. Our adjusted net profit reached RMB2.1 billion in the third quarter of 2022, which included RMB829 million of expenses related to smart EV and other new initiatives.
In the complex and ever-changing overseas market, we cooperate openly with our global partners, leveraging our global scale to mitigate single market risks. In the third quarter, we maintained our number three position in global smartphone shipments with market share of 14%. And in Europe, we ranked number two with market share growing year-over-year and quarter-over-quarter to 23%. In this quarter, more than 75% of our smartphone shipped to overseas market and our smartphone market share ranked top three in 52 markets and among the top five in 64 markets.
We further strengthened our position in the premium smartphone market, and our newly launched premium smartphones have been very popular. Xiaomi 12S Series and Xiaomi MIX FOLD 2 received over 98% and 99% positive ratings, respectively, on JD.com. In this quarter, in Mainland China, our smartphone market share in RMB4,000 to RMB5,000 price segment grow year-over-year of 5 percentage points and grow year-over-year of 2 percentage points in RMB6,000 and above, demonstrating the competitiveness of our premium products.
We continue to invest in R&D and strengthen our long-term core competitiveness. In the third quarter, our R&D expenses reached RMB4.1 billion, an increase of 26% year-over-year. Among over 30,000 employees at Xiaomi, nearly half are R&D personnel.
In terms of smart EV and other new initiatives, we have invested over RMB1.8 billion in the past three quarters. Our smart EV business is advancing smoothly and has established an R&D team of more than 1,800 professionals. We believe the global total addressable market for smart EV exceeds trillions of dollars, while the current market is still very fragmented and very early in its development, leaving plenty of room for us.
We have been actively promoting sustainable corporation development. In August 2022, Forbes China released its first China ESG 50 report to recognize companies that follow best practices in ESG and list Xiaomi among China ESG 50 list. In October 2022, Xiaomi was selected into Forbes’ world best employers list for the second consecutive year. In addition, we participated in education equality initiatives in Malaysia, Thailand, Vietnam and Singapore, providing digital education improvements to local students. We believe it is necessary for us to spread ahead social responsibilities even against macroeconomic headwinds.
In the coming New Year, despite the challenges at home and aboard, we remain confident in our ability to seek certainty in times of uncertainty, thanks to our relentless investment in our core capabilities, our global scale advantage and our strong cash resources. More importantly, we will remain agile and strategically balance profitability and scale, while improving operating efficiency. Meanwhile, we will commit to investing in R&D and the long-term driving forces to lay the foundation for healthy and high-quality sustainable growth. And together with all of you, we will fall ahead of — against the headwinds to weather every season as no winter last forever and no spring skips its time.
With that, I will hand it over to our CFO, Alain, to discuss our third quarter results in greater detail. Alain, please?
Alain Lam
Thank you, Xiang Wang. Good evening, everyone. Now let me go into more details of our third quarter performance. As Xiang Wang mentioned, in the third quarter our performance remained resilient despite the ongoing macroeconomic headwinds. Our revenue reached RMB70.5 billion and adjusted net profit was RMB2.1 billion this quarter, which included expenses of RMB829 million for smart EV and other new initiatives. Our revenue as well as our adjusted net profit both increased quarter-over-quarter.
Our three business segments remained healthy. We ranked number three in terms of global smartphone shipments. The number of connected devices on our AIoT platform increased by more than 40% year-over-year, and the number of our MIUI MAU again hit record highs, reaching 564 million globally and 141 million in Mainland China.
In the third quarter, our global smartphone shipment achieved market share of 13.6% and our smartphone shipment has increased sequentially over the past two quarters. We have continued to steadfastly execute our smartphone premiumization strategy and our newly launched smartphone models have earned wild-spread positive reviews.
In the third quarter in Mainland China, our premium smartphone shipments increased 14% year-over-year and our smartphone ASP increased 9% year-over-year. Xiaomi 12S Ultra, which was launched in July and Xiaomi MIX Fold 2, which was launched in August generated over 98% and 99% positive ratings respectively from JD.com.
During the Double 11 shopping festival, our cumulative paid GMV from all sales channels exceeded RMB17 billion, and we ranked number one among Android smartphones in terms of both sales volume as well as sales value on each of the major platforms, including Tmall, JD, [indiscernible]. In the AIoT categories, we achieved 147 number one rankings by sales volume or sales values on Tmall and JD.
We also continued to make steady progress in our off-line retail business despite the continued COVID-19 outbreak, which caused the temporary closures of many of our stores during this quarter. Our retail store GMV increased by 12% year-over-year during the festival, which included 190 million GMV from our integrated online-to-offline business. Our integrated online-to-offline business includes on-demand delivery and in-store pickups from our offline stores based on orders placed online.
We continue to increase our R&D investments to strengthen our core competitiveness. In the third quarter, R&D expenses reached RMB4.1 billion, increasing 26% year-over-year. And the number of granted patents to us exceeded 29,000 globally. We continue to invest in our technology, talent and the proportion of R&D personnel to total employees increased to 48%. Furthermore, Boston Consulting Group named Xiaomi as one among the 50 most innovative companies of 2022.
Now let’s dive deeper into each segment, starting with smartphones. Ongoing macroeconomic headwinds continue to affect overall industry demand. And this quarter, global smartphone shipment was the lowest third quarter shipments since 2014. Against this challenging backdrop, our global smartphone shipment increased by 2.8% quarter-over-quarter to 40.2 million units, achieving a second consecutive quarter of sequential growth. And our smartphone revenue reached RMB42.5 billion.
We are committed to bringing cutting-edge technologies to the mass market at affordable prices. In October, we launched the Redmi Note 12 series and orders exceeded 350,000 units within the first hour of launch. Within this series, the Redmi Note 12 Discovery edition is equipped with a 200 megapixel camera and a proprietary 210-watt HyperCharge solution that can fully charge the smartphone in only nine minutes, further demonstrating our pioneering technology. We also launched Xiaomi Civi 2 with lightweight and attractive design. It is our first smartphone equipped with dual ultra-high-definition front cameras, which enhanced self-portraits and videos with natural realism and depth of field.
We continue to advance our overseas businesses and maintain leading positions in major global markets. In the third quarter of 2022, our smartphone shipment ranked among the top three in 52 markets and among the top five in 64 markets. In this quarter, our market share improved year-over-year in Europe, the Middle East and Latin America. In Europe, we ranked number two with market share increasing 1.8 percentage point year-over-year to 23.3%. In the Middle East, we ranked number two with 17.6% market share, an increase of 1.3 percentage points year-over-year. In the emerging markets, we ranked number three in both Latin America and Africa.
Our global scale and competitive products have attracted more overseas carriers to partner with us. At the same time, we continue to deepen our relationships with existing carrier partners. In this quarter, our carrier channel market share in Europe increased by 1.7 percentage points year-over-year to 19.9%. And our carrier channel market share in Latin America increased by 1.5 percentage points year-over-year to 16%. Furthermore, our smartphone market share through carrier channels ranked top three in 38 overseas markets.
Let’s look at the IoT business. Connected users and devices are now leading consumer AIoT platform continues to grow. As of September 30, the number of connected devices on our AIoT platform reached 558.3 million, up 40% year-over-year. The number of users with five or more connected AIoT devices reached 10.9 million, up over 35% year-over-year. In September, MAU of our AI assistant grew 9% year-over-year, and MAU of our Mi Home app grew over 20% year-over-year. In this quarter, revenue from our AIoT business decreased 3.8% quarter-over-quarter to reach RMB19.1 billion, primarily due to a decrease in revenues from AIoT products, such as air conditioners, partially offset by increase in revenue of smart TVs and [indiscernible].
Our smart TV business continues to maintain a leading position globally. In the third quarter, global shipments of our smart TV grew year-over-year to reach 3.3 million units against an overall industry decline. We maintained our top five global ranking, and overseas smart TV shipment achieved its quarterly high. Overseas shipments, excluding India grew over 40% year-over-year.
Our Smart Home Appliance business achieved robust growth in the third quarter of 2022 with revenue growing more than 70% year-over-year to achieve another record high. Our air conditioner shipments exceeded 1 million units, increasing over 70% year-over-year. Our refrigerator shipment exceeded 340,000 units, an increase of over 150% year-over-year, achieving a record high.
In October, we launched our first Redmi Pad product with a low blue light, high protection display, offering a comfortable viewing experience. During the same month, we launched Xiaomi Book Air 13, our first laptop with a screen that can be flipped 360 degrees to meet our users’ needs in multiple settings.
We continue to maintain our lead in variable products. In the third quarter, our TWS earbuds shipments ranked number three, and our variable band ranked number two in Mainland China. We have been enhancing the connectivity between our variable products and smartphones, which has made our premium variable products more appealing and more competitive. In August, we launched our premium Xiaomi Buds 4 Pro and our premium Xiaomi Watch S1 Pro. Among the connected users of these two products, over 50% are users of our premium smartphones.
We continue to explore new blockbuster AIoT products. In September, we launched two energy-related IoT products. First, the Mijia Outdoor Power Supply 1000Pro, which is equipped with a 1 kilowatt hour capacity and 1.8 kilowatt hour — 1 kilowatt — 1.8 kilowatt high-power output, satisfying the power needs of outdoor activities and home emergency use. Second, we launched the Mijia Solar Panel 100 watts, which efficiently capture solar power in affordable portable design and it’s water and dustproof.
Now let’s look at Internet services. In this quarter, our global MAU reached 564 million, an increase of 78 million year-over-year. In Mainland China MAU reached 141 million, an increase of 14 million year-over-year. In addition, our global TV MAU exceeded 54 million, all key metrics achieved record highs.
In the third quarter, our Internet services revenue remained stable and reached RMB7.1 billion, an increase of 1.4% quarter-over-quarter. While macroeconomic and industry-specific headwinds presented challenges, our global advertising and gaming revenue still achieved quarter-over-quarter growth. Notably, this year our gaming business has achieved three consecutive quarters of year-over-year growth.
As our overseas user base continues to expand, our overseas Internet services revenue achieved another quarterly high of RMB1.7 billion, up 17.2% year-over-year and accounted for a record high 24.2% of our total Internet services revenue. Benefiting from diversified monetization channels, our advertising business in Mainland China and overseas, both achieved quarter-over-quarter growth.
In Mainland China, revenue of brand and performance-based app increased, driven by a more diversified advertiser base and higher monetization efficiency. Overseas, our performance-based advertising revenue and pre-installation revenue, both again hit record high, driven by deeper collaborations with global partners and strong content operators.
In the third quarter, our Mainland China TV Internet services revenue reached another quarterly high, and accounted for 15% of Mainland China Internet services revenue. As we further expanded our content offerings, our TV pay subscriber exceeded 5 million, providing an additional source of recurring revenue for our smart TV business.
Let’s move on to more detailed financials. In the third quarter, total revenue was RMB70.5 billion, as mentioned before, and 50.5% came from overseas overall. Smartphone revenue was RMB42.5 billion, IoT revenue was RMB19.1 billion and Internet services revenue was RMB7.1 billion.
In the third quarter of 2022, overall gross margin reached 16.6%. Smartphone gross margin increased quarter-over-quarter to 8.9%, mainly due to improvement in gross profit margin in Mainland China. IoT gross margin increased — IoT gross margin decreased quarter-over-quarter to 13.5% mainly due to enhanced promotional efforts of our smart TVs overseas, as well as increased impairment provision on our inventory. Internet services gross margin decreased quarter-over-quarter, mainly due to decline in gross profit margin of our fintech business and higher revenue contribution from our gaming business.
In this quarter, our operating expense ratio decreased 0.3 percentage points quarter-over-quarter to 14.5%, mainly due to reduced promotional activities. Excluding EV and other new initiative expenses, our operating expense ratio would have been 13.3% in the third quarter, a decrease of 0.7 percentage points compared to the previous quarter. As we continue to increase our R&D investment, R&D expense ratio reached 5.8% this quarter.
In the past year, we have made progress in managing our expenses. Our total operating expenses this quarter reached RMB10.2 billion [Technical Difficulty] supply situation has normal and maintain our raw material inventory at healthy level. First of all, as we continue to reduce our [Technical Difficulty].
We have been actively promoting sustainable corporate development. In August, Xiaomi was selected to Forbes China’s first-ever China ESG 50 list, which recognizes our efforts in ESG. In October, Xiaomi was named as one of Forbes world’s best employers for the second consecutive quarter, demonstrating strong endorsement of our practices in talent development, as well as social responsibility.
We have been actively promoting public welfare initiatives. We responded rapidly to recent natural disasters and made donations to support those in needs. In addition, we have been promoting education equality initiatives in countries such as Malaysia, Thailand, Vietnam, as well as Singapore.
This concludes our prepared remarks. Let’s open the call up for questions from investors.
Anita Chan
Thank you, Alain. We will now proceed to the Q&A session. Please ask no more than one question at a time so that we could allow more investors to ask their questions. Meanwhile we read your questions in Mandarin followed by English recap.
Question-and-Answer Session
Operator
Thank you. The question-and-answer session is now opened. [Operator Instructions] Our first question is come from Andy Meng with Morgan Stanley. Andy, please go ahead.
Andy Meng
[Foreign Language] Xiaomi has started smartphone inventory stocking since the second quarter this year. Could you share with us the latest progress of the stocking and inventory balance in China and other overseas markets, including India and Europe? Based on latest observation what’s the smartphone net outlook in the fourth-quarter? And how does the latest industry dynamics affect your gross margin profile in the coming quarter? Thank you very much.
Wang Xiang
Thank you, Andy. Thank you Andy. I think if you look at the numbers. I think we are making good progress [indiscernible] our inventory level. So the level decreased by 9% year-over-year and quarter-over quarter I think is a good – very good signal. But regarding to — we would take how long to get to the normal level. I think we will continue to utilize the promotion season like in Q4 to clear the inventory. So we think our inventory level right now is in progress. I think probably end of this year or maybe the first — beginning of next year we’ll get to normal level. We are working very hard on that. By the way the inventory actually is — I think not — I think it’s — a lot of inventories on the — is not that in inventory, actually we are confident that we can clear them all. That takes a little while.
A – Alain Lam
I think to answer you — to supplement the answer from Xiang Wang, Andy. As you can see from our reported inventory levels, the raw material inventory has stayed at a relatively healthy level. It has increased slightly this quarter because we have to stock up on some of the new SoCs for our products in the second half of the year. So that’s the raw material part. But overall, we think that it is at a pretty healthy level.
On the finished goods side, I think as we mentioned last quarter, after the 6/18 event, our inventory in China has largely been normalized, and that hasn’t changed this quarter. India after Diwali has become — has gone down to a pretty healthy level, although I think it might take another quarter or so for that to be cleared. And in the overseas market, I think is what Xiang Wang is saying, that still will be our major focus for this upcoming quarter as there are several large promotional events that is happening in the international market this quarter. So as such, I think that we are on the right track. As you can see, our finished goods has come down significantly between in the last couple of quarters as part of our efforts.
In terms of gross margin, our Q3 gross margin has increased from our Q2 gross margin, partly due to the fact that our — the premium products that we launched in China in Q3 carried pretty health margins. And as such, I think that, that has helped our gross margin overall.
In terms of how we look at Q4, we hope that our gross margin will continue to improve. I think as we work through our inventory level, as we have less impact of provisions of our existing inventory, we think that our gross margin on our smartphone business will get back to a much more healthier level in Q4.
Andy Meng
Got it. Very helpful. Thank you very much Xiang and Alain. Thank you.
Wang Xiang
Thank you, Andy.
Operator
Thank you. And our next question is come from Timothy Zhao with Goldman Sachs. Timothy, please go ahead.
Timothy Zhao
[Foreign Language] Thank you management for taking my question. And my question will be about the overseas market, which appears to be a gross drag across the smartphone and IoT business lines. And also, if you look at the Internet services revenue, overseas markets also show a sequential slowdown compared to the first and second quarter this year. Could management share some outlook on how we should look at the growth for the overseas market across different business lines and specifically, for the IoT market, what is the original breakdown? Thank you.
Wang Xiang
Yes. Thank you, Timothy. I think we are — in some of the global markets, like Europe, we are growing our market share. Right now, in European market we are 23% even with the macroeconomic downturns in Europe. So we think we will — we try to maintain our growth there. And also, the Latin America, we also see the positive trend.
So — and overall, although the global smartphone shipment dropped about 10% because of our scale, I think we will find the growth area, continue to put our resources there to grow our business there. So, yes. Alain, probably you can —
Alain Lam
Yes. Look, I think Timothy, I’ll get to the Internet first, and then I’ll get to the IoT afterwards, right? On the Internet side, I think there’s no denying that overall the global ad market has also been not in a particularly robust stage — robust form this year, right? I think if you look at the global advertising market, it hasn’t been growing that much for this year. So I think — despite that, I think given that our users have continue to grow, we have managed to increase our revenue year-over-year, as well as quarter-over-quarter. I think that’s something that I think is the overall market that has slowdown that has caused our Internet market — Internet services revenue to slow down. But given our user growth is still quite healthy, I think we’ve been able to outperform the market. I mean that’s the first one.
On the IoT side, I mean, obviously, we are certainly hurt by the macroeconomic impact that has impacted the global economy, right? Especially in Europe, right? I think that the inflation — the ForEx fluctuations, et cetera, that means that the European demand has softened quite significantly in the IoT market. And as a result, some of the categories like vacuum [indiscernible] like our scooters have seen quite meaningful decline in terms of revenue. And as such, I think that’s something that we’ve been very — we’ve been very closely monitoring the situations over there. And obviously, as Xiang Wang mentioned in his opening remarks, we haven’t seen that much significant changes in the third quarter.
I think we need to — as a result, I think we need to focus on some of these major events that are coming up, Black Friday and Christmas, et cetera, to clear out some of our inventory in the channels to prepare us for next year. And then next year, we also look forward to kind of doing more product, introducing more SKUs to the international market.
Operator
Thank you. And our next question is come from Kyna Wong with Credit Suisse. Kyna, please go ahead.
Kyna Wong
[Foreign Language] Now let me translate the question in English. So I just wanted to ask, any directions or expectation on the expenses for EV and other new initiatives in the fourth quarter and the 2023, because the original expectation to spend around like RMB10 billion before the productions of EV. Is that still on track? Or it could be like something adjusted due to the macro situations? And what should we — what should we expect on the next milestone for the EV status given now we know that the ADAS filter is actually ongoing? And then what should we expect in the coming few quarters time to time? Thank you.
Alain Lam
Thanks, Kyna. I think, first of all, the EV expenses will continue to ramp up, right, as we’re getting closer to our launch, which we’re still expecting in the first half of 2024. So as we — as you can see in the past three quarters, our expenses have ramped up gradually, and that we expect that to continue in the Q3 and Q4 of this year. So I think that’s the overall. I think — so I think that’s the first question.
As we continue to invest in our headcount as well as our CapEx, I think that we expect expenses will continue to increase. Right now, our R&D team has already exceeded 1,800 people. So we continue to increase the headcount in our EV business.
In terms of the development, right now, we haven’t talked about the development in the public. So probably, we’ll say that to be — to still in stealth mode at this point. So we have not talked about some of these developments in public. So I hope you understand. I think we try to stay in the low profile now in EV side. I think the two things is, we continue to expect our first car to be mass produced in 2024 first half. And then second is our number of employees have exceeded 1,800 people.
Kyna Wong
Yes. Got you. I just wanted to check if there any update, but — yes. Yes, we understood. Thank you.
Operator
Thank you. And our next question is come from [Soye Xu] (ph) with UBS. Soye, please go ahead.
Unidentified Participant
Yes, sorry. Can you hear me now?
Anita Chan
Yes. Please.
Unidentified Participant
Yes, sorry. I think most of my questions were answered earlier, but still want to double check whether you’ll be able to share any considerations regarding the manufacturing side of the EV business, whether it will be internal or external? Any color will be very helpful. Thank you. [Foreign Language]
Wang Xiang
[Foreign Language] I mean, we don’t have any particular update at this point. I think, obviously, we are considering different alternatives, and we are considering all the possible alternatives. So it’s not — it is still under consideration.
Unidentified Participant
Sure. Thank you.
Operator
Thank you. And our next question is come from [indiscernible]. Please go ahead.
Unidentified Participant
[Foreign Language] In the third quarter, the gross profit margin of smartphones dropped a lot, and there is no significant improvement quarter-on-quarter. And what are the main factors? How about the trend of the first quarter? Thank you.
Wang Xiang
I think there are a couple of factors, right? Number one is, obviously last year we’re still enjoying a global supply constraint, right? As a result, I think that our smartphone shipment as well as our smartphone gross margin, we were enjoying pretty healthy growth as well as margins. I mean, this year the situation has obviously changed quite dramatically. Our — so I think that the overall year-over-year, there’s not — there’s a decline, I think, for that reason. .
In terms of quarter-over-quarter, I think that there are — if I look at the three regions, three major areas, right? Number one is our China business. If you look at the gross margin, it has gone to a pretty healthy level given that we have launched some of our premium products over in China. And as you said, there have not been as much promotional events in the third quarter as compared to the second quarter. That’s the first one.
Second area is India. So obviously, India third quarter is Diwali, right? As we’re preparing for Diwali, as we are launching into Diwali, the gross margin in India in the third quarter tends to be much lower than the second quarter because of the — as well as the fact that we are trying to clean up our inventory, some of the inventory in India. So as a result, I think quarter-over-quarter, we’ve seen a decline in terms of gross margin.
Overseas market, I think it continues to remain healthy despite the fact that we’ve been trying to also make a big effort in terms of clearing our inventory over there. So the overseas market, excluding India, remains reasonably healthy. Again, there was some degradation compared to last year given that we’ve been trying to clean up our inventory as well as the fact that there’s some degradation probably over the last quarter, again, because we are making a more enhanced effort to clean up our inventory. And as a result, I think overall you get the result of China better — much better; India, a little bit worse; and then overseas kind of flat to a bit worse-ish, right, to get to that level of Q-over-Q comparison. Does that make sense?
Unidentified Participant
[Foreign Language]
Operator
Thank you. And our next question is come from [indiscernible] with CICC.
Unidentified Participant
[Foreign Language] We see that revenue of smart — large home appliance increased over 70% year-over-year, which is much higher than the 25% growth rate in the first half of the year. So could management just share the reason for this strong growth? And what is your long-term development strategy for this category? Thanks.
Wang Xiang
Yes. I think — thank you for the question. Actually, I think for the air conditioner, actually, we have a very good product, but also we thank to the weather. So actually, we ship a lot of air conditioners to the market because of the weather and a very good product. And others, we are also working very hard to make up — find the best-selling features, refrigerator and washers. So they’re also doing good as a start.
Actually, the good progress for us is we — our Mi Home actually offline channels, just sell a lot of big appliances, like product through our offline channels. This is also a very good signal so that we can sell not only smartphones, wearable’s but also bigger appliances in our offline channel. And also, we are using the platform — the Internet platforms — online platforms to combine online platforms with our offline stores has also helped to drive the revenue growth for the bigger appliances.
Alain Lam
One of the key things as Xiang Wang mentioned is obviously the weather in China was extremely hot in the third quarter. And as a result, our air conditioners, despite dropping — volume dropping, shipment dropping Q-over-Q, but is still a massive increase from our last — from our Q3 of last year because of the supply and surge in demand due to the weather. But at the same time, I think we are getting more competitive in our products. Last year was obviously — we’re still ramping up this business. And as a result, I think you’ve seen a significant increase in our growth.
Also, I think that in terms of strategy, I think we’ve been much more focused on premium products this year. I think if you look at our strategy going forward, we’ll continue to focus on the premium segment of these white goods products, which means that we’re probably more focused on higher ASP products and as a result, it will also help our overall revenue as well as ASP.
Unidentified Participant
Okay. Thank you.
Operator
Thank you. And our next question is come from [indiscernible] Securities. [indiscernible] please go ahead.
Unidentified Participant
[Foreign Language] So I have a question about the smartphone market outlook in 2023. I was quite surprised that Xiang mentioned that this last quarter was the worst quarter in last nine years in the smartphone market. So what are the new future we required to attract this consumer to buy the new phones? And what are the opportunity and challenge for Xiaomi to achieve sustainable earnings growth in this market? Thank you.
Wang Xiang
Thank you. Thank you for the question. Actually, it’s very much related to the global market, the total size of the market. So in the last quarter, actually, the global market dropped almost 10%. So that’s why it’s the lowest quarter in the past nine years. And also, in China, actually, the total market dropped 11%, even worse. But I think we will get back to the normal, but we still see a lot of uncertainties because of the global economy. Many, many factors to impact the total market, for example, the inflation and also the U.S. versus other currencies. So we very closely monitor the dynamic of the global trend.
We are — we remain confident because I think with our strategy we are going to do — continue to invest in the mid and high tier products. But at the same time, we continue — we will also continue to offer a lot of very, very competitive market for the global users from the entry level to meet [indiscernible] products. So we are prepared for the recovery. So we remain confident on that. So we just need to closely monitor the dynamic.
Another area we see is the Q2 — Q3, if you compare Q1, Q2, Q3, you can see our shipment steadily grow quarter-over-quarter, although the growth rate is not very high, but you see the resilience of our market.
Unidentified Participant
What would be the normal level of smartphone shipment globally based on your experience? So this year, it’s a very abnormal level because of the macro environment?
Wang Xiang
Yes. I think of the — dropped 10%, right? If you want to get normal, you have to grow 10% from current level, and that’s definitely — get to the normal. So we still in the — a lot of uncertainties. We don’t know when we can see the recovery. But we’re seeing that the — I would say, the rate of decline is kind of stabilized.
Unidentified Participant
Okay. Thank you.
Operator
Thank you. And our next question is come from Gokul Hariharan with JPMorgan. Gokul, please go ahead.
Gokul Hariharan
Yes, thanks for taking my question. My question is slightly similar to what [indiscernible] asked. So for China smartphone, if you look at the numbers this year, we’re running at about 270 million, 280 million units. Overall installed base is 1.3 billion to 1.4 billion users. So roughly, we are running at something like a five year replacement cycle, which we have never really seen in the past. So could you talk a little bit about what is your expectation or what is a steady-state number for China smartphones? And when do you expect a bit of a recovery? Like what are you penciling in for 2023 for China smartphones? Do you expect some recovery next year? Or you think that it’s still going to be relatively muted compared to 2022? Thank you.
Alain Lam
Well, I think — Gokul, I think to answer your question, I think Xiang Wang actually answered a very similar question just now. We —
Gokul Hariharan
No, I think very specific to China, to be honest.
Alain Lam
Right. Your question is China? Or your question is —
Gokul Hariharan
Yes, specific to China. Specific to China, because the replacement cycle in China, at least, numerically look extremely long, 4.5 to five years, which I think we have never been in any market. So I just wanted to understand your perspective on this.
Alain Lam
Well, look, I think that — we think that this year — we think that next year, right, will roughly be the same as this year, I think at best. I’m not sure that the 1.3 billion, 1.4 billion, I think that’s something that we need to verify that. But obviously, from an overall macro perspective we expect that next year will probably stay at a similar level.
One thing is obviously, the development of the secondhand market in China. People — some people are buying secondhand phones in China. The second one is obviously the extending the life cycle of each phone. But I mean, I’ve seen some surveys recently that suggest that it’s probably two to three years as opposed to four to five years. But I think against this macro environment, we continue to stay relatively conservative in terms of our overall — in terms of estimated the overall size of the market for next year.
Wang Xiang
So based on the third-party company, BCI Data, actually the life cycle for a smartphone right now in 2022 is 27 months compared to 22 months in 2017. So that’s their data.
Gokul Hariharan
Okay. That’s helpful. Thank you.
Operator
Thank you. And now, we will now invite the last question. And the last question is come from [indiscernible] Securities. Please go ahead.
Unidentified Participant
[Foreign Language] Currently, our retail channel is facing pandemic challenges. If the pandemic is over next year, what will be the positive impact to the sales of premium phones and IoT products? Thank you.
Wang Xiang
Yes, I think if we can solve the pandemic issue, so I think you will see a very positive effect, because right now, we have almost 2,000 stores staying closed. They closed because of the pandemic. And also, right now, based on the latest data, actually, half of our high-end smartphones are shipped from our offline channels. So right now, we have — we maintained about 10,000 stores. So we’ll see a very good potential to grow our smartphone if the pandemic is over by the year 2023.
Unidentified Participant
So can we propose it will be related — highly related to the number of stores? Like currently, we have 10,000. And if we increase the number to like — to 12,000, then can we expect something like 20%? Or how do we quantify the number?
Wang Xiang
I think right now, our strategy or plan is to optimize the store, optimize the — actually to improve the efficiency of each store, not just simply add the number of stores, so we will do optimization for our geographic coverage and the focus on increasing the efficiency of each store. Of course, compared to our competitors, we have much less stores in China, but we still believe we should — there is a big room for us to improve our efficiency of each store. That’s the focus for us right now.
Unidentified Participant
Okay. Got it. Thank you.
Anita Chan
Operator, can you conclude the call?
Operator
Thank you. And this concludes today’s conference call. And thanks again for joining us, and you may now disconnect.
Wang Xiang
Thank you very much.
Alain Lam
Thank you.
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