Xiaomi's layoffs are understandable but unexpected

As the year draws to a close, Xiaomi announced layoffs.

Recently, some media reported that Xiaomi has started a new round of layoffs. The news came from a Xiaomi employee on Maimai. The employee said that the scale of this layoff is large, involving multiple departments including the mobile phone department, Internet department, and China department. Among them, the layoff rate of some departments in the Chinese region is as high as 75%, and the Internet department also has a team layoff of 40%.

After the news broke, Xiaomi admitted the fact of layoffs, but the scale was not as large as rumored online. Xiaomi said that there were indeed layoffs at the end of the year, but they were carried out in accordance with legal and compliant procedures. The compensation policy was N+2, and the unused statutory annual leave would be calculated at double the amount.

Xiaomi's layoffs are understandable. After announcing its plan to build cars, Xiaomi needs to invest a lot of money in it. In addition, its main business has been sluggish, so layoffs are an inevitable choice in order to reduce costs and increase efficiency.

Xiaomi's layoffs were also unexpected. Many laid-off employees revealed on Maimai that the incident happened suddenly, "I was notified to work from home on Monday, and I was notified of the layoffs on Tuesday." The layoffs near the end of the year caught many laid-off employees off guard, and layoffs at this time were somewhat inhumane.

Poor performance leads to layoffs and cost reduction

At Xiaomi's press conference in January last year, Lei Jun, the founder of Xiaomi, announced that Xiaomi had officially entered the field of smart electric vehicles. However, making cars is not something that can be accomplished overnight, and Lei Jun himself is well aware of the risks involved, "an investment of tens of billions of yuan will take 3-5 years to bear fruit."

A year later, at the beginning of this year, Xiaomi's car manufacturing had not yet produced any concrete results, but rumors broke out that Xiaomi had laid off 10% of its employees. At that time, Xiaomi denied the layoffs, but by the end of the year, it no longer concealed the layoffs.

"Xiaomi's current performance is not satisfactory. On the one hand, layoffs are to reduce costs and increase efficiency, and on the other hand, they are also to make way for car manufacturing." An industry observer told Aotou Finance.

The financial report shows that Xiaomi's revenue in the third quarter of this year was 70.475 billion yuan, a year-on-year decrease of 9.7%; its net loss was 1.474 billion yuan, while the net profit in the same period last year was 788 million yuan. From a longer time span, Xiaomi has shown a downward trend. Historical financial reports show that Xiaomi's revenue in the first three quarters of this year has been declining year-on-year.

"The decline in revenue capacity is not just a problem for Xiaomi. The entire Chinese smartphone market has seen a decline. Furthermore, the shrinking demand for smartphone business is a common problem in the industry, and Xiaomi cannot be immune to it," said the aforementioned observer.

Aotou Finance learned that Xiaomi's revenue is divided into four sectors: smartphones, IoT and consumer products, Internet services and other businesses, among which the smartphone business is the main source of revenue.

The financial report shows that in the third quarter of this year, Xiaomi's smartphone business revenue decreased by 11.1% year-on-year to 42.514 billion yuan, accounting for 60.3% of the total revenue. In addition, the other three businesses also shrank to varying degrees. Among them, IoT and consumer products revenue decreased by 9% year-on-year to 19.1 billion yuan; Internet service revenue decreased by 3.7% year-on-year to 7.1 billion yuan; other revenue was 1.8 billion yuan, a year-on-year decrease of 6.6%.

In fact, since the second half of this year, Xiaomi has released a number of products including Xiaomi 12S, 12SPro, Xiaomi MIX Fold2, Xiaomi 13, etc., including high-end series priced at 4,000+, but the price increase is difficult to offset the decline in shipments. The financial report shows that in the third quarter of this year, Xiaomi's global smartphone market shipments were 40.2 million units, a year-on-year decrease of 8.4%.

The market is cold, and no one is immune. According to data from research firm Canalys, in the third quarter of 2022, China's smartphone market shipments were 70 million units, down 11% year-on-year.

If Xiaomi wants to survive for a long time, it must seek change. From this point of view, Lei Jun has a vision for making cars, but Xiaomi's progress is a bit slow.

Xiaomi's car looks beautiful

"We have money, a R&D team, and a global smart ecosystem, so we can afford to lose money." Lei Jun once made such a bold statement after announcing the car-making plan. However, the reality is that nearly two years after the official announcement of the car-making plan, the full picture of Xiaomi's car-making plan has never been clear to people, and the progress of Xiaomi's car-making plan can only be glimpsed from fragmented information.

First of all, it’s “money”. After Xiaomi announced its plan to build cars, it stated that it would invest 100 billion yuan in 10 years, with an average annual investment of 10 billion yuan in car manufacturing, with the first phase of investment being 10 billion yuan.

Judging from the current situation, Xiaomi has indeed invested a lot of money in car manufacturing, but it is far less than what it boasted at the beginning. According to the financial report, Xiaomi's R&D expenditure in the first three quarters of this year was 11.3 billion yuan, an increase of 21.32% year-on-year. Among them, the R&D expenditure in the third quarter was 4.1 billion yuan, an increase of 25.8% year-on-year.

Of the 11.3 billion yuan in R&D expenditure, 1.865 billion yuan was spent on smart electric vehicles, with 425 million yuan, 611 million yuan and 829 million yuan in the first three quarters. Although the R&D investment in car manufacturing has gradually increased, the total investment of less than 2 billion yuan is far from the "10 billion yuan investment in the first phase".

Let's look at the R&D team. In Xiaomi's third quarter report conference call, Xiaomi Group Vice President and CFO Lin Shiwei revealed that Xiaomi's automotive R&D team has exceeded 1,800 people, and the goal of formal mass production in the first half of 2024 is very smooth. In fact, whether it is the amount of R&D or the number of R&D teams, Xiaomi is far behind new car manufacturers such as NIO (9866.HK).

"Although we cannot measure a company's capabilities by the amount of money invested and the number of team members, we can at least see its attitude. Xiaomi has not yet reached the point of all-in," an industry observer told Aotou Finance.

Xiaomi has not yet solved the most critical issue of car manufacturing qualifications. Aotou Finance learned that Xiaomi's factory in Yizhuang, Beijing is still under construction, and the first phase of the factory is expected to be completed in June next year; the second phase is planned to start in 2024 and be completed in 2025. "Xiaomi still has time to solve the qualification problem, but it must take a steady step in this step, because there have been cases where production qualifications have not been delivered on time. I hope Xiaomi will not repeat the same mistake." The aforementioned observer said.

The last person who switched from the mobile phone industry to car manufacturing has already fallen. Recently, the Ziyoujia brand released a "Letter to NV Users" saying, "Due to our own reasons, NV cannot be delivered in the short term, and users who have placed orders will receive a full refund within 48 hours." The reason for the failure to deliver on schedule is that there is a problem with the qualifications of the foundry.

At this point, we can observe from various pieced-together information that Xiaomi's car manufacturing only looks good. Mass production and delivery as soon as possible are the key for Xiaomi to break the doubts. Aotou Finance will also pay close attention to this in the long term.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.