Xiaomi Corporation ($1810)

Ladies and gentlemen, welcome to Xiaomi's 2026 First Quarter Results Announcement Investor conference Call and Audio Webcast. Today's conference is being recorded. If you have any objection, you may disconnect at this time. [Operator Instructions] Now I would like to hand the conference over to your host today, Mr. Xu Ran, General Manager of Group Investor Relations and Capital Markets Department. Please go ahead.

Good evening, ladies and gentlemen. Welcome to the investor conference call and audio webcast hosted by Xiaomi Corporation regarding the company's Q1 results. Before we start the call, we would like to remind you that this call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions comes 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 financials prepared in accordance with IFRS. Joining us on the conference today are Mr. William Li, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and CFO of Xiaomi Corporation. To start Mr. Lu will share recent strategic and business updates of the company. Thereafter, Mr. Lam will review the company's financial performance in the first quarter of 2026. Following that, we'll move on to the Q&A session. I will now turn the call over to Mr. Lu.

Good evening, everyone. Thank you for joining our Q1 2026 Results Announcement Conference Call. The first quarter of 2026 marks the first full quarter of our new 5-year plan. Over the past 5 years, we have completed the strategic closed loop of our entire ecosystem encompassing human vehicles or cars and homes and achieved comprehensive areas such as large appliances, EVs, chips and AI. Looking ahead to the next 5 years in the short term, we faced the challenge of a triple cycle of cost, demand and competition. In the long term, we are entering a new phase where AI is reshaping our entire ecosystem of human cars and homes. Tonight, I will maybe share 3 aspects with you. First, we will review our key performance in the first quarter 2026. Second, we'll respond to issues that everyone is concerned about. Third, we look ahead to our strategic development, our business focus for the next few quarters. First, in Q1 2026, our group's total revenue was RMB 99.1 billion. Adjusted net profit, RMB 6.1 billion. Looking at business segments. First in Q1, we proactively controlled shipments of mid- to low-end products and channel inventory, while our smartphone shipment declined, our ASP reached record high. We also maintained our position among the top 3 globally. According to OMDA data, our market share in Q1 2026 was 11.3%, maintaining our position among the top 3 globally for 23 consecutive quarters. Our smartphone shipment ranked second in Latin America with market share of 17.4%, up 2 percentage points compared to the previous period. We ranked third in Europe, Southeast Asia and Middle East and Africa with market shares of 17.2%, 16.9%, 13% and 9.2%, respectively. In Q1 '26, we ranked among top 3 and smartphone shipment in 47 countries and regions worldwide and among top 5 in smartphone shipments in 65 countries and regions worldwide. For GP margin, the sharp rise in memory cost in the short term has ushered in a new normal for the entire industry will not simply pass on the increased cost linear to consumers. Instead, we position user needs and achieve a balance between scale and profit through profit, product metric, software optimization and leveraging our operational capabilities. In Q1 2026, we achieved a gross profit margin of 10.1% for smartphone, which reflects the operational resilience brought about by our own capabilities. IoT business. In Q1 2026, IoT business achieved revenue of RMB 24.7 billion, mainly due to a year-on-year decline in domestic revenue caused by the high base of national subsidy last year. However, thanks to expansion of overseas channels and the increase in overseas product categories, overseas revenue reached a record high and achieved double-digit year-on-year growth. Among them PMMS ear buds ranked second globally, wearable products were ranked third and tablet globally and tablet was ranked fifth globally. Gross profit margin of our IoT business this quarter, it was 25.2%, which fully demonstrates our ability to hedge against fluctuations in a single industry through multi business synergy. This quarter, the business can provide more profit to mitigate the risk of declining gross margins on smartphone business. For Rami EVs, we delivered 80,856 cars in the first quarter [ 2026 ] the Xiaomi 7 Series. As of May 6, 2026, our new generation 7 has accumulated over 80,000 preorders in 48 days since launch. This demonstrates that our EV business has withstood severe challenges and has emerged from most difficult period. As of 30th April 2026, Xiaomi has achieved cumulative delivery volume of 232,000 units in 10 months. On 21st May, we officially released Xiaomi position at the sports car level SUV suitable for long distance travel priced at RMB 389,900. After extensive tuning and testing Xiaomi finally broke the SUV record the brokering becoming the fastest SUV in history. Xiaomi addition is priced at RMB 233,500 to refine the handling capabilities, Xiaomi underwent testing at the Numbering Noise Life. The issues of AI and Androids that everyone is concerned about. We have emphasized on multiple occasions that deep integration of AI with physical world is the next stage of intelligent technology. Xiaomi, with this hardware ecosystem, reaching over 1 billion users has a tremendous opportunity to become in the AI era. If we don't create our own large-scale model, our understanding of the base model will always be looking at flowers through the fall. Only by mastering core technologies end-to-end can we truly create products with differentiated competitiveness. The industry is still exploring the ultimate form of of AI and hardware. However, only those with core technologies and application scenarios can clearly keep up when the trend becomes clear. Latest progress. In April 2026, we released Xiaomi MiMo-V2.5 Series. Xiaomi MiMo-V2.5 Series includes Pro 2.5 TTI Series and 2.5 ASR. This represents a comprehensive lead from usable to easy to use. On artificial analysis, global authorities, comprehensive intelligence ranking list for large open source models, Xiaomi MiMo-V2.5-Pro, first in the comprehensive intelligence index among global open source large models and is among the top 5 in the overall global ranking of large models. At the same time, the agent index ranks first among global open source large models. At the end of March, MiMo-V2-Pro set another record on open rotor platform, teaming first place in the daily, weekly and monthly rankings. In the week of March 31, MiMo-V2-Pro weekly to consumption 4 trillion, after free trial period ended our average weekly token retention rate reached 35%. On April 3, 2026, we launched a Xiaomi MiMo token plan offering 4 years like standard Pro and MAX aiming to help users improve productivity at reasonable prices. Since launch of our token plant, the Pro and Mats have accounted for over 50% of revenue. According to open route data released on May 12, MiMo rent first in terms of agent model volume contributing and the cumulative 1.45 trillion token calls in the past month. This means that the world's fastest-growing open-source agent product has chosen Xiaomi MiMo as its preferred engine in real world high-density to scenarios. To reward global developers, Xiaomi officially launched MiMo orbit 100-TToken program, distributing token benefits to AI users worldwide for free with a plan to distribute a total of 100 trillion tokens within 30 days. As of morning of 12th May nearly 80 trillion tokens have been distributed. We'll continue to iterate on our base model. The moment of AI mobile phone has arrived. Perhaps 2026 will be a pivotal year for AI smartphones and arrival of such a moment will profile influence future changes in mobile phones. AI phones are not simply an AI features to existing smartphones, now are they simply creating an agent app. It's a shift from app-centric interaction approach to an OS agent-centric interaction approach. Mico is our initial attempt recently, ICT launched an evaluation of mobile smart assistance, Xiaomi Miclo became one of the first mobile smart agents in China to pass this authoritative evaluation. At the same time, the packaging and testing categories of have expanded to multiple terminals such as tablets, PCs, speakers with screens, marking significant upgrade and cross-platform capabilities. In the future, mobile phones will be upgraded from operations to executive assistance and digital clones for people. We will deeply evolve our search OS taking the agent as the core and further increase the deep coupling between model and upper level framework. We continuously enhance product experience of assisted driving. In March of this year, we officially release Xiaomi big model architecture. And Xiaomi-assisted driving to move from perception and invitation and reasoning. In May 2026, building upon XLA, we took a step further and officially released and fully open source Xiaomi semiautonomous driving model, a one-step latent-based language we show a reasoning framework. It unifies the 3 major technical approaches, VL model and later space reasoning into a unified framework. And then bodied robots. We continue to explore the boundaries of fiscal intelligence and body robots are the ultimate integrator platform for AI capabilities, ships and OS capabilities and manufacturing capabilities and have extremely high barriers to entry. On April 27, we'll bring a new capability demonstration and officially released the full process of trading on a real device with Xiaomi-Robotics-0. On the same day Xiaomi robot, which had turned from tightening screws in the factory came to the CME Group Investor Day event and made a winning place from many friends. The current progress is just the beginning. Robot will open up entirely new industrial and market opportunities for Xiaomi. So we believe that we are going to achieve a lot of good results. So we are going to be a leader in hard core technology. We'll continue to do more in innovation and many other smart areas. We'll continue to innovate and upgrade and support our healthy development of various segments. So that's all in my part. So I'll pass the floor to Mr. Alian.

Mr. Lu. Hello, everyone. Good evening. As Mr. Lu shared with everyone, 2026 will be a year of both short-term challenges and long-term opportunities. Let me talk about our results. In Q1 2026, our total revenue was RMB 99.1 billion. Overall gross margin was 22%. Looking at various segments. Our smartphone times AIoT segment revenue was RMB 79.3 billion. Smartphone times AIoT segment gross margin was 22.5%, up 2.5 percentage points quarter-on-quarter. For smartphones, the continued significant increase in memory cost has had an overall impact on the smartphone industry. We focused on optimizing our sales structure and channel management. Revenue in this quarter was RMB 44.3 billion, accounting for 47% of our group's total revenue. Our global smartphone shipments reached 33.79 million units. Our average selling price for smartphones, thanks to our strategic adjustments, reached a record high of RMB 1,310, representing a year-on-year increase of 8.2%. According to third-party data, in first quarter 2026, our high end or premium smartphone sales in Mainland China accounted for 23.5% of our overall smartphone sales. According to OMDA data, in the first quarter of 2026, we ranked among the top 3 globally in smartphone shipments with market share of 11.3%, maintaining our top 3 ranking for 23 consecutive quarters. Despite rising memory prices through proactive control of mid- to low-end phone shipments and channel inventory, our smartphone gross margin remained relatively healthy at 10.1%. Regarding IoT. In Q1, our revenue of IoT business reached RMB 24.7 billion, with overseas revenue maintaining steady growth, achieving double-digit year-on-year growth and setting a new record. We prioritized profitability refrained from participating in industry price competition and simultaneously expanded our overseas channels and increased our overseas product categories. This quarter, gross profit margin for IoT reached 25.2%, up 5.1 percentage points quarter-on-quarter. From a product category perspective, this quarter, we ranked third globally in wearable band shipments. And second, globally in TWS earbud shipments. Our tablet business performed steadily ranking among the top 5 globally this quarter. Regarding Internet services, we have accumulated a large user base globally. In March 2026, our global MAUs reached 750 million, up 3.8% year-on-year. Among them, MAUs in Mainland China reached a record high of 196 million, up 8.1% year-on-year. In the first quarter of 2026, our Internet services revenue was RMB 9.5 billion, up 4.3% year-on-year. In this quarter, gross margin for Internet services was 76.1%. Advertising business continue to drive Internet business growth. Advertising revenue of this quarter reached RMB 7.1 billion, up 7.8% year-on-year. Let me talk about intelligent or smart EVs, AI and other new initiatives segment. Revenue reached RMB 19.9 billion this quarter, up 6.9% year-on-year, accounting for 20% of the group's total revenue. Specifically, due to a decrease in quarterly deliveries of the SUV 7Cs we delivered a total of 8,856 new cars in Q1 2026. For Smart EV sales revenue, it reached RMB 19 billion. For other related business revenue, it was RMB 900 million. Our average after-tax selling price this quarter was RMB 235,000. Affected by purchase tax subsidies and rising raw material costs, gross profit margin of smart EVs, AI and other new initiatives segment was 20.1% this quarter. In Q1 2026 our smart EVs, AI and other new initiatives segment incurred an operating loss of RMB 3.1 billion. As of 23rd April 2026, cumulative of the new generation SUV7 exceeded 26,000 units. As of 30th April 2026, cumulative delivery of Xiaomi 7 in the past 10 months reached 232,000 units. In the first quarter 2026, our R&D expenses was RMB 8.95 billion, up 33.4% year-on-year. CapEx reached RMB 3.27 billion, up 20% year-on-year. Of this, smart EVs, AI and other new initiatives business accounted for 45.6% of total CapEx. For net profit, in the first quarter of 2026, adjusted net profit was RMB 6.1 billion. At the same time, we focused on enhancing shareholder value and actively repurchased shares in the open market. Since the beginning of 2026, our share buyback amount has reached about HKD 8.4 billion, exceeding the total amount for the entire previous year, demonstrating the company's confidence in our long-term development. We actively practiced the concept of sustainable development. In April 2026, we released the Xiaomi Group 2025 ESG report, marking our eighth consecutive year publishing ESG reports. The report comprehensively showcases our strategies and achievements in 2025 regarding data privacy, governance, responsible marketing and service, circular economy, sustainable supply chain, talent development and corporate governance. So in terms of ESG ranking, in March 2026, we maintained our rating in MSCI ESG rating We received the top 1% of Chinese companies honor in the S&P Global CSA score, and were included in the S&P Global Sustainability both China Edition 2026 demonstrating continued recognition of our ESG initiatives. Thank you, everyone. That concludes what I wanted to share with you today. Now we can begin the Q&A session.

Thank you, Alain. [Operator Instructions]

[Operator Instructions] The first question is from Morgan Stanley, Andy.

Mr. Lu, Alian, congratulations. Given the pressure in smartphone industry, you still performed and exceeded expectation. I have 2 questions. First question, for AIoT business in Q1, gross profit was very good. And last week, after the launch, your earbuds also sold well. So this year for AIoT business, while achieving high profit, high gross profit. In terms of revenue scale, can you achieve good performance in the coming 2 quarters? When it comes to new product launch and overseas market developments, what are some significant highlights?

AIoT business, I'm sure you all are interested in that. So last year in Q3, we already expected that would be memory cost increase, and it is going to be a super long cycle. And the extent of cost increase is also big. So for products relying on big memory like tablets and so on, that would be a bigger impact. So memory costs accounted for quite a big share of some of these products. An AIoT business to our group is important. So we want to achieve a balance and also alleviate the pressure from memory costs. So in Q3 last year, for AIoT business, we enhanced its importance. And in Mainland China and overseas, we adopted different strategies. For China market, we focused on premiumization. This year, I think you gradually see many of our products. So our products are doing well. They are well received by users. We achieved good word of mouth. And in recent launch, we introduced a very good product with good external appearance and also some quality and also the connection with super AI assistant and so on. At the same time, you also see our air conditioner. So it became very hot and it also sells very well. Users like our air conditioner because it cools very fast. And also the fan effect is very good. And then for our refrigerator, it keeps the freshness of food in a very good way. And then it is well received, especially when people need to redecorate their homes. So progress has been very good within Mainland market. For overseas, -- we are expanding our scale. Overseas -- our share in overseas market is still very small. But then for our AIoT business, there are many markets that we need to enter. So given this situation last year, basically, we have solved the issues in many countries. Now we are in many countries, and we have expanded our product mix. Besides, we collaborated with many other e-commerce players, and so we're able to double our growth. So here, if you look at our overall AIoT business growth, we are able to achieve a good gross profit margin. In the future, I think potential is still huge. If you look at the China market, our earbuds, our watch, well, our share is still on the low side. There is still a long journey for us. For overseas, well, overseas market is 2x the potential of the Chinese market. And the competitive environment of overseas is different from the China market. I think for IoT business, that's my answer.

Let me supplement with some numbers. Just now Mr. Lu a lot about strategies and categories and channels and also about our overseas expansion of IoT. Now this is not a peak season or busy season, but for AIoT revenue overseas in Q1, it reached double-digit growth year-on-year. It already achieved. It already reached a record high in history, and it is around 40% of the overall IoT total.

Okay. My second question is about Xiaomi. So after the launch of UV and also looking at the buyer profile, regarding new generation U7 and last year, 7, what are the differences in user profile. With the launch of the 2 new models in terms of sales volume and profits, comparing with the situation without these 2 models, regarding sales volume, revenue and profit and important metrics, what will be the impact of these 2 new models. For U7, you can see that -- we have introduced 2 new products. So the U7 standard and also, we have introduced a G7 model. So for the 2 models or versions, one important idea is for SU7 comparing with Model 3, I think they may be rather similar, but then for U7, I think there are still differences. And after doing some analysis for Model Y, standard or entry-level version it accounted for 70% of the sales, and we realized that we may have some disadvantages in terms of cost. And then for users scenario, 600 kilometers range, I think the needs can be met. But when it comes to even longer range, well, that may be a cost issue, given all these considerations, we have introduced a standard version and also a G7 version. Regarding the G7 version, we have already broken the SUV feed in the -- not in renting. So it is for -- well, it is a ceiling of SUV functionality. For these 2 products in the future, I'm sure they can actually complement to our overall product line. And after users have bought the cars, more than half of the users choose our [ 429,000 ] option. That is the full configuration. So more than half of them have chosen this version. So I have done the market research and I realized from the research that there are some U7 users who are buying this. And also, many of the users are owners of brands, Mercedes-Benz and BMW cars. So right now, for G7 at the initial launch, every month, the capacity is around 2,000 odd units. I think if you need it, you can continue to place order, the cycle will be shorter. For the standard version, I think that it can very well solve the daily commuting needs so a range of 600 kilometers roughly. So I think the price can also use your budget in that case. I think in my market research, I asked the frontline colleagues, many of them joined Xiaomi from Tesla. And they said that as long as users can try can give it a trial of our product, then they will choose our model. So when it comes to car style degree of comfort, functionality and so on, products are very satisfactory. For gross profit margin. The price difference is 20,000 and then for G7, I think gross margin will even be better. Now sales volume is not out yet. So I cannot really give concrete comment, but then the total volume, I think G7 is going to do well. Thank you.

Okay. Thank you for your question. Next question is from Goldman Sachs, Timothy Zhao.

Okay. Mr. Lu, I have 2 questions. First, I -- so we are happy to see that this year, you have exceeded market expectations in your AI progress. when it comes to AI business development and also bigger investment by many AI companies, well, this year, you are talking about [ JPY 16 billion ] of AI investment budget from MIMO 2.5 launch all the way till now. Do you have other operation data to share with us? For MiMo large model rhythm, how be? And then for me Clow, what will be the future plan and also next-generation AI OS road map and time table? How do they look like that is -- that's my first question.

Okay. Let me comment on our and for AI, expenses I'll ask Alain to supplement. For now we are promoting it with full force. So with close emergence, I think we are very quickly launching and then we are trying to make sure that it can be used with our tablet, our wearables and also our future EVs, our sound box and so on. So in the future, what is important is whether we can connect user data and then whether we can improve user experience, I think it is going to enhance experience a lot. But of course, all these cannot depart from large model and our framework and our AI OS, hyper OS transformation. I think all these are important. Now we are proceeding with full force, and our team is collaborating this year for the OS launch, we are moving towards that direction. This is important.

Okay. Another question is about AI token and so on. So let me make a few points. As you can see, right now, we have already started some token attempts. And we have introduced different token packages for our users. So far, feedback has been quite good, as Mr. Lu said. 50% of the users are using our new versions, especially for the high-end models, the use and deployment is very high. So as a result, there are revenue related to AI token. So you asked about our AI investment and also our judgment. At the beginning of the year, we mentioned [ JPY 16 billion. ] And when our AI business develops, we will also continue to adjust this number because we realized that there are huge opportunities about AI. And regarding model iteration, if we get users recognition, then we will also release more volume for inference. And in the future, there may be a higher budget. But then this has to be based on our clear our ROI calculation while making new investments.

Okay. Now my next question is about EV business. So looking at delivery in Q1, more than 80,000 units in April, more than 30,000 units comparing with the whole year 550,000 unit target. So it seems as a run rate shows the difference. So what is your plan about new model? And then for EV business and new initiatives, gross margin in Q1 on a quarter-on-quarter basis, there is a decline. Alain just said that there is cost increase pressure. At the same time, there is one-off impact from cross-year order and also tech subsidies. So can you quantify the impact? And then for overall gross margin, how should we look at it in terms of new vehicles?

Yes, let me first comment in Q1, in January and February, there is only delivery of YU7 and for SU7, we are talking about this iteration. We have spent 2 months of not selling the old products. So we look -- we have also looked at the fast iteration of our other peers. And so we have spent 2 months to work on our old products so that users know that we are launching the new product, new SU7. After doing that, users word of mouth is very good. So that's because of our huge efforts. And then in January and February, in Q1, only 80,000 units were delivered. And then in April, our delivery increased in April. For SU7 delivery, the delivery lead time was rather short. Actual delivery was a lot more than 30,000 units. So we do look forward to bigger volume. And then there is a larger model that would be launched in the second half of the year. We believe that, that model is going to be like a new platform. That model is very innovative. It is highly competitive. So we have a lot of confidence in that model. So for the whole year target, we have confidence that we can attain the full year target. Regarding EVs. In this quarter, you can see that the gross margin of our EV business has declined. As you said, first of all, there is the purchase tax subsidy issue. That's the main reason. So regarding the end of last year, there were undelivered orders and then there was the VAT subsidy. So JPY 10,000 to JPY 15,000 was the amount. So ASP cost impact on gross margin. That's the first point. Secondly, we started to sell some display car. And so that would also affect ASP and gross margin. At the same time, for the macro environment, there are issues regarding batteries and memory and also commodities, which would increase our costs. However, there are some factors that affect the whole industry. And relatively speaking, our ASP is higher than our peers. So there is cost increase, but then it did not affect our gross margin that much. That's one point. So even though gross margin has declined, our overall gross margin within our industry is still on a high side. As Mr. Lu just said, we delivered 800-odd units in this quarter, which would affect the apportionment of our fixed cost. So now we're going to deliver the new generation SU7 and also the YU7 -- standard YU7 GT. So on a quarter-on-quarter basis, I think volume will increase. And secondly, TT delivery will drive our quarter-on-quarter ASP. Besides regarding suppliers, we will continue to put in place some cost-reduction measures. So there will be some hedging. So these are the few factors that will affect our gross margin in the coming few quarters.

Next question is from CICC Wuhan Sing.

I have 2 questions. First, about the smartphone business. This year, memory cost pressure was big. And in Q1 for your smartphone business, shipments and gross profit has still shown some resilience. So in the future, given such crisis and challenges, how can you balance various metrics, including quantity, price and gross profit?

Right. Thank you. Well, we have discussed that many times. So this trend about the super cycle of memory cost increase did not differ a lot from our judgment. The cycle is very long. At the same time, the increase is a big expense. Since Q2 last year, the cost started to increase in Q3 as well. And then in that quarter, the cost increase was big in Q2 this year based on market quotation and also contract price. If we look at contract price, I think the increase is still big. So when it comes to cost increase and also cost for smartphone, this is a very big challenge. Besides it is not going to end yet, it is a very long cycle. I think we have to look towards 2027 and 2028 in Q3. Well, in the past, the increase is 60% to 80% or even 100 on a quarter-on-quarter basis. But I believe that in Q3 this year, the increase will slow down. But still, the pressure is going to be huge because the base is very high. Even though there is just a small increase. The absolute value is very big already. So the impact on the overall industry is big, not only for smartphone. Well, for many products, memory costs account for a small share, I believe that there would be a huge impact on the overall consumer electronic industry. Given that we have done a few things in Q1, you can see that we have made some adjustments. First, we have to dynamically balance selling price costs, volume and gross profit margin. and the relationship among these factors. So short-term price increase or price reduction may not be very wise. We have to come to a judgment about the market in Q1. For volume, there is some decline. But for ASP, it's increased by about 10% and our gross margin rose 2 percentage points. So this shows that our strategy is effective besides this year, we introduced some new products, MAX and some of the new products. So in terms of cost, I think we cannot just simply pass on the cost increase to the consumers. So if we just increase the price, linearly, it is difficult for consumers to accept. We have to look at the users' needs as well. We have to make products that can meet users' needs and then sell the products to users at a reasonable price. That should be something we need to do. So we have to rationalize our product lines. Given the overall environment of price increase, I think we are still doing well in the China market. If you look at the VCA activation, we have like 14% market share. This is because of our very important strategy, besides we tried our best not to increase price for all products. Even if we increase price, it is a small one only. So we are the last to increase price. We started to increase price in mid-April. Overall speaking, users still understand our stance. So we have put in place this overall strategy to phase up to the coming increase in this super cycle. Given this environment, we have to seize the AI phone opportunities. and AI-related opportunities.

My next question is about your going abroad plan. Just now you shared with us your progress in EVs. So regarding going abroad, and also your rhythm of new EV launch and also the increase in number of overseas sales centers, can you do more sharing with us?

For going abroad, I think comparing with the last quarter, we did not differ a lot. So first of all, in Q3, Q4 2027, we have to go abroad in terms of store opening. So we will first go to advanced countries and then developing countries. So first, high end and then high to medium to high end. So that's our strategy. And so far, for our team, we are doing preparation for going abroad because going abroad is complicated, there are a lot to do. There are a lot of legal and compliance requirements. And there are also localization needs for product match. And then we have to also make plans about network and call centers. So we are actually doing all the preparation work.

Next question from CITIC Yin Xinchi, please.

I am from Citi Securities. I have 2 questions. First, about MiMo large model. You just said that the daily average deployment already exceeded 1 trillion tokens. So I want to ask right now for token plan, what is the user conversion rate and retention rates for your AI team. In terms of future commercialization, do you also have internal appraisal targets or metrics? My second question is about AIoT business. Just now, Alain said that for overseas AIoT business in the number and share rose fast. So in the coming 3 quarters, especially towards the end of this year for overseas AIoT business, how much will be the growth? And would that be new guidance for growth and share?

Let me first comment on AIoT. Alain can talk about MIMO large model. So I think the first question is this. We still think that IoT business is in the coming few years, the way that we can balance out the increase in memory cost and the impact on our business. This is going to be a very important balance for our business. So for AIoT business, we wanted to grow fast. Regarding AIoT business in the China market, we insist on premiumization. Premiumization is the key. So in the recent launch, you can see that we have launched a few products. All those launch products have reached our internal targets. For earbuds, it has exceeded our target 2x. And for our products. So I think our product capabilities have been enhanced a lot and market acceptance is also very good. In overseas market, the room is very big. Our share is just quite low still. So we have to do more product development overseas. Some products can satisfy overseas needs, but then very often, there are thresholds and barriers that are still high in overseas. In the past 2 years, I spent a lot of time to work on that. And the third issue is channels. For channel starting last year, we put in investment in e-commerce. So I think that for overseas IoT development will still meet a lot of resistance. So AIoT business oversees growth can be fast, and I believe this is going to be a long cycle. The room is huge. Overseas AIoT business will see 3x, 4x growth potential.

All right. Let me get back to your first question about deployment of MiMo, let me make a few points. We have introduced token plan after that. We saw a few interesting phenomena that I can share with you. First, fee-paying volume is high. Token deployment exceeded 30% of fee paying. So fee-paying ratio is very high besides for token max version, token deployment exceeded 50%. Third point, overseas number is high. The share overseas exceeded 50%. Retention rates, we did not disclose this number, but I think retention rate is also high. However, we are now working on AI models. And so far, we have not reached the business closed loop stage. If you look at many analysis about China and overseas, there are many new models being launched. We are still in the iteration cycle. We hope that when users deploy tokens, we continue to learn and iterate our model. So in the future, we still need to follow the market to adjust our token plans. And in the growth stage, we will collect data and integrate our models. That's the stage that we are in. We have still not reached the ultimate token plan fee model being a large business. So I hope you can understand this.

Next question is from Citi, King Hiu Wong.

I want to follow up on AI large models. Okay. Right now in the market, there are many large models, companies that will launch some new versions in June and July. So once every 2 to 3 months there will be an iteration. So regarding MiMo large models, what is the renewal time point? Are you going to follow the market rhythm? Or are you going to have your own plan? So you have your own strategic consideration. Just now you talked about deployments. So we have seen some price decrease. It seems that operators are launching large models, and they also have some sales plan. So what is your positioning in the market? What are your strategies? Regarding your company's efficiency enhancements, how can it be seen? Will it be realized in OpEx? So that's my question about AI. Second question is about EVs. For Q1, EV on AI and new initiatives, business segment operation loss is [ JPY 3.1 billion. ] So in the future, as Mr. Lu said, you have much confidence in reaching the target. So in the coming few quarters, we will see more than 100,000 breakthrough in shipment. So for operating loss, I think in Q1, there will be the chance to cover the operating loss you still need to look at the AI investment of your company. So EV AI and new initiatives segment for this year. How will be its profitability? What would be its direction?

Okay. Let me talk about AI. And then Alain can comment on the next part. We do not have an internal target of iteration once every 3 months, we do not have a specific time line. Regarding model iteration, we do not have the need to announce it. We should not announce for the sake of announcing. So we have our own rhythm and our grasp. For AI large models, so Xiaomi MiMo large models should serve our business. It must be coupled with our business. This is very important. Now we have many business centered around scenarios with the data and also the AI large models. We also have to look at its cost. So without business closed loop, it is difficult to assess. So we need to strengthen our large models. At the same time, we will also sell tokens to the market. Of course, that depends on market competition that may be helpful to Xiaomi. We will take this two-pronged approach. So I think it will be a balance between medium and long term and also horizontal and vertical. This will be a more favorable approach. I think this is the biggest difference between Xiaomi and other companies.

Right. Yes, let me supplement on a few points. Just now Mr. Lu said, that we are not a system focusing on large models. Our main business is not to sell tokens. So we will not announce or launch new models -- large models for the sake of launching. We will launch when we are ready. Regarding internal enhancement, we encourage our employees to use our MiMo models more. But this is to help them enhance efficiency, and they can also generate more data to help us to iterate our own models, so that our models will be better. So this is part of the efficiency enhancement. It is not only to enhance our own efficiency, but also the capability of our models. These are 2 parts. And your second question is about our EV EV, AI and other new initiatives, future direction. I think you can see quite clearly that in Q1, comparing with the previous quarters, the biggest difference is deliveries have come down. Just now we have explained that in -- this quarter, we did not deliver SU7. We focused on U7 and we prepare for the new generation SU7 launch. So there was some impact on revenue. In the future, in Q2 quarter-on-quarter delivery for EV will rise for sure. That's the first point. Of course, we will increase our investment into AI. In the future, I think these are the 2 main results of our operating for a loss. So it will be the result of these 2 factors together, volume, gross margin and AI investments.

Next question is from JPMorgan, David Cole.

I'm from JPMorgan. I have a question. My question is in 2025 second quarter, delivery reached the peak and then after that, it declined. What are the reasons behind? How can you get back the expected growth momentum?

Okay. For the expected delivery, you said that there was a decline from the peak. Well, the main reason is in Q1, first of all, when we made the expectation at first, the volume was big. But later on, delivery cycle was rather long. And when consumers waited, there was also some disruption or disturb some users switched to other brands. We saw some per brands, which have locked in some users orders. So some users have switched to other brands. And looking at our product line layout. So basically, we are benchmarked again mode. And then within the cities for daily commuting range is around 600 kilometers that can satisfy users' needs. We have also got another model regarding 800 kilometers. So for 600 kilometers, I think that range can satisfy people's commuting need already. And for the overall car model launch, we have already added one more model. We have now U7 standard and U7GT. After the launch in the past weekend, we saw quite good response from users test driving. I think, gradually, we will get closer to our expected volume.

Next question is from UBS, Jimmy Yu.

My first question is about smartphone and impact on sales volume and then you will try your best to achieve some balance in Q1 this year. Gross margin was rather steady on a quarter-on-quarter basis. My question is your products have been enhanced. That is part of it and besides there is global inventory sector. So if you look at smartphones and consumer electronics in the future, what is the outlook on gross margin? What would be the trend, taking into consideration cost increase for memory?

I think given the cost increase, pressure will continue. That is an objective effect. So we need to solve this problem. We need to balance scale, profit and also gross margin. We need to achieve a balance. But more importantly, when cost increases, we have to ask a simple question. So now users may need to spend more time. Are they still willing to do that? We cannot simply pass the cost increase to consumers. Given the new cost structure, we need to make sure that users are happy with the value for money -- so we have to satisfy our own values as well. That is important. Besides, we need to adjust our product structure and also quality. Scale decline is for sure. But I think ASP increase can offset part of the impact from scale decline. And we need to work on our GP margin, then I think gross profit will be controllable. That is our overall thoughts and strategies about our smartphone business.

Thank you for your question. Because of time, we will conclude the call here. Thank you for your time. I hope that you will continue to support Xiaomi Group. Thank you, and goodbye.

Okay. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]