Ladies and gentlemen, thank you for standing by, and welcome to Xiaomi 20 21st Interim Results Announcement Conference Call. Today's conference is being recorded. And if you have any objection, you may disconnect at this time. I'd now like to hand over the Call to our host today, Ms. Elizabeth Chen, Head of Investor Relations.
Please go ahead, Ms. Chen.
Good evening, ladies and gentlemen. Welcome to investor conference call hosted by Xiaomi Corporation regarding the company's 2021 interim 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 be realized in the future for various reasons. Information about general market conditions is coming from a variety of 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 Hsiang, Partner and President of the Corporation and Mr. Adam Lan, Chief Financial Officer and Vice President of Xiaomi Corporation. To start, Mr. Wang will share with the strategic initiatives of the company. After Mr.
Lan will review the business and financial performance for the first half of twenty twenty one. Following that, we'll move on to the Q and A session. I will now turn the call over to Mr. Wang.
Yes. Thank you. Thank you, Anita. Hello, everyone. Thank you for joining our 2021 Q2
earnings call.
Firstly, I'm very, very excited to share with you Our remarkable results we achieved this quarter. Building on our strong growth momentum, Both quarterly revenue and adjusted net profit reached record highs. Our total revenue reached RMB 87,800,000,000 and our adjusted net profit reached 64% 87.4 percent year over year respectively. We have Included on the Fortune Global 500 list for the 3rd consecutive year, ranking 3 38 in 2021, up 84 slots from last year. Our smartphone business achieved significant milestones this quarter.
We became The world number 2 smartphone company in terms of global shipments as we increase the market share across all key regions. Globally, we ranked number 1 in Europe for the first time and increased our market share in the region to 28.5%. Our premium smartphones continue to gain popularity and attract new Xiaomi users, in the first half of twenty twenty one alone, our premium smartphone shipments exceeded 12,000,000 units globally compared with around 10,000,000 units in all of 2020. To further advance our smartphone multiplies AIoT strategy, we recently launched multiple exciting new products. This includes Xiaomi MiX 4, our new premium smartphone featuring a stunning full screen display with camera and their panel.
Xiaomi Pad 5 series, our first tablet since 2018 smart speaker And also CyberDock, our first Biodespy robotic Companion. All of these products reflect our relentless pursuit of technological breakthrough in our premium products. Our ability to offer innovative technologies comes from our people To recognize employees who have made outstanding contributions in July, we announced 2 Equity award grants totaling about 190,000,000 shares to about 4,000 participants. We believe this is an important step for us to attract and retain the best talent and allow us To maintain our long term technology leadership, we owe our success to our users, And the user experience has always been our priority to celebrate the 10 year Anniversary of MiWAN, our first smartphone, we decided to give back to our first group of MiWAN customers,
The RMB1999
they paid to demonstrate our deep gratitude for their support. Going forward, we'll continue to be friends with our users and offer Coolant's product and the services to them. Now I'd like to invite Alan to discuss our 2nd quarter earnings And the business updates in greater details. Alan? Okay.
Thank you, Sanzhu. Good evening, everyone. Thank you for joining us today for our Q2 2021 earnings call. As Xiaoyo mentioned, Building on our momentum recently, we delivered another set of record breaking results in the Q2. Our revenue and net profit, Our global market share, user base and our IoT platform all achieved remarkable growth in this quarter, which I'll discuss in more detail in this presentation.
We achieved record quarterly revenue and adjusted net profit this quarter. In the second quarter, Our total revenue grew 64% year over year to RMB87.8 billion. Our GAAP net profit grew 83.9 percent to RMB 8,300,000,000 And our adjusted net profit grew 87.4 percent year over year to RMB 6,300,000,000, Recognizable brands worldwide. Xiaomi has been included on the Fortune Global 500 list for the 3rd consecutive year. This year, we ranked 338, up 84 slots from last year.
We were also selected among brand Z total top 100 most valuable global brands, again for the 3rd consecutive year, and we ranked 70th this year, up 11 spots from last year. Our smartphone market share. In In the Q2, we achieved the number 2 position in smartphone shipments with a market share of 16.4%. Our global smartphone shipment increased 82.9% year over year, which again was the highest growth rate amounted to smartphone companies. Similarly, we continued our stellar growth in the Mainland China smartphone market.
Despite a year over year decline in the overall market, our mainland China smartphone shipment grew 35.1% year over year, again the highest growth rate among the top smartphone vendors. As a result of this, We rose to the number 3 position and improved our market share to 16.8% in the last quarter. The robust performance of our smartphone business was supported by our increasingly competitive position in the premium smartphones market. Our premium smartphone shipment exceeded 12,000,000 units globally in the first half of twenty twenty one alone, compared with around 10,000,000 units in all of 2020. If you look at this chart, We've expanded our market share in Mainland China across multiple R and D and above.
Our ability to continuously alter our investment in R and D. In the Q2 of 2021, our R and D for the year to reach RMB3.1 billion. The latest example of our Technology Innovation is well represented by our Xiaomi Home that we launched on August 10. Equipped with a camera under panel technology, MiX-four has a full screen display that allows the front camera to be completely the 1st domestic smartphone to support the UWB Point to Connect technology, and our AIoT products such as our smart TVs and our smart speakers. And Robotics.
Saverdorf leverages Xiaomi smartphone imaging technology to proceed its surroundings, And its advanced AI is capable of countless tasks and personalized interactions. It is built upon open source algorithms and move on with an open source community for engineers to share their latest innovations. On the smart manufacturing side, we've also achieved major breakthrough. In July 2021, We officially finished Phase 2 in the Changping District of Beijing. Leveraging our Phase 1 R and D capabilities, The new Smart Factory will have an annual production capacity of 10,000,000 premium smartphones and is expected to begin production by the end of 2023.
We are confident that our smart factories to leverage our competitive efficiency gains for China manufacturing industry. As of July, We announced 2 separate share award brands to employees who share our mission and values and have made outstanding contributions to our business. On July 2, we've awarded over 17,000,000 share On July 5th, We awarded over 119,000,000 shares to 122 technology specialists, our core management and the initial recipients of our new 10 year Entrepreneur Program. We believe these shared awards will help us attract and retain the best talent and motivate them to create a long term value for us. An update on our smart EV business.
Xin Zhao has been the best team for this important initiative. In the last couple of months, We have received over 20,000 applications for our smart EV business. In particular, We announced 500 new positions in July for our self driving division to date as many of you may have noted. We also announced that we will acquire a company called Deep Motion, one of the leading providers of L4 autonomous driving technology. We are very confident that we'll continue to attract the best talent to this very new and important business.
With that overview, let's pieced into each of our segments, starting with smartphones. In the Q2, our smartphone business continued to grow rapidly. Revenue grew 86.8% to RMB59.1 billion, our highest ever. Our global smartphone shipment reached a revenue record high of 52,900,000 units, up 86.8% year over year. In Mainland China, We continued to expand our offline channel.
As of the end of 2021, the total number of our retail stores in mainland China exceeded 7,600, an increase of 3,100 stores from March. Many of these new stores are set up in lower tier cities, which have allowed us to penetrate new markets and expand our market share. As you can see, our offline smartphone market share in Mainland China increased to 7.8% last quarter. While we continue to expand our offline presence, our online channel also set new records. During the SEC 18 e commerce festival, our cumulative paid GMV exceeded RMB 19,000,000,000, an increase of 19% year over year.
The order volume of our smartphone ranked number 1 among Android smartphones on jd.com, Tmall and Suning. Furthermore, our IoT product achieved a total of 1 We've seen 58 number 1 rankings across various platforms by order value or by order volume. Turning now to our significant achievement in the overseas markets. According to analysts, in the second quarter, We increased our smartphone market share in all key regions where we operate. In particular, our ranking in Europe Turning to the number one position for the 1st time.
Furthermore, our market share rankings in Asia Pacific, the Middle East and Africa rose number 1, number 2 and number 3, respectively. Our smartphone market share ranked number 1 in 22 markets worldwide. That was among the top 5 in 65 markets. It's also worth noting that we ranked number 1 for the first time in 10 new markets this quarter. Hello.
We ranked number 1 for the first time in Europe with a market share of 28.5 percent as our smartphone shipment increased 70.1% year over year. In Spain, we ranked number 1 for 6 consecutive quarters as our market share reached 41.2%. In Italy and France, our ranking surged to the number one position with market shares of 35% and 29 0.7%, respectively, as our shipment grew over 80% year over year in both countries. Now let's move on to the IoT business. Our IoT and Lifestyle product revenue increased by 35.9% year over year to RMB 20,700,000,000 in the 2nd quarter.
Our global leading consumer AIoT platform continues to expand. The number of connected IoT devices on our IoT platform reached 374,500,000, up 34% year over year. Moreover, the number of users who had 5 or more On our AIoT platform, reached $7,400,000 UP 44.5 percent Year over Year. In June 2021, our AI assistant MAUs surpassed $100,000,000 for the first time and reached $102,000,000 an increase of 30.2 percent year over year. As the number one TV brand in Mainland China, we continue to launch new and innovative products, especially in the premium In August, we launched the premium Xiaomi TV Master 77 inches OLED, which featured for the first time the UWP technology.
In the Q2, our global shipment of smart TVs reached 2,500,000 units. According to ABC, our TV shipment ranked number 1 in Mainland China for the 10th consecutive quarter and among the top 5 globally. To further expand our multi screen ecosystem, We launched the Xiaomi Pad 5 series in August, our first tablet since 2018. The Xiaomi Pad 5 Pro features highly attractive hardware specifications, including the Qualcomm Snapdragon 870 Processor, an 11 inches 2.5 ks display, 67 watts fast charging and customized keyboard and pen accessories. It is seamlessly integrated with our MiUI for pad operating system, which offers optimized support for over 300 mainstream apps, further improving user experience.
We also recently launched our first premium smart speaker, which we call Xiaomi Sound. The speaker offers high resolution certified audio with dynamic tuning by Harman for an immersive and realistic sound experience. It also features the UWP technology, which enables them to connect with our smartphone Siemens. Our IoT and Lifestyle Products segment also continued its rapid growth trajectory in the overseas In the Q2, overseas revenue from IoT increased by 95 93.8 percent year over year. Our smart TVs enter new overseas markets and are now sold in more than 40 markets globally.
Many of these IoT products have gained popularity overseas. For example, Overseas revenue from our electric scooters, our smart wristbands, smart watches and desktop monitors has grown over 100% year over year in the overseas market. Now let's move on to our Internet services segment. Our global Internet user base continued to grow rapidly and drive our Internet services business. In June, our MIUI MAU increased by 32.1% year over year to 453,800,000, while our Mainland China MAU rose to 124,000,000, an increase of 5,300,000 users from the end of March.
Our global TD MAU also grew over 34% year over year. As our global user base continues to grow, revenue from our Internet Services segment reached RMB 7,000,000,000 in the 2nd quarter, up 19.1% year over year. Our quarterly advertising revenue hit another historical high and reached RMB 4,500,000,000, which also contributed to the increase in our gross margin in the Internet Services segment to a record high of 74.1%. Our overseas Internet services continue its strong growth momentum, and we see significant potential to further penetrate the In the Q2, overseas Internet service revenue increased 96.8% year over year and accounted for 15.6% of our total Internet services revenue. Our MiUI MAU in some of the key overseas regions continue to grow rapidly.
For example, our Western Europe MAU grew more than 60% year over year, and our Latin America MAU grew over 125% year over year, respectively. Going forward, we will further diversify our overseas Internet services offerings and enhance our user experience. Now let's move on to more detailed financials. As mentioned earlier, our total revenue reached RMB 87,800,000,000 in the Q2, up 64% year over year and 14.2% quarter over quarter. While all of our 3 key segments demonstrated strong growth on a year over year and on a quarter over quarter basis.
Revenue from our smartphone grew to RMB59.1 billion. Revenue from our IoT and Lifestyle product reached of RMB20.7 billion and revenue from our Internet Services segment reached RMB7 1,000,000,000. Overseas revenue increased 81.6 percent year over year to RMB 43,600,000,000, accounting for 49.7 percent of our total revenue. Talking about our gross margin. Our gross margin reached 17.3% in the 2nd quarter, and our gross margin for our smartphone, IoT and Internet Services segment was 11.8%, 13.2% and 74 point 1%, respectively.
Gross margin from our smartphone and IoT segment decreased on a sequential basis, mainly due to enhanced promotional efforts during the online shopping festival in the Q2 of 2021. Our quarterly adjusted net profit again reached a new record high of RMB6.3 billion, up 87.4 percent year over year and 4.2% quarter over quarter. Our adjusted net profit climbed to 7.2% in the 2nd quarter from 6.3%. Due to our high operating efficiency, our operating expense ratio in the Q2 remained stable at 11.1%. We continue to generate strong operating cash flow.
In the Q2, our adjusted operating cash flow reached of RMB 8,100,000,000, while our capital expenditures were around RMB 700,000,000. Our strong cash flow allowed us to optimize our capital structure, and we have returned some of the cash back to our shareholders in the form of stock repurchases. In 2021 year to date, we repurchased a total of 208,000,000 shares, around HKD5.4 billion. Primarily due to our strong operating cash flow and our capital market financing activities, our total cash resources reached over RMB111 1,000,000,000 as of the end of the Q2. We continuously explore suitable investment opportunities across different industry verticals, and our investments enable us to create long term strategic value while generating additional earnings growth for us.
During this quarter,
we generated an after tax Net gain of RMB1.1 billion from disposal of some of our portfolio investments. As of the end of the second quarter, We have invested in more than 3 30 companies, and the total value of our investment reached RMB74.5 billion, representing around HKD3.57
per share.
Last but not least, as the world's 2nd largest smartphone company, We are fully committed to leveraging our scale and efficiency and drive a more sustainable economy that supports our users, Our employees, our company and our planet, I would like to take this opportunity to give an update on our ESP strategy. We firmly believe in leading by example and are proud to integrate ESG factors into our product and service structure and in our overall brand. Xiaomi joined the United Nations Global Compact in 2020 and supports the sustainable development goals adopted by the United Nations. We benchmark ourselves against international best practices and have implemented ESG strategies in relations to our green operations, our circular economy, Workplace diversity, employee development, public welfare, data protection and more. To boost our employees' sustainability awareness, we actively promote our ESG framework to all of our stakeholders, including upstream and downstream business partners.
We have set up a corporate governance committee, which coordinate ESG and Green Finance related matters, prioritizing our sustainability targets according to the unique characteristics of our business and our industry. In July 2021, We published our 2020 Sustainability Report and the Green Finance Framework, which are all available on our website. We also issued our inaugural 30 year green bond, which was the first green bond issuance by any Asia TMT company. As an important component of our ESG strategy, We have very strict privacy protection and data security. In June 2021, We held a security and privacy awareness month to raise our employees' awareness in data security and privacy protection.
This company wide event lasted for 30 days and had over 12,000 offline stock business. In the Q2, we also released a set of security and privacy white papers for smartphones, for our MiUI system and for our AIoT product, along with our 2020 transparency report, which is published for the first time. In the future, we will continue to hold ourselves to the highest standard with regard to Sypris security compliance and user privacy protection. This concludes our prepared remarks. We would now like to open the call for questions from investors.
Thank you, Alan. We will now proceed to the Q and A session. Please limit your questions to a maximum of 2, so that we could allow more investors to ask their questions. Operator?
Thank you. The question and answer session is now open. And our first question is come from Carla Wong with Credit Suisse.
So I have two questions. The first question is About the Internet business, so we would like to know about the outlook for the second half Internet business as advertising Business continues to benefit from like MAU or ARPU increase and also platform shipment increase, etcetera. Can we expect normalized effect on gaming business trends and also Fintech with control in the second half, so that the outlook for the second half Internet business will be Very encouraging. And what do you think about the positive impact from the as a number one brand in U. S.
Smart on market and also 22% market share in the Western Europe, I mean to your Internet business. I mean, this is the first part. Okay.
Thanks, Tina. On the Internet business, We obviously and our advertising business obviously benefiting from a couple of trends. Number 1, our increase in store base And number 2, our premium smartphone market penetration. So if you look at our installed base, as you can see, Our MAU reached 124,000,000 at the end of last quarter and as well as our premium smartphone shipped over 12,000,000 units in the first half of this year. So we'll continue to benefit from the increased installed base as well as The increased percentage in our premium smartphone.
I mean, obviously, there will be some challenges Because there's a lot of regulatory restrictions in the Mainland China market, right, including which impacts some Key sectors that invest a lot in advertising. And also with the new data privacy logos, Obviously, we're still assessing the impact that it has on our business.
But overall, we are very positive
it will continue to grow. On the gaming side, we've seen improvement in our gaming business. As we look at our Q3 Results so far, we've seen a pickup in terms of growth in terms of our gaming business. We also benefited from Some of our products, for example, we launched the K40 gaming series in the Q2, and we've seen pretty significant gaming revenue on those products versus a more general smartphone. So we continue to be very hopeful that Second quarter second half of the year, we've seen improved growth in the gaming sector.
On the FinTech side, We've seen continued improvement in our gross margin in our FinTech business. As we move from a more balance sheet heavy model to a more balance sheet like model. We've seen improvement and obviously the improvement in the credit Market in China obviously benefited in that initiative as well. So we've seen very healthy margin for our FinTech business in the first half, and we'll continue to see happy margin in the second half. In terms of the overseas Internet, I think as we showed in the chart, the overseas Internet market has showed very strong growth in the first half and strong represented a very strong percentage of our overall Internet business.
We are still not quite monetizing the I think at this point it's all about market share at this point. So we'll continue to watch The monetization opportunity, especially in the Western European market, we want to make sure that the user experience Good, before we start to monetize our users over there. So I hope that answers your question.
Yes. Thank you. So I have another question more about the outlook for the second half smartphone shipment because we consider the chip tightness continued demand because in China At least so far, I mean, still like the marginal digit and also the Weiseng competition was on there. What should we I mean, because we see the company has already set this target as the number one smartphone brand in 3 years. So What should we expect going forward and the strategy to boost the I mean the market share and also the
So let me take the second question. It's regarding to The second half forecast. Actually, we continue to see the business opportunity, the growth opportunity for Smartphone shipment globally, but real challenge for everybody actually, not only for us is the supply shortage. So we are working very hard to get more supply to support the Different requirement from different regions and markets. And also, I think We have to manage the growth in more than, I think, over about 100 different markets.
So it's a we want to be we need to be working very hard for the supply. Right? So that's one potential challenge for us. And also in China market specifically, We need strategy so that we can have more coverage. So right now, We have over 7,000 retail stores in mainland China.
We continue to grow that number. So that's a long term thing. So once we view the store, We need to train The sales and help the store grow, it also takes time For a new store to become a real profitable or high growth, high output stores. So this is another challenge. I think we are confident that if we continue to execute the strategy to grow the number of stores and also To help the store to grow with our software, the tools, We are confident that we will continue to grow our business in China as well.
The overall Let me summarize. Number 1 is we need to deal with the shortage issue. Secondly, We need to continue to execute our strategy for the offline, especially in China. In overseas market, I think We have over 100 different markets. We need to maximize the our usage of the supply.
I hope this answers your question. Thank you.
Thank you.
Thank you. And our next question is coming from Liping Huang with Huata Securities. Please go ahead.
Okay. Thank you for taking my question. So my first question is also related to smartphone. I think, Leitong mentioned that Xiaomi want to become Global number 1 smartphone company by volume in 3 years. So if I understand correctly, the current Samsung is roughly 300,000,000 units per year shipment and you are roughly 200,000,000 units.
So in order to achieve this global number 1, so where you think that you can get this most of The additional volume in next few years, which market and which segments indicate?
Yes. So I think We see still we see a lot of new opportunities for us. Yes, although we are number 1 in Europe, for the first time, we'll continue to see a lot of space to grow even in Europe. Outside of Europe, actually, if you look at the growth rate, you can see we have a very big Potential in Latin America, Africa as well. So we'll continue to supply the right product for those regions.
So that's for The market opportunity in sight. But in order to be number 1, I think we also need to continue to invest Into World R and D Resources. Now this year, we want to We will our R and D investment is going to be RMB 13,000,000,000 in RMB. The Q2, actually, we have a very high growth R and D investment In the Q2, I think we'll continue to invest in Q3 and Q4 so that we can make sure we invest enough on the R and D side. So we will continue with the R and D resource, continue to innovate in many, many different technology areas.
Actually, Alan just mentioned, in the mixed form, Actually, we bought new technologies. We got the camera and the panel. So and also UWP. We continue to bring more and more new technologies into the smartphones and also the ecosystem products. So yes, I think in the long term, I think we are confident that we can we see the opportunities, and we are confident that within 3 years, We can achieve the goal set by our Chairman and CEO to be number 1 globally.
Great.
It's very Great. Appreciate your time. So the second question is about your smart EV business. So we see a lot of news recently about your smart EV business, including today's announcement of the key motion. So do you have a more Do you have a plan to share with investors about front end product?
What will be the scale of the stuff and What's the relation between your EV business from the R and D structure with your smartphone business? And What's the e promotions role that the company you're acquiring today in this EV plan? Thank you.
Yes. Why do I take that, Leping?
So, with respect to promotion,
we did file an announcement today. So a lot of the information are included in that announcement. But just to summarize, the total considerations that we are going to pay for the acquisition is going to be US77.4 million dollars right?
A lot of it
will be in terms of stock. A lot of these payments will be deferred until certain milestones are hit. And so therefore, we want to make sure that we are retaining and motivating this team. So that's the first point. 2nd point is, we do believe that the company has is very attractive to us, Right.
The company is let me find the information. The company is an autonomous driving technology company. It's focusing on providing the 2 stack software solutions on the for the ADAS and on automated driving applications. We believe that there's a lot of synergies with the technology We've how initiated with our EV initiative. So I think it tells you a couple of points.
Number 1 is Grow our EV business. And as I said in our prepared remarks, we've been very focused on Hiring the right team for the EV business at this point in time, formulated our strategy, formulated our product strategy, Etcetera, etcetera. But at the same time, we are not afraid to acquire and integrate other teams if we find that those are Those will help us accelerate our plan, right? And so I think that this will prove to you that we are very focusing on And retaining these experts and talent and we are making very, very good progress in that regard. Formulating the team, we think that we are ahead of our schedule.
And so we are making very good progress. But
I think what we can share is right now we are focusing on 3 things. Number 1, as Alan just mentioned, We hired the tenant we tried to find the best tenant we can find.
We need
a world class team to execute. This is very important. Certainly, we are doing a lot of evaluation. So Right now, as Alan mentioned, we are on track. So we are confident that we can Thank you.
Thank you. And our next question is come from Gokul Krishnan with JPMorgan, please go ahead.
Yes. Hi. Thanks for taking my question. Luke Gopo from JPMorgan. First of all, can I ask a little bit more on the supply limitations and the fixed shortage?
I think even today we saw some headlines For Tommy having to pull some models in certain markets because of shipment shortage, could you help us understand what is the And is it limiting your shipment by 20% in terms when we look into second half of the year? And What is your estimate at this point in time in terms of where we can see where would this issue get resolved? Is it Sometimes end of this year or is it going to process into next year as well? That's my first question.
Good question. Actually, So the challenge for us, not only for us, actually, this is a challenge for The whole electronics consumer electronics industry and even for the EV industry, this is a global shortage. The challenge for us is right now, we are in markets, right? But the requirements Actually, demand is very strong and the requirement is very, very different. So The challenge is to manage the dynamic.
So at this moment, I cannot tell I cannot share The quantified the impact, but overall, I think it's on track. We are working very, very hard trying to get more supply and then try to allocate The supply we have got allocate them to the right markets.
That's the challenge we are
So yes, this is where we can I can answer? I mean,
I think one clarification is I'm not sure where this Cutting orders is coming from. So I don't think I think we're still on track.
Got it. Understood. Second question on the Internet services. I think some of the most broad based Companies in China have warned about a little bit of slowdown in advertising given both the regulatory pressures and some other industries with the heavy adverse Advertisers starting to see some regulatory impact. I think you guys have been growing very rapidly if we've seen Q2 for advertising.
How do you think about advertising revenue in particular in second half of the year and the tailwinds and the headwinds that you're Being there, especially as you are also increasing the ARPU of your own smartphones in China. 2nd maybe second part of that is, The mix seems to be very heavy advertising at this point in time. Is that something that we should continue to expect over the next maybe 2 to 3 quarters? Or do we see a more balanced mix of other annuities services and gaming also kind of coming through?
Yes, Gokul, as we as I said before, I think it is more a Balance between having a bigger, larger user base, shipping more products year over year in each quarter and then getting more product shipped in the Premium segment, right. And obviously, I think all of those factors will lead to a higher advertising revenue, right, balanced by Some of the difficulties faced in some of the sectors or the lesser spending in some of the sectors due to regulatory pressures, right? And so I think that's the balance between those two factors. But overall, I think we still expect to see continued growth in our advertising revenue due to our Due to our larger installed base, I think that's point number 1. In terms of your second question, I mean, I think we've said this in the last few quarters as well, which is we obviously love to see a more balanced Internet service in gaming as well as other businesses.
And so we think that We are hopeful that it will be that case, but that's something that we are working towards. I mean, obviously, in the near term, with The higher with a higher smartphone growth, I think it would lead to naturally lead to a higher advertising revenue. Okay. Thank you very much.
Thank you. And our next question is come from Yingbo Xue with Sifeng, please go ahead.
Thanks, Xiaohua. The first one is about our competitors and new models. We have seen Xiaomi market share increase in the Q2 and also the new UI user number of new UI user in Mainline China keep increasing. However, we still see that the competitors like Honor brand has played very Strong in the market. So my first question is how we plan for the competition in next half of this year So especially like our new models launch plan.
So I think we are focusing more on the product and And the offline channels build up in China Mainland market. So as I mentioned earlier, So we have over 7,000 stores, but we need more than 7,000 stores. We continue to build our offline coverage. So it takes time for us to build more stores. I think that's So one challenge, we are working very hard on that.
Secondly, we're focusing on the right product. And so we want to offer the right product to the consumers. And also we also it takes time for us to not only grow the stores to gain market share or to grow their smartphone shipment from every store. It takes time for a new store to become a mature store. So also, it takes time for us to train The store managers and also the sales people working in the store, so also it takes a lot of time.
So we are confident in the long term with the right coverage And also the right product, I think we can compete. I think our focus is on our side. The competition, I think we in China market, there's never a lack of Competitors, we were born from a competition environment. So we will continue to focus on product And also offline channels. I think this is what we are doing now.
In the global market, actually, we see so many new opportunities, Growth areas, so we'll continue to execute this strategy.
Got it. Yes, thank you. My second question comes from the stores and the other data we noticed that is about the efficiency of the single stores. It seems that those stores opened before last year performed relatively good. When we see calculate the Performance of the new unit open stores, especially we consider all the stores as a total.
It seems that I know that we need a time to improve, but how we see the The improvement in next in the second half for the sales efficiency of single stores? Thank you.
Yes. Thank you. Thank you for the question. Actually, I mentioned actually, so one of the challenges is to train the new store to become a mature store, right, including the training for the employee, The store managers and also the sales guys working in the new store. And also takes time for The consumers to be familiar with the new store, right?
I think that's number 1. Number 2, We will continue to, I would say, to upgrade the software, the tools We are offering to the stores so that we can use the data and use the tool to improve the efficiency of the operation. I think those are the 2 major areas we are working very hard.
Yes. Thank you very much, Xiaozhong. It's very helpful. Thank you.
Thank you. And our next question is come from Juris with Goldman Sachs. Please go ahead.
Thank you for taking my question. If I look at your offline presence and the market share you talk about, could you just give us a feel for What? And if you look at that market share and the number of stores you laid out, what is the number of markets number of stores you would need to roll out in the country to get to The number one position 3 years out from now. I suspect you would have to match the market leader in the offline states to be able to get to that number. And that's the reason for the ask.
The second question I have is centered around your gaming revenue, where you talked about a decrease due to the revised Commercial terms. Is this a new revision? Or is this a revision that we've seen at work for a couple of quarters already And it should now stabilize as you can start to see that move forward? Thank you.
Yes. So the first question is regarding to the offline coverage. Right now, we have over 7,000 stores. So we I think we need much more than 7,000 stores. So right now, our offline market share based on the Q2 number is around 7.3 7.8%.
So I think you see that We have a great space to grow. So in China market specifically, There are about probably 70%. About 70% of the smartphone shipped So coming from the offline stores. So we right now, we only have 7 Percent of the outside, so you see the potential. So our competitors, they have much more stores than we have.
So we will continue to grow the number of stores, number 1. Number 2, we'll figure out a way. I think we are in the right track We improved continue to improve the store efficiency so that we can sell more Smartphones were from the offline stores. I think this is what we are doing now.
Yes, right, Piyush, I think, with respect to the offline network, I'm not quite sure we need the same number of stores as number 1 got We get to number 1. I think our model has proven that it is working And it is very efficient compared to our competitors, our peers. And so therefore, we are hopeful that we don't need that many stores to achieve the same result. I think that's to answer your first question. To answer your second question, I think on the gaming revenues, I think, yes, the commercial terms were the ones that we talked about last year.
And so therefore, as I mentioned earlier, we are beginning to see Growth picking up again in the on the gaming sector as we are comparing apples to apples.
I wonder if you could share with us the rate revenue share adjusted growth rates in gaming on a year on year basis for Q2. I realize the time.
Thank you. We will now invite the last question and the question is come from Tianjin Quan with CICCM. Please go ahead.
Hi, management. Congratulations on the very strong results. I've got 2 quick questions. The first one is about how the mix smartphone position. We think the pricing of our new mixed model smartphone is higher than the previous ones.
Should we share more details on the Positioning of the mix of service. And I wonder when will we service of our Mi brand? Thank you. This is my first question. Okay.
So actually, we position MiX as The pioneer of the latest technology. So If you remember that a couple of years ago, when we launched our first mix product, which are full display, which is the world's 1st full display phone even ahead of everyone. So that form actually was collected by several art museums in Europe, including Pompidou Museum and a museum from Germany and also Denmark. So we'll continue that brand. I think last year or early this year, we launched a product, which is also Very difficult, the latest technology we were using in that phone.
So this time, also we add We call the CUP, camera and their panel technology. It's also a difficult technology, which can be used in the smartphone for the especially for the front camera. And also, we'll bring UWB to that smartphone to the mix and also they can improve the features, not only on smartphone, but also the connectivity between smartphone and IoT, the IoT products. So that's a mix. So the Mi Series Mi Series is traditional high end product for Xiaomi.
So we always bring the best user experience to that series. For example, the previous launch, Mi 11 Ultra, actually, in that form, There were the world number one quality camera in that form. So it's number 1 in the DSO mark benchmark. But we'll continue to maintain mix Sirius and Mi Series bring different kind of user experience to the consumers. I think that can answer your question.
Thank you. Thank you.
My second question is about our China's offline channels. I think we've seen that we expand really fast in our domestic offline channels. I wonder Will we keep this fast speed like in next year? And how we control or shall we say plan the pace of our for offline expansion. Thank you.
I think we will continue to improve in the Store efficiency, number 1. Number 2, improve the coverage. That means we need to build more stores to cover more territories in China's domestic market. Also, Continue to improve from the tools we are providing to those stores. So those are the 3 important things we are we will be working on even for the next year.
Okay. Thank you. Very clear.