Ladies and gentlemen, thank you for standing by and welcome to the Company 2021 First Quarter Results Announcement Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to introduce myself, Mr. Anita Chen, Head of Investor Relations.
Good evening, ladies and gentlemen. Welcome to investor conference call hosted by Xiaomi Corporation regarding the company's 2021 Q1 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 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 call today are Mr. Wang Xiang, Partner and President of Xiaomi Operations and Mr. Alan Lam, Chief Financial Officer and Vice President of Xiaomi Corporation. To start, Mr. Wang We have shared recent strategic initiatives of the company.
Therefore, Mr. Lam will review the business financial performance for the Q1 of 2021. Following that, we will move on to the Q and A session. I will now turn the call over to Mr. Wang.
Thank you. Thank you, Anita. Hello, hello, everyone. Thank you for joining our Q1 2021 earnings call. In this quarter, we reported outstanding results across all business segments.
Our revenue reached RMB RMB76.9 billion and adjusted net profit reached RMB6.1 billion, up 54.7% and 163.8% year over year, respectively. Both revenue and adjusted net profit achieved historical highs. Throughout this quarter, we remain committed to advancing our core smartphone multiplies AIoT strategy. I'm pleased to share that our global smartphone shipments ranked number 3 for the 3rd consecutive quarter, with market share of 14.1% in this quarter. Notably, we saw explosive growth in Europe and ranked number 2 in the region for the first time.
We continued to strengthen our position in premium smartphone market. In this quarter, we further expanded our premium offerings through the launch of Mi 11 Ultra and Mi Mix Fold priced above RMB5999 and RMB9999, respectively. Our premium smartphones have been well received by the market as shipments exceeded 4,000,000 units globally in the Q1 of 2021. We continue to deliver cutting edge technologies and a best experience to our users. For example, our Mi 11 Ultra achieved the global number 1 DX Mark position and the 1st foldable smartphone Mi Mix Fold features our proprietary C1 image signal processor, making a significant milestone for our imaging technology and leading us to greater technological aspirations.
We also announced our official entry into smartphone electric vehicle business. The smart electric vehicle represents indispensable components of smart living, And entering the smart EV business is a natural choice for us as we expand our smart AIoT ecosystem and pursue one of the largest business opportunities of the next decade. Last but not least, The Q1, we also introduced our new logo, which presents Xiaomi's new brand identity. We believe the new brand identity will allow more people to feel and understand Xiaomi's corporate philosophy to let everyone in the world enjoy a better life through innovative technology. Now, I'd like to invite Alan to discuss more details of our Q1 earnings and business updates.
Alan, please go ahead.
Thank you, Zhang Zhou. Good evening, everyone. Thank you for joining us today for our 2021 Q1 earnings call. In the Q1 of 2021, we maintained solid growth trajectory across all business segments. Total revenue grew 54.7 percent year over year to RMB 76,900,000,000 And adjusted net profit grew 163.8 percent year over year to RMB 6,100,000,000.
Our revenue and adjusted net profit both hit record highs in this quarter. In this quarter, We maintained a number 3 position in global smartphone shipments with a market share of 14.1%. Our shipments increased 61.9% year over year, the highest growth rate among the top smartphone companies. We have strengthened our position in the premium smartphone market. In March, we released 3 premium flagship smartphones, The Mi 11 Pro, Mi 11 Ultra and Mi Mix Fold and all have been well received by the market.
To illustrate, from January to April of 2021, total orders for Mi 11, Mi 11 Pro and Mi 11 Ultra exceeded 3,000,000 units. Meanwhile, the Mi 11 series ranked number 1 in this category among all Android Smartphone Series in Mainland China. In total, we shipped over 4,000,000 premium smartphones this quarter. Premium smartphones we define as retail prices at or above RMB 3,000 Mainland China and €300 in the overseas markets. Our market share in the premium smartphone category in Mainland China grew considerably to 16.1% in the Q1, up from 5.5% in the Q1 of 2020.
Our achievement in the premium smartphone market is underpinned by our relentless pursuit of technology innovation. For example, the Mi 11 Ultra achieved a DXO Max Score of 143 for overall camera performance and ranked number 1 globally. In addition, it debuted a jointly developed GN2 sensor, the largest smartphone camera sensor currently on the market. In terms of charging technology, Mi 11 Ultra debuted the silicon oxygen anode battery, which enabled faster charging in a thinner smartphone body and set a new benchmark with 67 watt wireless charging support. Our MiMx Volt is another example of our pursuit of technology innovation.
It is equipped with our proprietary Search C1 image signal processor, which uses advanced algorithms for auto focus, auto exposure and auto white balance, significantly enhancing the image quality. Additionally, It is the world's 1st smartphone to use liquid lens technology, which combines macro and telephoto capabilities in a single lens. In terms of display, it is equipped with a flexible 8.01 inches OLED screen, featuring Xiaomi's own color calibration algorithm with impressive color accuracy. In Q1, we further improved our number one online leadership position in China, with our online market share doubling to 38% from 18.5% in the Q1 of 2020. Meanwhile, we rapidly expanded our offline retail presence.
As of the end of April, we had over 5 1500 retail stores in China, an increase of over 2,300 stores compared to the end of December 2020. As Jiang Liu said, we've also elevated our brand and stepped up our promotional efforts globally. In March, we launched our new Xiaomi logo with the new Alive branding identity, which expresses the relationship between life and technology. At the same time, we invested in brand building in key global markets. In February of this year, massive screens of our Mi 11 smartphone were displayed on 3 landmark buildings, including Dubai's Burj Khalifa, London's BFI IMAX and Bangkok Central World.
This move demonstrates our efforts to expand into the overseas Premium Markets. On March 30, we've also made one of our most important decisions in our corporate history, which was our official entry into the smart electric vehicle business. We will establish a wholly owned subsidiary with an initial investment of RMB10 1,000,000,000 and expect to invest around US10 1,000,000,000 over the next 10 years. We believe offering quality smart EV will help us build a closed loop smart living ecosystem and fulfill our vision to let everyone in the world enjoy smart living anytime, anywhere. We also believe that we have unique advantages to support the smart EV business, including our Internet business Our model, our extensive experience in software and hardware integration, our broad user base, our powerful brand, our distribution channels and our investment in prior technologies surrounding smartphones, which can also be applied to smart EVs and with our abandoned cash resources.
These factors will contribute to our future success in the smart and EV sector. I'd like to give everyone an update with regard to our litigation with the U. S. Department of Defense. As you may have seen from this morning's announcement, the U.
S. District Court issued a final order this morning indicating the U. S. DoD's destination of Xiaomi as a CCMC, a Communist Chinese Military Company. Invicating the designation, the court formally lifted all restrictions on U.
S. Persons' ability to purchase or to hold our securities. We are very grateful for everyone's trust and support, and we will continue to relentlessly build amazing products with honest prices to let everyone in the world enjoy better life through innovative technology. Now let's dive deeper into each segment, starting with smartphones. In the Q1, our smartphone revenue grew 69.8% year over year to RMB 51.5 RMB 1,000,000,000, our highest quarter ever.
Our global smartphone shipment reached a record high of 49,400,000 units, up 69.1% year over year. Our smartphone gross margin also rose to 12.9% due to improved product mix and fewer discount activities as a result of supply shortage. Let's take a closer look at the Mainland China market. In the Q1, our smartphone market share in Mainland China rose to number 4. According to panelists, during the quarter, our smartphone shipment in Mainland China reached 13,500,000 units, a year over year increase of 74.6% and with a market share of 14.6%.
This is supported by the continued success of our new brand strategy, targeting different user segments. For example, our Mi Mix Fold, with prices starting from $99.99 catered to the business executives and power users. To reach the younger generation and female users, We launched our Mi 11 Lite and for gamers, we unveiled our Redmi K40 Gaming Series with prices starting from RMB 1999. We believe that this strategy will help us capture greater market opportunity by satisfying the unique demand of the different users groups. With respect to the IoT and Lifestyle product business, Our revenue increased by 40.5 percent year over year to RMB18.2 billion in the Q1 of 2021.
At the leading global consumer AIoT platform, the number of connected IoT devices on our AIoT platform reached 351,000,000, up 35.6% year over year. Moreover, the number of users who had 5 or more devices on Xiaomi's AIoT platform reached 6,800,000, of 48.9 percent year over year. Our AI assistant MAU reached 93,000,000, an increase of 31.9 percent year over year. Lastly, our Mi Home App MAU reached $49,200,000 which was up 22.8% year over year. We continue to expand and upgrade our IoT product portfolio to offer the best user experience and to further promote interconnectivity across devices.
In the Q1, we launched new products with distinctive features, including Mi Laptop Pro 15 featuring a super retina OLED display with 3.5 ks resolution, MU Router AX9000 with dedicated 5 gs Esports spectrum. In the smart home category, We launched our Mi Smart Air Conditioner with Ventilation, with prices starting at 35.99 It is an innovative next generation air conditioner that takes clean, fresh air from the outside and to effectively lower indoor carbon dioxide levels, bringing our users a more healthy and comfortable experience. It also doubles up as an air purifier that achieved 19.9% air sterilization. This smart air conditioner is also the industry first to win a Red Dot Design Award. In Mainland China, our IoT products deliver outstanding results across multiple categories.
This shows that we have become an increasingly important part of our users' daily lives. Notably, our air purifiers ranked number 1 with 52.5 percent market share. Our Mi Band ranked number 2 with market share of 37.5%. Our smart locks ranked number 1 with market share of 24.8 percent and I can keep going on the list. Meanwhile, the IoT segment continued to grow in the overseas market.
In the Q1, Revenue from our IoT products in the overseas market increased 81.1% year over year as we strengthened our brand and increase our penetration in the key markets. We continue to enrich our overseas IoT portfolios and introduce a variety of cool products, such as our Mi electric scooter Pro 2 Mercedes AMG Petronas F1 Team Edition. Our IoT product portfolio has great potential in the overseas market, which we believe will be a key driver of future growth in our business. With respect to the Internet Services segment, revenue from Internet Services reached RMB 6,600,000,000, up 11.4% year over year. Our advertising revenue hit a historical high this quarter, reached RMB3.9 billion, primarily due to higher pre installed and search revenue on our premium smartphones.
Gaming revenue decreased year over year as mentioned by Xiang Zhong, mainly due to the higher base in the prior year, due to the strong gaming industry performance during the pandemic. Also, revenue from our other value added services decreased
as
we voluntarily reduce the risk on our FinTech business. If you look at our global Internet user base, It has continued to grow and drive our Internet services businesses. In March of 2021, The global MAU of MidUI increased 28.6 percent to 425,300,000 while the MAU in Mainland China rose to $119,000,000 up 6.4% year over year. Our TV value added service offerings continue to expand and include video entertainment, e learning, Kids Mode and Karaoke, providing diversified content to a wide user group. During the pandemic, Our education channel also offered live streaming educational courses for free, providing a convenient learning option for kids at home.
In the overseas market, our Internet services revenue increased 50% year over year in the Q1, accounting for 13.8% of total Internet services revenue. This was driven by increasing overseas smartphone shipments and the expansion of our overseas business. Notably, the MAU in Western Europe grew 95.5% year over year, And our Mi browser business is also expanding in the key overseas markets. Talking about the overseas business. In the Q1, our overseas revenue increased 50.6 percent year over year to RMB37.4 billion, which accounted for 48.7 percent of our total revenue.
According to Canada's, Our smartphone market share ranked number 1 in 12 markets in the Q1 and ranked in the top 5 in 62 markets worldwide. For instance, in Spain, we ranked number 1 for the 5th consecutive quarter and we also ranked number 1 in Russia for the first time this quarter. We have further expanded our scale in the key overseas regions. Our smartphone market share in Europe climbed to number 2 for the first time this quarter. Our ranking in Latin America and Middle East both rose to number 3, and we maintain our number 2 position in Asia Pacific.
I would like to further highlight our excellent performance in Europe this quarter. As I mentioned before, we ranked number 2 for the first time in Europe with a market share of 22.7 percent as our smartphone shipment increased 85.1% year over year. In Spain, Our smartphone market share reached 35.1 percent. And in Italy, our ranking surged to number 2 with a market share of 25.2%. We also maintained our number 3 positions in France and Germany, with year over year growth exceeding 100% in both markets.
We continue to deliver strong results in both the carrier and online channels overseas. In the Q1, excluding India, our overseas smartphone shipments through the carrier channel exceeded 5,000,000 units, up more than 3 10% year over year. As of March 31, we cooperated with over 150 carrier channels worldwide. At the same time, our smartphone market share in Western Europe carrier channel surged to 11.3% compared to 7.4% in the Q4 of 2020. In the online channel, our overseas smartphone shipments, excluding India, also exceeded 5,000,000 units, up more than 100% year over year.
Now let's move on to the financials. In the Q1, as I mentioned before, our revenue reached RMB 76,900,000,000, up 54.7% year over year and 9.1% quarter over quarter. In particular, Revenue from smartphone grew to RMB51.5 billion, up 68.9 percent year over year and 20.8 percent quarter over quarter. Revenue from IoT and Lifestyle Products reached RMB 18,200,000,000 up 40.5% year over year. Our revenue from Internet services reached RMB6.6 billion, representing an increase of 11.4% year over year and 6.4% quarter over quarter.
As you may have noticed, our gross margin has shown strong growth momentum during the last quarter. Our overall gross margin increased to 18.4% in the Q1. And if you look at the gross margin for our smartphone segment, it grew to 12.9% in the Q1 from 8.1% in the prior year. The gross margin for IoT and Lifestyle product increased to 14.5% and the gross margin for our Internet Services segment increased to 72.4%. During the quarter, We continue to step up our investments in brand building and R and D.
Our R and D expenses increased by 61% year over year to RMB3 1,000,000,000. We remain dedicated to pursuing the cutting edge technology for our business, and we expect to recruit another 5,000 engineers in 2021. We saw robust growth in our adjusted net profit in this quarter. We reached a new record high of RMB 6,100,000,000, up 163.8 percent year over year and 89.4% quarter over quarter. And our adjusted net profit margin climbed to 7.9% in the 1st quarter from 4.6% in the same period of 2020.
We maintain our efficient approach to managing our working capital. Our AR turnover days decreased to 13 days in the Q1 of 2021. The inventory turnover days were 65 days in the first quarter, and our AP turnover days increased to 111 days in the Q1. Overall, Our cash conversion cycle was very healthy at negative 33 days. Last but not least, Our strategic investments enable us to generate additional earnings growth.
We continue to enrich our investment portfolio. For example, in the Q1, we invested in Dong Yi Ruxian Home Decoration, a premium home decoration solutions provider, which also established strategic cooperation with our AIoT smart living ecosystem. As of the end of the Q1, we had invested in more than 3 20 companies. We generated an after tax net gain of around RMB400 1,000,000 from the disposal of investment during the quarter. And as of the end of the Q1, the total value of our investment is close to RMB70 1,000,000,000, which if you look into it on a per share basis represent about HKD3.3 per share.
We'll continue to leverage our resources and our ecosystem to invest in more ecosystem companies, further empowering the entire manufacturing industry in China.
Thank you, Alan. We will now proceed to the Q and A session. Please limit your questions for a maximum of 2, so that we could allow more investors to ask their questions.
Thank And the first question comes from Hua Liping with Huatai. Please go ahead. Thank you.
Okay. Thank you for taking my questions. My first question is about the Chip shortage and the inventory issues. So chip shortage has been a major problem For the technology for the last few months, but we also see some weakness in the smartphone demand, especially in China and India recently. And when I look at your financial statement, I saw you have a large increase in your raw material Inventory but a large decline, the finished goods inventory.
So can you comment, Xiaodong, can you comment on this? And Alan, at this point of time, What is management's view on the impact of the chip shortage and inventory and what was the impact on your Thank you. Thank
you for the question. Actually, the shortage It happens every 3 to 4 years in the semiconductor industry, but this time Stronger because of many, many factors. One factor is the pandemic, right? So we are working very hard with our suppliers, try to, how to say, optimize Our supply situation and do some preparations for the future. So Yes, we are that's why we are I think we are our inventory level is In the healthy I think in general, it's healthy.
It's very healthy. So Yes, we do some preparations for the shortage for the second half in the raw materials. Yes. That's for sure. But overall, we are I don't see any issues for this year.
It's not going to be a major problem. Even with the shortage, actually, We think we can still have a big or significant increase compared to year 2020. So that's the this question. So your second part of the question is the how long is it to last, right? I think to be very honest, I think for this entire year, year 202021, I don't think the issue will be resolved within this year.
So we can expect maybe second half of next year, The supply environment will be changed because this is the whole industry is working very hard actually to try to improve the manufacturing capacity, not only for the SoC suppliers, but also memory, Also display the whole industry actually is working on that. I think maybe second half of next year will be improved. This is our will. Regarding to The market actually we know recently we noticed there are some companies or some research Agents or institutions, they are seeing the soft demand for the in the China market for smartphone. So we have monitored the market environment very, very closely.
So far, we don't change our plan. We will keep our plan for 2021, but we will closely monitor the market demand dynamic.
Yes, that's my I think a couple of additional points. I think one obviously, I think the entire street, Not just in our industry, but also in other industries, we are seeing chip shortage, right? I think the auto industry, for example, Due to a demand shock, right, because there are more demand from these new EV players, Laptop players due to the pandemic has been having an increase in demand. And then The supply was slow in catching up, right, because of the pandemic. They haven't really spent that much CapEx in terms of building new capacity.
So I think that will take a while for that to normalize. As Zhang Zhong said, probably take till next year for the chip shortage to ease. So obviously, as Zhang Zhong also mentioned, right, number 1, we have been investing strategically, right? As you noted, some of our raw material Inventory has increased. At the same time, I think the fact was our as you also see, the finished goods inventory has dropped because we are our products remain very popular with our user base.
I mean from a management standpoint, We are trying to optimize our product portfolio. We are trying to optimize our make sure that we strategically optimize our margin as well in our business due to enhanced product portfolio as a result.
The second question is, Xiaozheng, and I think I asked the same question maybe roughly 1 years ago. So Your room of growth, you actually delivered very strong growth in last 1 year. When you calculated the number, you Already shipped 50,000,000 units of smartphone this quarter. If you multiply by 4, it's 200,000,000 versus Samsung's only 300,000,000, which I see. You are already very close to global number 2.
And so when you plan your geographical expansion and when you plan your For the mix, so where is the room coming from now? And especially, do you plan to enter market like in United States? And Do you plan to have a much bigger market share in the premium segment, which currently dominated by
Yes. Actually, we see A lot of room to grow in many, many markets. Take Europe as an example. Right now, entire Europe, we run number 2. This is a significant milestone for us.
Our market share now in entire Europe is over 20%. But we still think we still have a good room to grow because in Western Europe, our market share It's less than 20%. I think it's about 18%, maybe 18%. So Western Europe, we see very big room to grow there. So we are right now, we are number 1 in Spain for 5 consecutive quarters with market share about 35%.
We are number 2 in France, in Italy, number 3 in Germany. All those markets, We all see a huge potential to further grow. So that's one area. Another angle is we our growth In the carrier channel, we're very, very strong in Q1 2021. We just started the carrier business.
We have a our market share in carrier channel is still very low, but we our growth is over 100% maybe 300% in Q1. It's a very strong growth. You see the trend that we're going to grow our smartphone shipment in the carrier channels. That's another potential. So if you look at the China market, right, we are about 40% 33% in China online market.
But we are still not very high we don't have a very high market share in the offline market of China. So that's why we are putting huge effort to establish our offline channels in retail stores across the country. So that's another big area to grow. Other example, including Russia, including Latin America, we also see a very strong Potential to grow. So yes, we are happy to share that last year, we shipped 140 Maybe over 140,000,000 units, but this year, even with the shortage, I think we're We're very confident to have a significant growth in smartphone market.
And U. S. Market, U. S. Market is always very, very attractive to everyone.
So we are right now, we put our focus On the European market, not instead of North America market because of resources issue, we will continue to increase our investment in R and D so that we have more resources. Then we can Maybe when we are prepared, we will go to North America. We don't have a so far, we haven't announced any plan yet, But that market definitely attractive market to us in the future. Okay.
Thank you.
Thank you. Our next question comes from Tina Wong with for the Suisse in Hong Kong. Thank you.
Thanks for taking my question. Congratulations for such a good strong results. And I have two questions. One is about the smartphone gross margin, which already reached 12.9%. It's a very encouraging level and we wanted to see if like how much is actually from The sales promotion, buyback mix and also somehow if there's any impact is achieved from Some finished goods that are already is actually based on lower costs, but right now your costs may be increased on the chip tightness.
And what should we expect like going forward in the coming quarters? Because I think the chip titan will still stay this year And properly we will resolve second half next year as I mentioned. So is that a sustainable margin level? So this is the first question. The second question is about the Internet business because we do see the advertising and also advertising Revenue grew by strongly was like 46%.
And gaming also actually exceeds, I think, the The expectation illustrated because it's like up 24.8% on a high base last year because last year is actually due to a lockdown in China. But I mean, we see gaming got like impact from the commission base change and also high base but still achieve such high growth here. So I just wonder if like that is because The better mix in the smartphones and or like expanding your channel in Internet business. And When should we expect the normalization in the FinTech impact because they continue to decline For some time, it should be like getting less impact to the overall Internet business. So this is it, yes, two directions of my questions.
Yes. Thank you. Thank you for the question. I will take the first one and Alan will answer the second one. So the first one is regarding to the gross margin, The sustainability of the gross margin, right?
So I think our as a company, we right now, our focus still to increase our market share globally. We're not targeting to increase the gross margin.
The gross margin is good.
We like gross margin, but our first priority is to enlarge our market to increase our customer base. So I think we achieved a very good gross margin For the last quarter and this quarter, because we have a very good or much better product And the product mix, we have many, many very strong mid and higher tier products that's contributed reasonably The gross margin. And also, during the shortage, right, everyone In the market, we're all not very aggressive on pricing. That also help us to maintain healthy margin. But Overall, we will focus more on the customer base and market share instead of the margin.
But with very good product and the product mix, I think we will have a healthy We'll maintain a healthy gross margin and profit.
Yes. Look, I think, Kiena, on the Internet services, the advertising, as you noted, has performed very well. Part of it is really due to the growth of premium smartphone within our portfolio, Right. I mean, obviously, command a much higher pre installed as well as much higher revenue potential. On the gaming side, It has done very well.
I mean, I think seasonally Q1 has always been a strong kind of gaming quarter anyway, with many people at home during Chinese New Year, But it also exceeded the Q4 by quite a lot. I mean, I think as I mentioned in previous call, It's hard to compare with year over year given the particular factors in Q1 of last year. So it's always hard to beat that number, but we're very glad that it beat the Q4 numbers by a pretty healthy margin. Also as you rightly pointed out, the move to premium smartphone also generated a higher gaming GMV as we showed in previous quarters. On the FinTech side, again, as I stressed before, it's always hard to it's again hard to compare year over year given there's quite a different business model compared to a year ago.
So that's why we try not to compare it year over year. But I think as we continue to decrease our use of balance sheet, As you continue to decrease the overall use of the loan product, I think you probably see a more healthier pickup in the second half of next year. It's also kind of dependent on all these regulations that are going on. I think we're Trying to do everything we can to comply with what the regulators have set for us. And so it may still have some trust in the overall FinTech model before it settled down due to the ongoing regulatory scrutiny.
Thank you. Our next question comes from Andy Mann with Morgan Stanley in Hong Kong. Thank you.
Thank Thank you, Xiaozhong and Alan for the detailed presentation and a congratulation on the great result. I'm Andy from Wansany. I have two questions. I'll ask the first question. It's focusing on the offline expansion.
We know Xiaomi having opened a lot of new store offline. I want to know what's the latest like status regarding the operation? Is the high inventory autonomous strategy working well Or do we receive any pushback? And in recent days, we also noticed that we haven't started some promotion on certain smartphone products. So whether our online and offline will apply the same promotion or they have different strategy.
And for the offline, if they have already built inventory Based on the previous like the price, when we're having the promotion, will the offline also having the same price cut promotion or the distributor have to bear these inventory costs by themselves? So this is my first question. Thank you.
Yes. This is a very good question. It's a complicated question. Maybe let me answer the second half, The second part of the question. Actually, this time, actually, we have done a lot Change in the offline strategy.
So we synchronize online and offline. Whenever we do a promotion, no matter it's online or offline, that's one action. So we will do the same promotion at the same time with same price, synchronized. We can synchronize this time because we do a lot of changes, a lot of innovations, Right. Actually, we developed a system which can track The pricing, the sell in and the sell out real time for every store.
So that's why we can manage The promotion very, very efficiently. So the situation in the past It's because without the technology, how to say, the tools, sometimes we cannot synchronize the price on and off line, create some problems for our partners. But this time, the situation will be changed with the technology. So I think we are seeing the acceleration of the offline stores build up. So up to now, I think the latest numbers show that we have over 5,500 stores operation already.
So we continue to Build the stores in the very higher pace. So I remember last year, We had end of last year, we had 3,000 stores, but now we have 5,500 stores. So we're going to build much more stores by the end of this year, probably Over 10,000 stores. So we want to cover every, How to say the tons in China. So with the technology With the technologies, with the partners, I think we're able to do it.
So with those stores, we can build our, how to say, The sale point of sales. So with the point of sales, we can sell a lot more phones, which online channel cannot cover. So I just mentioned earlier, we have 38% of online China online smartphone market, But in offline, we still have a lot big room, much bigger room to grow. So with the 10,000,000 or even 15,000,000 stores In the future, for more stores, we can cover those territories to let those people living in those Small villages comes to buy our product more conveniently. So that's our plan.
Thank you, Xiaozong. My second question is based on communication with investor, I think most people Definitely very exciting about the Q1 upbeat result, but at the same time, we're worried about the Q2 or even second half slowdown. What will be the company's strategy in the second quarter or second half try to sustain the strong performance, no matter from the revenue, shipment And the margin perspective, something we are discussing like possibility like for example, we have the weakness in India, there's something Macro driven, we cannot control the outbreak of COVID, but is it possible to ship more volume to other market with high growth potential like Europe? In that case, if the Europe market margin is higher than Indian, it could even generate a better profit for the company. So those are the potential Solutions.
But I think the company, the management probably will have more to share with us to let us know what will be the company's Operating strategy in the second quarter or the second half of this year. Thank you.
Yes. Actually, Because we have multiple markets, that means we have Big room to play to optimize our supply. I think that's our strength. So we definitely will optimize our supply to help our channels and the regional market. We're doing we're working very hard on that.
For Indian market, actually, right now, the challenge is the pandemic. The whole company is doing very hard, Try to do our best to contribute to the society to, how to say, to help them on the difficult challenges. But at the same time, we will use the different channels, try to ship smartphones. In India, actually, there are many, many provinces. They are 100% locked down, but they are another part of the half of the country.
They can still use online channel to ship products. We are working with those channel partners to ship our smartphones to the people who may need it during the pandemic. The manufacturing right now is stabilized. So yes, we are working with our partner there, trying everything possible to stabilize the supply. At the same time, we will optimize our supply chain.
That's the very important thing for us.
Thank you very much, Jianda.
Yes.
Thank you. Our next question comes from Gokul Hariharan with JPMorgan in Hong Thank you.
Yes, thanks. Congrats on the great results. First question I had was on smartphone. Given the Chris have pushed into the offline channel, especially in China. Do you start to feel the need to potentially create Offline specific products, offense specific brands, like some of your competitors who had much bigger market share At one point in time in China had done, is that something that we are thinking about as we start to increase our presence in offline?
Actually, we right now, we are using the same product portfolio to sell The same product portfolio online and offline. So we know that we noticed that for the mid and high tier product, Maybe many consumers, they want to feel it in touch. They want to buy from offline. Yes, We are making that effort to do a better demo so that Our customers, even in the rural areas, can see the device, can feel and touch the device before they make the purchasing decision. This is what we are trying to do.
But we are still maintaining the same product portfolio for online and offline.
So you don't see the demand for different kind of product portfolio offline so far From the distributors or your customers?
So we our offline model actually is We build stores together with our partners. We are not using The traditional distribution channel a lot actually work directly with the retailers, The partners to build a store in the Tier 1, Tier 2, Tier 3, Tier 4, Tier 5 Cities and the counties. So in the Tier 1 cities, actually, we have our store, our flagship store in the shopping malls, Right. But in Tier 4 to Tier 6 cities, maybe we normally, We find a partner to build a store together with us. So we are actually, we are very responsible for finding a place to hire their staff and do some of the decorations, renovations for the store.
But Xiaomi, we will offer we will send store manager It's on our payroll, our own employee to be the store manager and also we help them on the furnitures, The decorations, the billboards, and more importantly, we provide the tools I just mentioned, Very powerful tool for retail, so that we help our partner to manage their inventory and the promotion, So that they can focus their effort to sell the product.
So that's the new market.
Okay. That's very clear. My second question is on the interest services. I think the gross margin we're seeing is probably the highest we've seen for quite some time. What gross margin makes?
Is it Just that advertising is a much higher margin product compared to everything else. And also from a growth perspective, Should we see first half of this year to be kind of like a bottom in terms of year on year growth for Internet services And expect a reacceleration at the beginning of the second half of this year, given the interest finance Related scale down is probably largely done.
Yes. Look, Gokul, I think the Combination, right? I think the gross margin being high in the first quarter was, 1, as you rightly said, the advertising gross margin. Yes. I think second is the Fintech, the recovery of the Fintech gross margin as well, right.
I think we remember last year, Q1 Probably a lot of loan provisions and whatnot, right? And so the margin was not as good and kind of drag down the overall margin. I think this year, this Q1, even though the overall revenue for the FinTech business was lower, but the margin has actually ticked up as the credit cycle in China improved, Right. I think so those are the, I think, the 2 key factors, right? I think in terms of what's going to happen for the Internet services.
Over the year, I do I mean, over this year, I do think that you start to see that picking up In the next 3 quarters, as we continued to generate a good Proportion of revenue coming from the advertising business, right, as our base continue to grow and as our MA nobody asked us MAU questions so far this quarter. So You guys might be happy with that. As our China MAU continues to grow, that will probably bring a higher percentage of revenue from advertising, overall and then the gaming recovery as well as the or normalized comparison As well as the FinTech comparison being normalized, we will certainly see the second half of the Internet services being better than the first half.
Got it. Yes. Thank you very much.
Thank you.
Thank you. Our next question comes from Huong Bong with Goldman Sachs in Hong Kong. Thank you.
Thank you. Can I just dwell on the last Point you just made on in response to Hari's question about the MAU? So if I look back at all of your quarters for the last 3 years, you've never grown your MAU in China the way it's grown in the Q1. It's probably explains the strength of the quarter's Internet revenue And as well as the higher gross margins. Could you just take us through what was so different about this quarter that led to almost an 8,000,000 ad And we've never seen anything even I think you've got to go back 3 years to see a number at $5,000,000 a long, long time ago.
What was different in the quarter that made that difference? And also you talked about the premium that you earn with a high end end smartphone. Could you give us a feel for is it a factor of 3, a factor of 4, a factor of 5 that comes through because of the high end customer who comes on board? And my third question is on the smartphone side. You build out a vastly improved distribution network In the offline space, could you give us a feel for what percentage of the offline business, offline sales of smartphone you're capturing?
Also give us a feel for how much how this premium end of customer base is coming on board, where is it coming on board from online, offline Or is it just the simple fact that you've got a far better range of smartphones or it was with Mi 11, it was really 3 products being launched simultaneously that led to 3,000,000 sales. So just take us through the dynamics that you observed, please. Thank you.
Yes. Piyush, let me try And then, and Shuang Rong can add to it. I think, first of all, the growth in users, as we preview in our previous call, was really due to a large number of new Xiaomi users, right, people who haven't used Xiaomi phones before, Right. So Xiaomi 11, for example, was very popular. And last quarter, we did talk about a large percentage of those buyers being new Xiaomi users, Right.
The new phones we launched are trying to address a different user base as well, Right. Whether it's the premium end users, whether it's business users, whether it's the female demographics, whether it is The gamers, right. So we are our product lined up, not just more product, but also kind of different products targeting Different segment and different demographics. And I think that's probably key to attracting a lot of new users to Xiaomi They haven't previously used Xiaomi phone before. So I think that leads to a larger number of new users, A large number in a large increase in MAU for this quarter.
Right. So that's the first question. 2nd question is to give you a sense of Advertise difference between premium phones and kind of the mid to low end phones. I mean, we can tell you that like for example pre installed, right, which is not a big part of the advertising revenue, but just an illustration, Right. I mean, we probably see 3 to 5 more apps that we can pre install on a Xiaomi phone versus a Remi phone, just to give you an illustration.
So in terms of the space and people willingness to buy those spaces that we offer. In terms of unit pricing as well, I think you probably see a 10% to 20% difference in terms of unit price for each of those apps, right. So factor into both a larger number of apps that you can pre install or people willing to buy And a higher ARPU or higher unit price for each of those apps. That gives you a sense, right, in terms of how much we can generate, not to mention the other revenue like search and gaming and whatnot, right? So I hope that I mean, it's probably not Four times or five times, I don't think, but it's a decent premium.
In terms of the Offline smartphone sales and online smartphone sales, look, I think the offline sales are still very early for us, Right. We are what, 5,500 stores, right, right now. 5,500 stores. Yes, 5,500. Yes, 51,000,000 to 500, but if you look at our competitors, they're probably more like 50,000 to a 100,000 Maybe 100,000.
100,000 stores, right. So we're still very early. And if you look at our market share in the offline market, it's still very low, Yes, right. And so even though our online market share is very high right now, so I think it's across all channels. Obviously, we're still selling more offline online than offline at this point in time, but we want to change that ratio, right?
That's why we want to build 10,000 plus stores this year, right, to capture that opportunity. Does that make sense?
And also you see, actually online market represent probably 30% of the entire China smartphone shipments, right, the offline 70%. In those 70%, right now, we are only probably 7%, maybe 7 something percent of the share. So that means we have huge, huge room to grow in the offline market. Yifuan will be number 1, right? So that's why we are working very hard on the offline Strategy and Execution.
So I think one of the issue for us As Alan mentioned, we are in very early stage of the offline development. As the coverage It's our current priority. We want to increase the coverage. We want to let people who By our product, they can find a store, our store in the especially in the rural areas, not only Tier 1, Tier 2, Tier 3 cities,
But those
counties and towns, right? So we got to make the coverage there. So I visit after the early May, I visit Hebei province. I visit town and the villages. I see the demand there.
So we must have coverage to build the coverage in those areas so that we can Make actual sales in this area. So that means huge potential for us.
Thank you. This concludes the conference call today. Thanks again for joining us. You may now disconnect.