Ladies and gentlemen, thank you for standing by, and Welcome to Xiaomi 2020 Interim 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 hand the conference over to your host today, Mr. Steve Lin. Thank you. Please go ahead, sir.
Thank you. Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 2020 interim results. I'm Steve Lin, Director of Corporate Finance and Company Secretary. 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 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. Our President, Mr. Wang Xiang, will be presenting in the call. To start with, Mr. Wang will share strategic initiatives for the company, and then we'll discuss the business segment and financial performance.
We'll move on to Q&A after Mr. Wang's presentation. I will turn the call over to Mr. Wang.
Hi. Good evening, everyone. Thank Thank you for joining our second quarter 2020 earnings call. In the first half of 2020, despite the impact of COVID-19 pandemic and the macroeconomic uncertainties, our business continued to expand, demonstrating the strength and the resilience of our business model. In the first half, our total revenue was CNY 103.2 billion, up 8% year-over-year. Adjusted net profit for the period achieved CNY 5.7 billion. In the second quarter, our total revenue was CNY 53.5 billion, up 3%. IFRS net income was CNY 4.5 billion. Adjusted net profit for the period was CNY 3.4 billion, up 47% quarter-over-quarter. Before I go over business performance of each segment, I'd like to share some of key business updates. The first point I would like to talk about is the impact of COVID-19 on our business.
In the second quarter, the COVID-19 pandemic affected our operations in different overseas markets to varying degrees. In April and May, several of our key markets implemented strict lockdown measures, and our sales were greatly impacted. As business restrictions gradually lifted, our sales volume has recovered tangibly. In July, the average daily number of smartphone activations in overseas markets surpassed the pre-pandemic level in January 2020. In India, for example, the strict lockdown measures were imposed since late March, and our sales were significantly impacted during the lockdown period. As India gradually lifting the restrictions during the second quarter, consumer demand started to rebound. However, as production capacity has not yet resumed to the normal level, our sales were still limited by the production constraints. In July, the average number of smartphone activations in India returned to 72% of the pre-pandemic level in January.
In July, excluding India, the average daily number of overseas smartphone activations has reached to 120% of the average pre-pandemic level in January. Despite the pandemic, we have performed well in overseas market. One market to highlight is Europe. We continue to gain share and rank top three for the first time, with a market share of 17%. Our smartphone shipment in European market grew by 65% year-over-year, which was the highest growth among major players. The second point I'd like to talk about is our relentlessly effort on pursuing advanced technologies. On August 11, we launched our Mi 10 Ultra, debuting numerous revolutionary features, including 120 x AI super zoom, 120 hertz refresh rate with 10-bit color depth, as well as 120 W wired and 50 W wireless fast charging. Mi 10 Ultra achieved DxOMark score of 130 for overall camera performance.
Once again, ranked the first place globally. Our innovation has been globally acknowledged. In August, we made our second entry on the Fortune 500 list, ranked 422nd, up 46 places from last year. As a global leading innovator, we ranked 24 on BCG's 50 Most Innovative Companies of 2020, and made Derwent Top 100 Global Innovators 2020 list as one of the only three companies from Mainland China on the list. I'd like to discuss the performance of our smartphone business. Our smartphone revenue reached CNY 31.6 billion, down 1.2%, but up 4% quarter-over-quarter against the overall smartphone market downtrend, with smartphone shipments totaling 28.3 million units. In the second quarter, our premium smartphones were well received by the market. In Mainland China during JD's 618 Shopping Festival, our Mi 10 was the bestseller in the price range of CNY 3.5,000 -CNY 4.5,000.
Our Redmi K30 Pro was the best-selling 5G smartphone. In overseas markets, our premium smartphones have also been popular among consumers, including our high-end smartphones, Mi 10, Mi 10 Pro, Mi Note 10, and Mi 10 Lite. The overseas shipments of premium smartphones with retail price at EUR 300 and above went up by 99% year-over-year in Q2 2020. Driven by a higher proportion of sales from premium smartphones, the ASP of our smartphone increased by 12%. The exact number is 11.8% year-over-year and 7.5% quarter-over-quarter. In the first half of 2020, we launched a series of products across different price ranges. Firstly, we have strengthened our position in premium smartphone market. Following the success of our Mi 10 and Mi 10 Pro, we introduced our Mi 10 Ultra in August.
Secondly, we continue to broaden our smartphone offerings to bring 5G technology to the mass market. Followed by launch of Redmi K30 earlier this year, we introduced our Redmi 10X series in May, which brought the 5G smartphone to an affordable CNY 1.5,000 price range. Thirdly, to fulfill the need of global customers amid the macroeconomic uncertainties, we also introduced highly competitive entry-level smartphones, including Redmi 9A series, with pricing starting from CNY 499, which set a new standard for entry-level smartphone worldwide. Now, let's move on to AIoT and the lifestyle products. AIoT revenue. Our AIoT lifestyle products revenue was CNY 15.3 billion in the second quarter of 2020, up about 2% year-over-year, up 18% quarter-over-quarter. At Xiaomi, we are powered by our smartphone. Now we call Smartphone × AIoT core strategy, which is upgraded from Smartphone + AIoT.
It means smartphone is the cornerstone of our business, while our IoT platform will revolve around smartphones to build up a smart living ecosystem. Smartphone and AIoT will create multiplier effect to strengthen economic modes for our business. In the second quarter, Xiaomi continued to expand our global AIoT user base, solidifying our leading consumer AIoT platform position. The number of connected IoT devices further grew to 271 million units as of June 30, 2020, up 38% year-over-year. The number of users who have five or more devices connected to our IoT platform reached 5.1 million, up 64% year-over-year. In June 2020, our AI assistant had 78.4 million MAU, up 57%. In June 2020, our Mi Home app had 40.8 million MAU, representing an increase of 34%. Our analysis showcases a clear synergetic effort between smartphones and AIoT.
Our smartphone users with connected IoT devices showed higher smartphone retention rate than users without. Our IoT platform also demonstrated user stickiness for our IoT users. As of June 30, 2019, the average number of connected devices increased by over 25% in the subsequent 12 months. To enhance the connectivity and the interaction among devices, we launched a few new functions for our IoT platform. First, if you are using a Xiaomi smartphone with our updated MIUI 12 operating system, you can easily control the smart devices at your home. Secondly, supported by our Mi Wi-Fi router, new IoT products can be connected to Wi-Fi easily with one single click. Thirdly, we enabled our IoT platform with Mi Share to strengthen the interaction among smart devices, including smartphone, laptop, smart TV, smart watch, and AI speaker.
For example, Mi Share supports always-on access to music, video, voice calls when switching across multiple devices. We not only maintain the number one position by shipments in mainland China but also strive to innovate. In the second quarter, we introduced the two flagship products under the new Mi TV Master series, further expanding our footprint into the premium market. We launched Mi TV Lux 65" OLED and our groundbreaking Mi TV LUX OLED Transparent Edition. The world's first mass-produced transparent TV with an edge-to-edge transparent self-luminous display transmitting images that seem to be suspended in the air. The TV brings an unprecedented visual experience. In the second quarter of 2020, despite the global TV shipment falloff, our global TV shipments amounted to 2.8 million units, maintaining a year-over-year growth. In mainland China, we ranked number one by shipments for six consecutive quarters.
Overseas market is also a key growth driver for our IoT business. We debuted our Market TVs in several new markets, including Italy, Poland, and France. To meet increasing needs from global consumer, our IoT products will have the first global shopping ecosystem product launch in July. In the launch event, we introduced a series of products including Mi Smart Band 5, Mi True Wireless Earphone 2 Basic, and Mi Electric Scooter Pro 2, which collaborated with the Mercedes F1 team. Let's move on to the internet service segment. In the second quarter, our internet services revenue reached CNY 5.9 billion, representing an increase of 29% year-over-year. Revenue from advertising, online gaming, and other internet value-added services grew by 23%, 55%, and 27% respectively. Our user base also grew strongly in the second quarter.
In July, our global MIUI MAU increased by 23% to 243.5 million, while mainland China MAU of MIUI was 109.7 million. The MAU of smart TV and TV box, meanwhile, increased by 42% to 32 million. Our advertising business achieved solid growth despite the challenging environment in the second quarter of 2020. Our advertising revenue reached CNY 3.1 billion, up 23% year-over-year and 16% quarter-over-quarter. The growth was mainly driven by, firstly, rapid growth of overseas internet advertising revenue.
Second, the gradual recovery of advertising budget as businesses gradually recovered from the impact of the pandemic in mainland China. Our internet services have been increasingly diversified. In the second quarter, 39% of internet service revenue came from internet services outside of advertising gaming from mainland China smartphones, including fintech, Youpin e-commerce. TV Internet and overseas Internet services, up by 39% year-over-year. Among them, I'd like to highlight our TV Internet services.
In the second quarter, our TV Internet services grew strongly year-over-year, driven by the expansion of user base, increasing premium brand advertisers, diversified TV memberships, and a broadened TV Internet service offerings, such as TV karaoke. We also upgraded our TV operating system, MIUI for TV 3.0. We improved our user interface and recommendation algorithm to further enhance our smart TV ecosystem. Next, let's move on to our overseas business. In the second quarter, despite the impact of the pandemic, the revenue from overseas market in the second quarter amounted to CNY 24 billion, representing an increase of 10% year-over-year, contributing to 45% of the total revenue. In the second quarter, our smartphone shipment achieved solid growth in major countries and regions around the world.
According to Canalys, our market share ranked top five in 50 countries and regions in terms of smartphone shipments, ranked the top three in 25 markets. A few markets to highlight. In Spain, our smartphone market share ranked number one for two quarters in a row. Moreover, we became number one smartphone in Poland, number two in France, and number four in Netherlands for the first time. In particular, Western Europe, our smartphone shipments ranked top four, grew by 16% year-over-year in the second quarter, with a 12.4% market share. The growth in Western Europe was driven by strong performance in key countries. During the quarter, our smartphone shipment ranked first in Spain with a market share of nearly 27%, a year-over-year growth of 151%. We also ranked number two in France and number four in Germany and Italy, with robust year-over-year growth.
Lastly, during this quarter, India, in the Q2, we were the market leader with a market share of 30.7%, according to IDC. Our smartphone shipment maintained the number one position for the 12th consecutive quarter. In the following, I'd like to go over the financials. We have witnessed the upward trend year-over-year in our overall gross margin from 14% in the second quarter of year 2019 to 14.4% in the second quarter of 2020. In the past quarter, our gross margin of our smartphone was 7.2%, which is slightly lower than the previous quarter because of the enhanced promotion efforts during the shopping festival in mainland China. The gross margin of our IoT and lifestyle products was 11.4%, which maintains steady compared to same period of last year.
The gross margin of our Internet services was 60.3%, which was lower year-over-year due to high credit allowance to our FinTech business. However, the gross margin of Internet services has been improved quarter-over-quarter. The OPEX. Our operating expense ratio grew from 8.8% in the second quarter of 2019 to 11.2% in the second quarter of 2020, mainly due to, number one, our continuous investment in the R&D and the brand building. Number two, lower operating leverage during the pandemic. In the second quarter, our R&D expenses increased 26% year-over-year. Our working capital also maintained healthy this quarter. Compared to Q2 2019, our account receivable turnover days increased from 12 days to 14 days. Our account payable turnover days increased from 85 days to 11, 12 days. While our inventory turnover days increased from 53 days to 72 days.
The increase of inventory turnover days was mostly caused by a long inventory cycle for overseas smartphones and the impact of the pandemic. For example, because of the production disruption in India, we are importing smartphones from China to India, which led to a longer inventory cycle. As of June 30, 2020, the cash resources were amounted to CNY 64.4 billion. In the second quarter of 2020, we have also witnessed a strong cash flow performance. The net cash generated from operating activities was CNY 4.3 billion. If we exclude the impact from our FinTech business, the adjusted operating cash flow was CNY 6.7 billion. Investment has been important part of our business. In addition to investments in our ecosystem companies, we also actively invest into our supply chain companies.
This investment has strengthened the partnership with key component suppliers, enhanced our sourcing and manufacturing abilities in advanced technology, and facilitate the development of a key industry. In particular, around 5G, IoT, AI, and other areas. In the second half of 2020, we have invested over 20 upstream supply chain companies, and the book value of investment reached to CNY 36.8 billion as of June 30, 2020. Before I end my presentation, I'd like to reiterate our three guiding principles that Mr. Lei Jun, our Chairman and CEO, mentioned in Xiaomi's 10-year anniversary speech. Firstly, never cease to explore and innovate, and bring everyone the most innovative technologies. Second, continue to offer product with the best price to performance ratio. Third, always make the coolest product. We firmly believe that no matter what, the pursuit of technological innovations will always be driving force for Xiaomi's competitiveness.
Offering amazing products at successful and honest prices is an evergreen strategy throughout the economic cycles. Making coolest product is an inherent to our engineering culture. These three principles guarantee Xiaomi's high quality growth ahead, and they are our manifesto for the next decade. These end my prepared remarks. Now, we are open for Q&A. Thank you.
We'll now proceed to the Q&A session. In order to allow questions from more investors, please limit your questions to a maximum of two. if you want to ask questions, please make sure to press star one first.
Thank you. Ladies and gentlemen, we will now open for questions. If you'd like to register for question, please press star one on your telephone. Thank you. Our first question comes from Peter Wu with UBS Hong Kong. Please go ahead. Thank you.
Okay. I think they're asking for me. Good evening, Wang Xiang, Steve. Thank you for taking my question. This is Thompson Wu from UBS. First question. Recent restrictions from the U.S. has impacted some of the major smartphone players in China. Can you share with us how this may have changed your smartphone strategy, if it has? That's my first question. My second question is on India. I understand activations are now roughly about 70% of January, and production has been slower to come back than expected. Can you talk a little bit about the app ban, the recent tensions between the two countries, and how you're thinking about the competitive environment in India going into the back half of the year? Thank you.
Okay. Yeah. Thank you for the question. Actually, we will not change our strategy. We have been executing our strategy very effectively, which is we call a dual engine strategy. we will continuously invest into the technology of 5G and AIoT, number one. Number two, we'll continue to grow our business in China, in India, and in many other market like Europe and Latin America, Asia Pacific region. We are gaining a lot of traction in the global market. You have seen our growth even during the pandemic, during the very difficult, challenging time of Q2. We still maintain a healthy growth in most of the regions. We will continue to do that to execute the strategy. I think that strategy is the right strategy. We also established a very strong partnership, not only in China, but outside of China as well.
We'll continue to strengthen our partnership with the technology partners in U.S., in Europe, in Asia Pacific. We'll continue to do that. In summary, we don't see any change in our strategy. We'll continue to execute that strategy. That is question number one. Number two is regarding to the Indian market. Yes, we are facing a very serious challenge in the Q2 in Indian market because of the pandemic. Right now, still, the infection rate in India is still very high. After the lockdown, we see the recovery of the Indian market. Right now, it's at 72% compared to the normal level in January. In the second half, I think we will see the same challenge, which is the pandemic.
We'll continue to work with our Indian team closely, and also we will do our best to support our Indian partners and the community to fight against the pandemic. Also, we see an opportunity in the second half because there is a big festival or selling season in India. We call it Diwali. It's a big festival. We are working very hard to prepare that opportunity. Also, we believe that the smartphone is a very important product for the consumer, especially in the very difficult, challenging times. Our Indian consumer or fans, they are using the smartphone to have a better communication with their family and the community. I think we'll continue to offer a very cost-effective and high-performance and a very accessible, honest prices product to the market.
as a company, actually, we have been promoting the mutual trust and the friendship between the people in India and China. We have a lot of local employees there. They are also working very hard, and also we support each other. We feel very good about the performance in India.
Wang Xiang, thank you so much for your answer.
Thank you. Our next question comes from Leping Huang with CICC. Please go ahead. Thank you.
Okay. Thank you for taking my question, sir. The first question is about your smartphone business. You deliver very strong performance in last few quarters. Can you share more colors, what you have done in the past to achieve this result? Where are you in terms of the products or the channel in Europe? Do you have enough channel and product offering in Europe? Thank you. This is the first question. The second question is about your internet business. I think you change your strategy from the, how should I say, the smartphone plus the AIoT to the smartphone multiply with the AIoT. I think AIoT is a key strategy for you for, I think, more than one year. Do you see any financial benefit in terms of either the internet service or which is driven by your internet AIoT investment? Yeah.
Okay. Yeah, thank you. Thank you for the question. Regarding to the European market, actually, we have been in European market for, I think, almost three years. Three and a half, or more than three and a half. Two and a half years, almost three years. Actually, in European market, actually, we go all channels. We started from the open market. We, through the years, established a very strong partnership with the traditional offline channels, including the big players like MediaMarkt and others. We open Xiaomi authorized stores across the major European countries, major cities. also we are operating mi.com in many of the European markets, including France, Spain, Germany. also we partner with the online players, local online players like Amazon, like Cdiscount in France. Amazon in almost every market. that's the traditional existing channel in Europe, which are the major channel.
The European market is very different from the Asian market, also from the China market. They also have 50% of the smartphone are sold through carrier channels. Through the years, actually starting from year 2019, late 2018 and 2019, we have established a strong partnership with the major European operators, including almost everyone, Vodafone, Telefónica, Orange, everyone. Now we see the strong growth from that segment as well. Thirdly, I think our brand has been gradually accepted or become well-known in many of the Western European markets, including, especially in Spain. Now in France, Italy, and Germany. Not only in smartphones, but also we are offering many, we call it ecosystem product, including the scooters, the air purifier, the wristband, many others, even rice cookers. We make a lot of friends or make a lot of people using our products.
That help us to generate a lot of traction and also brand recognition. That's, I think, the major reason for the growth. Now, if you look at the market share number, we grew from, in Q1, I still remember, our market share in Western European market was about 10%. Now, become the 12.4%. Within one quarter, actually, we grew 2%. In overall European market, including Eastern Europe and Western Europe, now our market share is close to 17%. you see the potential. I still see a lot of potential to grow in the second half and also next few years. we are very excited about the future opportunity. That's the European market. Now, let's talk about the strategy. Our strategy is 5G Smartphone + AIoT. This strategy was developed or defined in the last year 2019. Now we do a little bit upgrade.
We call it Smartphone x AIoT. I think it means we emphasize the connection between those two technology and product. We emphasize the multiplier effect of that. We have number to show that our smartphone users, if they are also our AIoT product users. The retention rate is higher. People would like to enjoy the user experience, the experience using our smartphone and AIoT together. That's very important to us. We'll continue to build, how to say, to improve the user experience, invest into that area of technology. That's why we just launched a new feature in our MIUI OS. We call it Mi Share. With Mi Share, you can easily access to different devices around you, around your family, around your house, with your smartphones, with your AI speakers, with different sizes of screens, TVs, laptops. Make your life even easier.
We'll continue to do that. I don't know if Steve and others will have other comments.
No, I have nothing further to add.
Okay. Thank you.
Thank you. Our next question comes from Piyush Mubayi with Goldman Sachs in Hong Kong. Please go ahead. Thank you.
Thank you. Could we just return to the China market and assess two things? First, your internet MAU and the progression of that number through 2Q, and how you think that could accelerate into 3Q and into 2021. The second question, again about China smartphones, is could you assess the strengths and weaknesses of your distribution network in the country? In contrast that with some, the other markets that you may have done, you may have gained market share that's probably better. What changes could be made in place ahead of potentially major structural change in the smartphone market share. Thank you.
Yeah. Thank you for the question. The first question is related to the future of internet service revenue, right? I think there are several reasons for the Q2 revenue. I think we see a strong growth in the advertising revenue, gaming, and also the internet revenue generated from the TV and the content business segment. Actually, we were facing a little challenge on the internet financial fintech business because of the pandemic. That's one of the biggest challenges we are dealing with. I think in the long run, after the recovery from the pandemic, we will see a better opportunity in the future. Number one. Number two, actually, if you look at the number, actually, how to say, we diversify our internet revenue. Now our internet revenue generated from outside of the smartphone related internet revenue from China, actually, we see a new growth area.
For example, in the TV content area, we see a growth and also overseas internet service revenue also grew significantly because of our installation base, our smartphone market share increased globally. That's also a good signal for us for the future. I don't know if, Steve, you have anything to add.
Yeah. on the user base front, I think if you look at the global and UI MAU used on the smartphone, we grew 23% year-over-year. it's growing robustly. outside of the smartphone, if you look at our TV MAU, grew at 42% year-over-year.
Yeah.
All these growing users actually bringing us more monetization, which contributes to a lot of the growth that Raymond mentioned about. China MAU has been stable over past quarter, and I think the MAU is a big function of the market share of the China market. I think as we talk about how we want to progress and continue to gain share with the strategies including successful entry in the higher market, including using our efficiency to make 5G technology more accessible. I think as a company, we are confident as the 5G continues to proliferate, we'll be able to have a better opportunity to gain more share in China, which will then drive the growth in MAU.
Oh, the second question is related to the China distribution channel. Actually, we are working very hard to build or further establish our offline channel. We are now building our Xiaomi stores and also Xiaomi authorized stores, and also we are building our partnership with our carrier partners as well. At the same time, because we are coming from online company, we'll continue to strengthen our business performance in the mi.com and also the third party online channels like jd.com and Tmall market. Still working in progress in the offline channels. We see a pretty good signal. It's different than the other market in Europe because the offline market has been strong for many, many years. Their offline market is very mature. The market structure actually is very different than the Chinese domestic market, so we use a different strategy.
We keep exploring which is the most efficient way of distributing our product and service in China domestic market.
Thank you.
Thank you.
Thank you. Our next question comes from Gokul Hariharan with JP Morgan in Hong Kong. Thank you.
Yeah, thanks for taking my question. My first question is on the internet finance side. Could you talk a little bit about what you have done to kind of control some of the exposure given some of the challenges that we have faced in the internet finance business? You also talk about changing the nature of the business towards more supply chain finance, et cetera. Could you talk a little bit about what you're doing in that front? As well as maybe add a little bit on any impact from some of the regulations and the consolidation that we are seeing in the consumer finance side. My second question is on the MIUI user base, especially on the AIoT front. I think you did mention that the retention rate is really rising for smartphone users who are also using Xiaomi AIoT devices.
Are there any early examples of monetization or some kind of cross-marketing that you're able to offer and increase your internet service revenues from this AIoT user base? I know that we had doing a fair bit of TV monetization with the rising install base. Beyond the TV side, could you give some examples of some of the early efforts on that front? Thank you.
Yeah, I'd like to let Steve answer the question for you.
Okay. Thanks a lot for the question. I'll first start with the first question is in relation to the internet finance. First I just want to clarify, we're sort of not shifting focus from consumer to the industry finance. I think when we look at our Xiaomi finance business, we always see the long-term potential, and that's centered around two parts. One part is providing service to our user. This is on the retail side. The second part is leveraging more value chains to develop supply chain financing solutions. These have always been the two key parts that we are concurrently developing. I think one part on the retail side that people are very focusing on is because we mentioned in the retail announcement that our internet service gross margin was impacted by the increasing provision of consumer loans.
I think from a long-term perspective, we continue to feel like Xiaomi as a platform with data, with users, and with the strength in balance sheet, we feel like this is finance. It's a good and long-term business for us. Unfortunately, I think in the short term, what we're facing is the whole industry is facing headwinds, and on top of that, there is a pandemic impacting. For the past few quarters, we have been proactively strengthening our risk control, meaning we are raising the bar and trying to only serve the more high-quality users. Despite that, you'll see in the first quarter and the second quarter, I think we have increased the credit loans for the provisions. I think overall, the trend, as we've been controlling the risk for a couple of quarters already, I think that from a trend perspective, is positive.
On the other side, we continue to very actively develop new supply chain solutions. I think the idea is to be able to leverage a large supply chain, both for ourselves and also a lot of our ecosystem companies. We develop supply chain finance solutions. These solutions will empower all the supply chain companies, not only our suppliers, but our supplier suppliers, to enable everyone to be able to get finance and credit more easily. It's not entirely a balance sheet business. It's partly balance sheet, but a lot of it is actually technology solution, which we're developing right now. That was the first question regarding internet finance. Second question was sort of on the user base of IoT, right?
On IoT, I think Xiang Zong talked about more emphasis on smartphone x AIoT because we see a very clear synergetic effect between the products. I think one example we talk about is retention, right? People or smartphone users who have also connected IoT devices on their smartphone, from the data we're seeing their retention is much higher. We're also seeing that people who buy IoT devices, they're buying more and more, right? If we look at last year's users and look at the average number of IoT devices over 12 months, that number actually increased by over 25%. I think these are very positive and synergetic effects. If we look at the real smartphone experience, I think we're still at the very early stage.
I think we talked about that multiple times, and I think it's easy to understand majority of people in this call, right? I don't think we have a smartphone experience yet. The clear focus for us is really executing smartphone-kind AIoT strategy and to continue to strengthen our leadership in IoT, this AIoT space, meaning having more and more people buy IoT device, connected them to the smartphone, and start to use a smartphone to connect to devices. We believe long term this should have a very good monetization potential. I think one number we show, right? Is for AI assistant actually reached MAU, actually reached 78 million and grew at the rate of 57%, right?
I think the idea is once we connect everything, a lot of different entry points, including smartphone, including AI assistant, including TV with the time spent with the user engagement, it should bring a monetization opportunity. the focus at the moment is really to have everybody to start having a smart living experience.
Understood. Thank you.
Thank you. Our next question comes from Lynn- Jen Tsai with Morgan Stanley. Please go ahead. Thank you.
Hi. Thank you for taking my question. my question is really regarding the expenses, the OpEx. just wonder, is there a priority where you want to spend those resources? I'm also more interested in knowing whether there is a direction more towards the domestic or to the overseas, because it sounds like throughout the call, you are planning to do more the offline channel in the China market as well. also because if we look at this simply on the second quarter, it looks like in the overseas market, there's ongoing spending as well. how should we think about this? could you also let us know how should we think about the trend going forward, too? Thank you.
We will continue to focus on the technology areas. For example, the 5G technology and also the AI technology and also camera, fast charging kind of technology a lot.
This year, actually, our spending on R&D probably will be more than CNY 10 billion. Over 25% growth, actually, Q2. Our R&D expenses in Q2 were 25% growth over a year. We'll continue to spend more R&D dollars on those key technology areas. This is the number one. Also China market, no doubt. China market is a very important market. It's the most important market for us. We'll continue to invest into that Chinese domestic market. At the same time, actually, we will continue to expand our business, our footprint to the major market. For example, Europe, Asia-Pacific, and also Turkey and other markets. Also, actually from year 2019, we entered a new market, like Africa and Latin America. Right now they are doing well. We'll continue to grow the international. International market, actually, the potential is very big.
It's a 1.5 billion, 1.6 billion smartphones shipment every year. That's a big market for us. We had that strategy a couple of years ago, three or maybe four years ago. We'll execute that strategy firmly. This is what I see the trend is.
I'll just supplement quickly one point. I think what you see this quarter is the operating expense ratio has increased quite a lot.
Yeah.
I think what happened is because of the pandemic or revenue slowdown. if you look at the investment we're making, the R&D investment we're making, the sales and marketing investment we're making-
Branding
branding investment we're making, we did not slow down. I think we continue to see great market opportunity. we'll continue to maintain our pace as original for future growth.
Okay. just to a bit follow up on this. despite of the recent changes in the macro environment, is it fair to say you haven't really switched the resources that you are willing to put I mean, the allocation of resources you are willing to put into overseas versus the domestic mobile market?
Yes. Despite the environment, actually, we execute our strategy. Even in the very difficult time periods like the Q1 and Q2. Actually, we see a slowing down of the smartphone market. We still keep our spending, our investment in R&D and also in sales and marketing and channel. That's a proof for our, how to say, determination to grow further. The overseas market, the same thing. We will continue to grow that market. Actually, because we have a very diversified market opportunities that helped us actually a lot during the pandemic environment. For example, Q1, China was hit by the pandemic. The overseas market helped us. In Q2, actually, we had a bigger challenge in the overseas market. We have diversified the market alternative, which is good for the long-term goals.
Yeah. Due to the time constraint, we'll now take the last question.
Thank you. Our last question comes from Tina Wu with Credit Suisse in Hong Kong. Thank you.
Thanks for taking my questions. I have two questions. The first one is about the IoT business, because the second quarter seems like the growth is actually slowing much due to the pandemic impact. Would like to know is about the domestic market as well. If the recovery is in progress. What's the outlook in the second half? That could we see the momentum to come back or do we need to generate more promotion and/or advertisement to push the IoT in domestic and market? Also the overseas recovery. This is the first questions. The second one is about the gross margin in smartphone business. Because we also expect company could gradually gain share in China market with the dual engine and also the multiplied synergy strategy going forward strengthen the China market presence.
This may also affect the gross margin going forward because the competitions in the market still are very severe. What should we expect that going forward, how the company can manage the gross profit margin in smartphone business? Thanks.
Thank you. The first question is related to the IoT business. In Q2, actually, the IoT business grew slightly. It's slower than our original plan. I think it's mainly due to the pandemic. The market was gradually recovering, still, we had many challenges in the Q2. For example, the TV business. The total market was in the downtrend, actually, in Q2. The TV installation was an issue for many families or consumers in Q2 still. Also, overseas market, the same thing. That's the major challenge we have been facing. In the future, actually, you see there still are uncertainties because of the pandemic. The India market, the European market, and the Latin market, still those areas or countries, there are still uncertainty on the pandemic. We still see that's a potential risk for us. We're working very hard.
We are monitoring the progress very closely for the second half. We also be very cautious about the impact from the pandemic. The gross margin in smartphone, actually, in my opinion, in our business model, we can maintain a high single digit, the gross margin. Actually, Q1 or Q2, we want to push 5G smartphone very aggressively. We invest a lot in the marketing. We want to drive the cost down so that we can let as many people as possible to use 5G devices. That could impact our gross margin in Q1 and Q2. In the second half, actually, you'll see we will have more 5G models, but also we have a very strong entry-level devices. For example, in the presentation I mentioned, there's a very strong product we call the Redmi 9A. It's an entry-level device. I think that should be the best entry-level device ever.
I think we'll ship a lot, not only to China's domestic market, but global market as well. The ASP of that phone is only CNY 499. With that volume, actually, you will see the big volume. Also, it will impact the gross margin. Do you agree?
Yeah.
Yeah. Thank you.
Thank you.
Okay. Thank you all for joining today. We will now conclude the call. Thanks, Wang Xiang, for joining the call. Good night.
Yeah. Thank you very much for taking the call.
Thank you. This concludes the conference call today. Thanks again for joining us. You may now disconnect. Goodbye.