Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 20 21st quarter results. I am Steve Lin, the Director of Corporate Finance and Joint Company's 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, uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources of Xiaomi.
This presentation also contains some unaudited non IFRS financial measures that should be considered in addition to, but not as sensitive for company's financials prepared in accordance with IFRS. Joining us on the call today are our President and Acting CFO, Mr. Wang Zhang. To start with, Mr. Wang will review the 20 2Q1 business and financial performance.
Following that, we'll move on to Q and A session. I'll turn the call over to Mr. Wang.
Good evening, everyone. Thank you for joining our 2020 Q1 earnings call. Before we start, I'd like to say that as the world is fighting against the COVID-nineteen pandemic, Our thoughts and prayers are with everyone, in particular, the people who have been deeply affected. During this difficult time, we seek to provide support, including medical supplies and cash donations to China and other countries around the world. In the Q1 of 2020, we delivered solid results despite the challenging environment, reflecting the strength and resilience of our business model.
In the Q1 of 2020, our total revenue was RMB 49,700,000,000 up to 13.6% year over year. Adjusted net profit for the period was $2,300,000,000 up 10.6%. Our business achieved solid growth across all business segments. Our smartphone revenue was up 12.3% year over year. Our IoT and the lifestyle product revenue was up 7.8% year over year and our Internet service revenue achieved a remarkable 38.6% growth.
Before I go over business performance of each segment, I'd like to provide some key business updates of the group. In Q1 2020, the total revenue was 49.7 bps, up 13.6%. The first point I would like to talk about is the impact of COVID-nineteen on our business. In the Q1, our global smartphone shipment actually increased, while our global smartphone market declined by 13%. We also achieved highest growth among major smartphone companies worldwide according to Canalys.
Our Mainland China business also demonstrated resilience during the pandemic. In March, our Mainland China smartphone shipments had already rebounded to the pre pandemic level, and our smart TV shipments have also rebounded strongly and luckily recovered. Looking ahead, let me summarize the short term impact of COVID-nineteen in our different markets. In Mainland China, as previously mentioned, our smartphone business has gradually returned to its normal level in March 2020. In India, for example, the strict lockdown measures imposed in late March significantly impacted sales.
Since the start of May, India has begun to lift the restrictions on production and sales activities in phases. And what we are seeing is that the area where sales have resumed consumer demand has rebounded in a similar pattern in Mainland China. The other overseas markets lockdown measures are expected to affect our Q2 financials. Even so, we are seeing similar recovery pattern in markets with easing lockdown measures. For example, if you look at the number of daily smartphone activations each week.
As of the 3rd week of May, the excavations in Europe had returned to over 90% of the daily average in January. We plotted the weekly activation trends across all key international markets As the 3rd week of May in Europe, as previously mentioned, smartphone activations had returned to over 90% of the pre pandemic level. In Southeast Asia and the Middle East, smartphone activations had actually surpassed the pre pandemic level. The market with lowest level was India, which had about around 60% of the pre pandemic level. The second key point I would like to talk about is our progress of premium smartphones.
We launched our Mi 10 series on February 13 in Mainland, China. Upon its launch, Mincan Pro ranked number 1 in DXO Mark for overall camera photo, video and audio performance. Mi 10 series has been well received by the market 2 months after the launch. Shipments of the NINTEN series in mainland China had already exceeded 1,000,000 units. The 3rd key point I'd like to talk about is our overseas business.
In the Q1, Xiaomi further strengthened our presence abroad. Our overseas revenue reached $24,800,000,000 up $47,800,000,000 year on year and contributing to half of the total revenue. This is a historical high. At this point, we have become a truly international company. Now I would like to further discuss our smartphone business segment.
Our smartphone revenue achieved RMB30.3 billion, showing a robust growth of 12.3% year on year, with smartphone shipments totaling 29,200,000 units. In the Q1, we introduced highly competitive 5 gs smartphone products across different key price points and continue to gain market share in the 5 gs smartphone market. Our flagship mid-ten series 5 gs smartphone models ranked in the top 3 by sales volume in RMB4000 to 6,000 premium segment according to the 3rd party statistics. Our high end priced model, Rami K30 5 gs, Renmin K30 Pro Series and the Mi 10 Lite 5 gs series also expanded our 5 gs portfolio. In the Q1, our 5 gs smartphone market share reached 14% in mainland China according to the 3rd party statistics.
Because of our high 5 gs penetration rate, premium smartphone rollouts and growth in developed markets, Our smartphone ASP has increased by a great extent. In the Q1 of 2020, our smartphone ASP increased by 7.2% year on year with 13.7% year on year growth in the overseas markets and 18.7% year on year growth in Mainland China. On top of product rollouts, we launched our latest version of Miu Eye. We call it Miu Eye 12 with many technological breakthroughs. The highlights include our remarkable and proprietary animation technology, which brings our users ultimate visual experience and our enhanced privacy protection capability, which has won multiple highly renowned privacy protection certificates.
Now let's move on to the IoT segment. Our IoT lifestyle products revenue was RMB13 1,000,000,000 in the Q1 of 2020, up 7.8% year over year. The lower than previous growth rate was mainly due to impact of the pandemic, especially for certain product categories such as large home appliances. In the Q1 of 2020, Xiaomi continued to expand our global leading consumer IoT platform. According to iResearch, Xiaomi was largest consumer IoT platform in the world in terms of number of connected IoT devices as of December 31, 2019.
December further grew to 252,000,000 units as of March 23, 2020, up 42.6% year over year. Moreover, the number of users who have 5 or more devices connected to the company's IoT platform reached 4,600,000, an increase of 6.7.9 percent. In March 2020, our AI system, Xiaifengxue, had a 70,200,000 MAU, an increase of 54.9% year over year. In March 2020, our Mi Home app had 40,000,000 MAU, an increase of 53.4%. Let's talk about TV.
Our smart TV business continued to maintain its leading position in both mainland China and overseas markets. In the Q1, global smart TV shipments reached 2,700,000 units, up 3% despite the decline in global TV market according to ABC. The Q1 of 2020 will rank the number 1 in Mainland China for 5 consecutive quarters. As a leader in the smart TV market, Xiaomi continued to explore future of smart TVs. In March 2020, we launched the revenue smart TV Max 98 priced just RMB 19,999.
It brings ultra large high end TVs to the mass market price segment. Although certain product categories that require installation such as large home appliances were affected during the pandemic, Many of our key IoT products maintained strong growth during this challenging time. In Q1, sales of our Wi Fi router increased by 124%. Sales of our PWS Airband, West Bank, Mini Electric Scooter and Robot Vacuum Cleaner increased by 619.6%, 56%, 40.7% and 40%, respectively. According to Canada List, we ranked number 1 in terms of wearable band, electric scooter shipments and the 3rd in terms of TWS shipments globally in 2019.
Moving on to Internet service segment. In the Q1, Internet service revenue reached $4,900,000,000 up 38.6 percent year over year. Revenue from advertising, online gaming and other Internet value added service grew by 16.6%, 80.5% and 52.1%, respectively. Our user base continued to increase in Q1 2020. In March, global MiWay MAU increased by 26.7 percent to $330,700,000 while MiWay MAU maintained of mainland China reached $111,500,000,000 an increase versus previous quarter.
Our smart TV MAU, meanwhile, grew by 46.8% to 30,400,000 and our paid users grew by 53.7% year on year to 4,300,000. Advertising. Our advertising business remains solid in a difficult environment, while advertising budget was decreased. Our advertising revenue reached RMB2.7 billion, a year on year growth of 16.6%. The growth was mainly driven by: number 1, diversified monetization matters, including search, pre installation and news feeds number 2, diversification of advertising customers number 3, optimization of our recommendation algorithm number 4, rapid growth of overseas Internet advertising revenue.
Those are the 4 major drivers for the advertising business growth. Gaming. In the Q1, our online gaming revenue increased by 80.5% to RMB1.5 billion, mainly due to number 1 fast growing online gaming market in Mainland China, higher online gaming number 2, higher online gaming average revenue per user from premium smartphone users. Diversification is a key growth driver for our Internet service revenue. In the Q1 of 2020, our Internet service revenue coming from outside of advertising and gaming, including Fintech, European e Commerce, TV Internet and overseas Internet services continue its strong growth momentum with 7.1% 7.71.5 percent year over year and representing 38.1% of our total Internet service revenue.
Next, let's move on to our overseas business. In the Q1, we continued to expand our global footprint. Revenue from overseas market in the Q1 of 2020 amounted to RMB 24,800,000,000, an increase of 47.8% year over year. And for the first time, accounting for half of our total revenue. That's a very important milestone.
Following our continuous internationalization in Dallas, Our overseas smartphone shipments achieved remarkable growth in the Q1 of 2020. Let's give a few examples. In Latin America, Europe and Africa, our smartphone shipments grew by 236.1%, 58.3% and 284.9% year on year respectively according to CanelList. In particular, Western Europe, in an overall declining smartphone market of 19%, we achieved year on year growth of 79% by shipments, becoming the only company with positive year on year growth rate among the top 4 vendors according to Tantalus. Also for the first time, we have become number 1 smartphone brand in spec with 28 market share 28% market share and a year over year growth of 46% by shipments according to Canada's.
In India, we continue to expand our market share, and we were the number one smartphone brand in terms of shipments for the 11th consecutive quarter. We have also leveraged our strengths in India to expand to adjacent markets. For example, in Q1, we ranked number 1 in Nepal for the first time in terms of shipments with a market share of 30.9%. Now I'd like to go over the financials. We achieved financial performance in the Q1 of 2020.
Our revenue increased by 13.6% year on year. Our gross profit increased 44.9% year on year. If you subtract our gross profit by operating expenses, the figure grew 109.6%. Our adjusted net profit was $2,300,000,000 which grew by 10.6%. Note that our profit was impacted by foreign exchange loss of RMB503 1,000,000 this quarter.
We have witnessed an upward trend in our overall gross margin from 11.9 percent in the Q1 of 2019 to 15.2% in the Q1 of 2020. In the past quarter, the gross margin of our smartphones, IoT and the lifestyle products and the Internet service reached 8.1%, 13.4% and 57.1%, respectively. During the pandemic outbreak, we also effectively controlled our operating expenses from RMB6.90 billion in the last quarter of 2019 $5,300,000,000 in the Q1 of 2020, which implies a decrease in our OpEx ratio from 12.1% in Q4 2019 to 10.6% in Q1 2020. Our working capital also remained healthy and efficient in Q1. Compared to Q1 2019, our accounts receivable turnover days remained stable at 13 days.
Our account payable turnover days increased from 96 to 121 days, while our inventory turnover days increased from 65 to 71 days. Let me elaborate on the reason for the increase of inventory days, which was impacted by the pandemic. If you look at the absolute inventory level, our inventory excluding the provision of impairment was $34,800,000,000 only slightly more than $33,500,000,000 in the Q1 of 2020. The increase was mainly from raw materials inventory, which increased from $15,400,000,000 to $22,200,000,000 because of the production disruption in Q1 2020. The finished goods with inventory, on the other hand, declined from RMB18 1,000,000,000 to RMB12.6 billion.
So while overall inventory days increased, from the operational perspective, we were actually short of supply. Last but not least, I would like to briefly talk about our investment performance. As of March March 31, 2020, we have invested in more than 300 companies with an aggregate book value of approximately RMB 32,300,000,000 representing year on year growth of 11.4%. In May 2020, one of our investing companies, Kingsoft Cloud, successfully listed NASDAQ with a market capitalization of $4,800,000,000 on the day of its IPO, with Xiaomi owing 30.8% of its share. In conclusion, Xiaomi is still in the rapid growth stage.
And unfortunately, like many other businesses, we are facing certain challenges this year due to the epidemic. Nevertheless, the demand for smartphone IoT products have proved to be resilient. We have also, compared lately less impacted because of our advantages in online channels, our value proposition in offering users a superior price to performance and diversified businesses. Looking forward, the pandemic is expected to impact our business performance in Q2 2020. However, with gradual leasing of the lockdown measures, we have witnessed a quick rebound in many of the markets where we operate.
This ends my prepared remarks. We shall now open the line for questions.
Thank you, Mr. Wang. In order to allow more questions from more business, please limit your question to a maximum of 2.
Ladies and gentlemen, we will now open for questions. Thank you. Our first question comes from Piyush Mubayu with Goldman Sachs. Please go ahead. Thank you.
Thank you for taking my question. My first question was concerning the premium handsets and the way that it's changing or seemingly changing the Internet revenue lines. Could you give us a sense of what percentage of these sales that you were able to book in the Q1 came in from the premium smartphone category? And also feel for the premium ARPUs that you've been able to post on the Internet revenue lines on the back of that? And my second question is related to the pattern of normalization that you talked about through the month of April through the month April May?
And when you look forward towards the quarter, what is the level of impact that you could foresee in Q2 following a very strong Q1? Thank you.
The first question is related to the premium tier smartphones and it's ARPU, right? So actually, yes, we are very happy to see the first result of our new 10 series. We launched our product in mid of February during the China just post the China pandemic, the outbreak actually, the market response was very, very good. So actually, after 2 months of the launch, we shipped over 1,000,000 already. This is the first time in Xiaomi history, our selling price reached to $5,000 and above price segment.
We are very happy with the result. We'll continue to offer more and more premium flagship devices with the mid band. That's also give us confidence on the dual brand strategy. Regarding to the ARPU, we don't disclose the specific ARPU number by models, but I can share with you, for example, the gaming revenue, actually the ARPU from the premium tier smartphone actually has a higher ARPU is very, very easy to understand because of the performance of the device. With the flagship processor with optimized graphic processor and a software capability that works better for the complicated games.
I think that's understandable. That's the second question. Okay. That's regarding to the second question regarding to the Q2. Yes, the Q2 will get a hit because if you look at the history, China operate happened in late January early February, right?
At that time, actually, most of the Chinese cities were locked off. But in Europe and India, the outbreak in Europe happened in, I think, early March. So gradually, the many of the European cities were locked down. So that gave some impact on the business. India, even more serious in the late of March, everything was shutting down because of the government policy.
We believe that's the right strategy for Indian people. But I can what I can share is the smartphone product and also some of the ecosystem product actually are kind of resilient. So they are the people need smartphone much better than the other device. So the first product or market rebound will be smartphone related. So we are very confident with the recovery of the European situation.
We are confident that in June timeframe and beyond, we will see a good recovery. Right now, the number is based on the current number, the activation, our smartphone activation in Europe is 90% above the normal situation. That's a good signal for us. But the Q2 still the message is Q2 still a challenging quarter for us. India is kind of we are still monitoring very, very closely.
India also situation improved a lot in the last maybe 10 days. Right now, also we see probably 50% to 60% of the recovery activation recovery. So we'll continue to monitor the progress.
May I also clarify, when you talk about normalization, when you look at gaming revenue that was so strong in the Q1, can I just make sure that there was no nothing that's normally strong, it was both because of COVID and people staying at home such that, that pattern will not recur in Q2? Thank you.
Yes. For some reason, to be very honest, people spend more time on smartphones, right? They will play more games with a smartphone. But we will actually, we want to number 1, we will maintain those customers. Of course, we gain those customers, we will maintain them, number 1.
Number 2, for other segment, Internet service segment, we'll also grow. For example, the advertising and other Internet services also grow. I think it's for us, it's opportunity to grow, to keep those customers in our service.
Next question, please.
Thank you. Our next question comes from Li Chen Tsai with Morgan Stanley. Please go ahead. Thank you.
Thank you for taking my question. And also, first of all, just congrats on the results for Q1. My first question is actually regarding the overseas markets. So you mentioned that you especially your market has recovered to like 90% of the pre COVID-nineteen level. Could you share with us, do you think it's a function of the overall the industry recover?
Or do you think there is a certain extent of your share gain in this area of the market? And then as for India, you also just mentioned in the past 10 days, you have to rerun it quite quickly. So when will you probably expect it could recover to the pre pandemic level?
Okay. I think the Q1 performance is due to several reasons. Number 1, I think our business model. In our business model, we are very, very focused on the online channels, right? Both in China and in many of the countries, although there were a lot of lockdowns in many places, but the online channel was still open.
So we still our customers still buy our products through online channel. That's our strength, number 1. Number 2, I think we always pursue a very, very big performance and price ratio. People will yes, people who know us will buy our product first. This is I think also help us make us less impacted compared to our peers and other industry.
So regarding to India, we are very closely monitoring the development there. Now it's 60%. So it highly depends on the situation, the pandemic situation in India and other markets as well.
Okay. Thank you. And my second question is regarding the gross margin on the Internet service. Because it looks like because gaming is so strong, so that should have and those would spread with the advertising, that should have some the positive impact to gross margin, but instead gross margin looks like a decline. So could you just give us what's the revenue mix here, especially for the others and just within this category, which is if there is any gross margin decline, which is the part that we see the more impact from?
Thank you.
Yes. Maybe I can answer and also I'd like to Steve to add more. I think, yes, the gross margin percentage wise is not it's below the expectation. The real reason is actually in during the pandemic, our FinTech business actually was in the challenging time. We want to minimize our risk.
So we'll risk the bar and also we see a lot of challenges there. So that's one of the reasons the gross margin was not as high as we expected. That's the I think that's the major reason. Maybe Steve can add more.
Yes. So I think the gross margin was 57.1% this quarter, which is lower compared to last quarter and also from a year perspective. So I think the main reason is what Xiaozhou mentioned is the declining gross margin of our FinTech business. Because of the pandemic, to be conservative, we have increased the loan loss provisions to cope with the situation. So I think that is the biggest reason.
I think there's also a reason on the product mix. So if you observe, I think this quarter, the growth of gaming and the growth of other value added service outgrow advertising. So among our 3 segments, advertising has the highest gross margin. So from a product mix perspective, if the percentage of advertising decrease, that will also cause a decrease in gross margin.
Okay. Thank you.
Next question, please.
Our next question comes from Li Peng Huang with CICC. Please go ahead. Thank you.
Okay. Thank you for taking my question. The first question is about the after this pandemic in China. So what's the latest view on the 5 gs adoption rate in China this year for the market and for yourself? Actually, the company's strategy will continue to be drive the 5 gs adoption in China and the market where it has the 5 gs.
So that's a market that's why we launched the January, we launched the first model, RANMI K30 5 gs. It's the first model, as I mentioned, below RMB 2,000. We'll continue to drive that. I think the carrier, if you want to drive the new market in the wireless industry based on the past experience, there are 2 challenges. Number 1 is the technology adoption, the coverage, right?
I believe all the 3 Chinese carriers, they will accelerate the network build up. They will build more base stations across the country. So that will improve the signal coverage significantly in the rest of the year. That will help drive the 5 gs adoption. That's number 1.
Number 2 is the handset, the terminal price. The terminal cost is critical for the new technology adoption because you have to reach to the mass market. You have to drive more people to use it, to buy it. Then you can drive more applications, better ecosystem. So we are determined to invest into the 5 gs market to grow the 5G supplier base together with our partners, specifically operators.
And also among all the Chinese vendors, we have a 14%, right? The total 5 gs smart 25% of our smart of the award the 5 gs device. And in the 5 gs adoption, actually, we are 14% Okay. The second question is the you mentioned that you see the demand is recovering in both the Europe and India. So how about the supply side?
Because I think I remember you have most of the smartphone in India are made in India, right? So, the sales production in India recovered and how the I remember in the end of March there was some logistic issues between China and Europe, how this works now? Thank you. Yes. The China supply ecosystem, I think, is 100% recovered already.
In India, I think it's still very early stage. The Indian government just lift the restriction gradually actually. So we are working right now, so it's very hard with our manufacturing partners to get the workers back to the factory and help to ramp
up the production. That's what
we are doing now. It takes some time, but we are working very hard on So we are faced a similar, I'd say, short of inventory issues, short of inventory issue when the market recover, but you don't have enough product to sell. Yes, unfortunately, yes. We have some we prepared the everything. But yes, the production just restarted.
So the factory just reopened. So yes, we are working very hard on that. And at the same time, monitor the pandemic situation in that market. Okay. Thank you very much.
Pretty actually very it's an encouraging message because the linear market recovered almost 60%. It's a good signal, but we need to work very hard on the supply side. Okay. Next question, please.
Thank you. Our next question comes from Robert Chen with Bank of America Merrill Lynch. Please go ahead. Thank you.
Okay. Thank you. Yes, my first question is about smartphone. I just want to get the same like because of you have explained a lot of market shutdown and reopen. And can we say in the Q2 the smartphone shipments, particularly with the V and E compared to
the Q1, can we say they have some
quarter by quarter growth? And then also can tell because of the spend on the growth generation in China market and the overseas. Because of in Q1, you really see the ASP gross margin on smartphone, both of them have increased. Can we still have received kind of the uptrend in the Q2 or Q3? Thank you.
So we don't give any specific guidance on the shipment for Q2. But we are actually as I mentioned,
April
was very, very challenging because of the pandemic, because of the lockdown. But we see a very fast recovery in Europe. We see a pretty good recovery in India right now. So we are working very hard on the market recovery. I think the key is in late second half of May and also the June.
Yes, June. So yes, we remain confident and also monitor the environment very, very carefully. This is what we can do.
And how do we see the ASP and margin for the smartphone in
the cellular insertion?
Yes. I'd like Steve to answer the question regarding for the margin.
So I
think the ASP increased 7.2% this quarter year on year. And the driver was clear. I think one is the 5 gs smartphone. I think in the beginning of the year, we always talked about 5 gs smartphone because of the higher BOM cost, the ASP will be higher. So I think that is a very clear driver in China that will continue to sustain from a year on year perspective.
I think the second one is also the premium smartphone. So the higher percentage premium smartphone also help or is to increase both in China and overseas market. So that's I think from a year on year perspective, a lot of those drivers are still true. But of course, if you look from it, you also have a consistent product mix, right? So for example, I think Sean earlier mentioned about what we're trying to do is use our efficiency to continue to bring the 5 gs smartphone price to a lower price point to enable more people to enjoy the 5 gs technology.
Look, also need to consider in that factor when you think about ASP. Overseeing, what we're seeing, the driver has always been the mix between the developed market and emerging market. So a market like Europe will naturally have a higher ASP versus market like India. So if the growth rate in the developed markets like in Europe is faster than regions like India, then naturally, the overseas ASP will increase. So that's on the ASP side.
So the gross margin for smartphone this quarter was 8.1%. So it's increased both from a quarter to quarter perspective and also from a year on year perspective. So there's not a lot of difference in sort of in the gross margin driver that we talked about. I think Q4 was typically lower because of seasonality. So relatively, I think the Q1, our gross margin for smartphone was quite normal.
Okay. And then I have another follow-up question on Internet. Because of the I mean, you mentioned about advertisement sometimes very high growth in Q1 even had the virus situation. And because of it sounds like a lot of Internet companies are spending on advertising this year, it actually has some decreasing. But how come your advertisement business can make this big growth?
I mean, how do you
or
the forecast for this year? And also the same thing, because you mentioned about slowdown, I mean, all slower growth from Fintech. I just want to know about you guys' expectations on this business.
Okay. Let me I will answer the first half. So you talked about the question related to the advertising revenue growth, right? Other Internet companies, they decreased their forecasting from the advertisement. So actually, we did several things in Q1 and we'll continue to do that.
Number 1, we diversified or we increased our customer base for the advertisement. Instead of serving the major, the big Internet companies, we developed many, many vertical markets, new vertical market for us so that we work with those vertical market players very, very closely, number 1. So that's an increase, number 1. Number 2, actually, we after years of effort, we continue to optimize our recommendation algorithm so that we can offer more efficient recommendations to every customer so that we can get a better return for both our customers and ourselves. That's the 2 I think that's 2 major reasons for us to grow our advertisement advertising revenue.
So the second half has been baked into Fintech. Yes, Fintech, I think Steve already explained the Fintech, yes, continue. So on the advertising,
I just want to supplement that. I think there's another factor is we're just more diversified. So in addition to China, I think a lot of peers you compare to are the China companies. So while the China advertising market is challenging, more overseas advertising is actually growing very fast. So I think having the fast growing overseas also help to achieve that growth in the Q1.
Thank you. Very important.
As for the sort of the fintech outlook, right? So I think we didn't sort of disclose the fintech number. I think the only number we share is Yongqing, fintech, TV, Internet and overseas, right, these 4, which are less related to the Chinese smartphone at a rate of 71.5%. So you'll see the Internet service continue to diversify, and these segments continue to grow very fast. So that also included FinTech.
But I think in reality, I think we also mentioned in the last quarter's call is we do realize, although we see the very long term profit of the fintech business for Xiaomi, I think in the short term, we realize that the there's a pandemic situation and the overall credit environment in China is also more challenging.
So I
think starting from Q4 last year, we start to control the Finette business. We have lowered approval rate of new customer and control the credit quality. So but from a year on year perspective, there's growth. But from a Q on Q perspective, I think for FinTech, we will for this year, at least for a short term, we'll try to control the pace.
Okay. Thank you.
Next question please.
Our next question comes from Gokul Hariharan with JPMorgan. Please go ahead. Thank you.
Hi. Thanks for taking my question. My first question is on the Internet side. When I look at your VUI reported number of subscribers of NAU, almost 2 third of it is now outside of China. And Steve, you just mentioned some of the advertising
business is starting to grow quite fast in overseas market.
Could you give us a little bit more color on how that is progressing maybe especially in the 2 big overseas markets that you're in? Europe, probably a higher R2 market, but a newer market for you as well as India, probably a lower market, but a much more established market where you'll be number 1 for the whole year's plan.
Thanks a lot for answering that question. Thanks a lot for that question. So for we just talked about overseas advertising actually drive the growth in the first quarter. We didn't disclose the detailed number, but our overseas Internet service is still growing very fast, driven by both the growth in user and also the growth in ARPU. So the progress, I think, we are still we're very happy as a company, we're very happy with the progress of overseas Internet service.
Right now, we talked about the I think in the past, we talked about the different stages of developing overseas Internet service. The first phase is obviously developing a large enough users base, which right now in India we have. But in a lot of overseas markets, I think we still the focus is still more on the user rather than monetization. And the second phase is to give a service. So I think on that front, we continue to do and we see the progress each quarter.
I think in this quarter, I think we shared a number that we're quite happy with. If you look at globally within the Xiaomi smartphone, our browser actually become number 1 browser among globally smartphone. So with the more service penetration on that, we'll be able to start to monetize a bit more. But of course, in a lot of key markets we have, like India, I think the overall online advertising market is still quite small. I think another thing we are also actively doing is to continue to increase and or oversee advertising customer base.
So in addition to leveraging big advertising platforms for them to sell for inventory, We are also making very good progress on building the right relationship with advertisers. On that, we'll also be able to further drive up the ARPU we have. So that's what we can share.
Thanks. Okay. My second question is on China market share. I think there seems to be a little bit of an aging sign initially on 5 gs. But could you think about it, I think the market is so consolidated now with 4 players basically, 4 local players dominating the market.
What are the strategies apart from just the product side, I think, which you've talked about quite a few times? Could you talk a little bit about the could you talk a little bit about what you're trying to do from addressing the channel gaps or any of I think in China, we'll continue to build our online strengthen our online and offline channels. For example, offline, we have around 2,000 stores. So we'll continue to strengthen those coverage by improving the efficiency, deliver our product to the store with the most efficient way. That's a very important part of our business model.
We always want to deliver or offer very high performance devices at affordable prices. So efficiency will be the key. We'll continue to do that. And also, I think we will do have a partnership with the carriers, for example, for the 5 gs adoption for this year. This is also what we're going to do in 2020 in China.
Overseas market, I think in Europe, for example, we have been in 2020 actually, we started building the partnership with our carrier partners in Europe since early 2019. We'll continue to grow or strengthen our partnership in year 2020 and we will see more and more partnership with global carriers in Europe and in many other markets as well. That's a very important channel strategy for us in the international market. Okay. Thank you.
Thank you. Due to the timing of the strength, the last question.
Thank you. The question comes from Thompson Wu with UBS. Please go ahead. Thank you.
Shandong, Steve, thank you for taking my question. I hope you are both doing very well in the Sprint environment. I just have one last question. I think you've covered a lot of ground this evening. I think the one area I wanted to focus on is on Latin America.
There's a little bit more language in your results talking about the progress you're making in that region. I think now you are a top 5 vendor specifically in Latin America. Could you just talk a little bit about the new channel strategy both on carriers, distribution, but also on production and supply chain? I know that's generally been a pretty challenging market to break into given some of the tax and import tax issues. So just on Latin America, can you walk through your strategy there?
Okay. So it's a good question. Actually, we started investing in Latin American market in the I think in the early 2019. So our headquarter, we built our 1st office in Mexico. So the Latin American market is very fragmented.
As you mentioned, there's many, many different countries. But except Brazil, they are all Espanao, Spanish spoken territory. So because we can yes, that's good for us because we have many, many friends in Spain. We can share a lot of content with Aspenio. So that's good.
And also in Mexico specifically, it's a carrier driven market. There is the biggest, what is operator called American Movie. In Mexico, it's called the Telcel. They represent, I think, maybe 90% I think around 90% of the Mexico market. We are building a partnership with them.
We have a Xiaomi store. We have a shop in shop in their store. We have a Xiaomi stores. We build our offline channels on our own and also we build a partnership with the American movies. That's one example.
We'll continue to do that. In many other countries, we build our Xiaomi stores and also work with the carriers because in Latin America, the 70%, maybe 60% to 70% of the smartphone market are through carrier channels. We will work with our carrier very, very closely. Brazil is an exception. Brazil is a Portuguese language spoken country.
So it's different, but we have not we don't have they have regulations on the local manufacturing. We have not do local manufacturing yet. We have a Xiaomi store there to demonstrate our product, just demonstrate and sell product there. We are refocus more on the Spanish spoken countries at the moment.
Okay. And I guess just to follow-up on that for the time being, most of the strategy is really focused on sharing relationships on smartphone. It will require a little bit more time to roll out the IoT portfolio. Is that correct?
Actually, this is very, very important. Actually, almost every carrier, they all are very, very interested in building a partnership with us on the ecosystem products. The challenge for both of us is several things. Number 1 is the local certification takes a lot of time because every country, every market, they have different certification requirements. We have to do it 1 by 1.
It takes time and engineering effort. That's number 1. Number 2, a lot of carrier partners, they want us to do some kind of customization for them in the even in for the ecosystem IoT products. This also takes time. We are working with them.
We'll solve the problem 1 by 1. I think it will happen. It takes a little time.
Okay.
Actually, we'll take one more question. Yes, please think of the next question.
Sure. And the last question comes from Tina Wong with Credit Suisse. Please go ahead. Thank you.
Thank you. Thanks for taking my question. That's the last question. But can I like to try to 2 small questions? First is about because there is some fears of China retaliation in regards to the Huawei restrictions and also worry about any risk in my banking or like any restrictions on Qualcomm that affect your smartphone business?
I think this is the first one. The second is actually about the cash flow in the first quarter that see a large household and would like to have more detailed explanation from the company. Thank you.
So yes, okay. Thank you for the question. Actually, in Xiaomi's spirit or the vision, we want to be a friend to everyone. We are a very, very important technology partner for Qualcomm, for Google and also a good partner for many, many European technology companies. So we are working with them very, very closely.
We don't see any reason that we don't strengthen continue to strengthen the partnership. This is number 1. And also, our vision is to how to say, to change or improve people's life through our innovation. The innovation is combined by our own technology innovation together with our partners. So in that sense, I think well, I don't see any reason that we don't continue to do the strengthen the partnership.
So everything so far is going well. So that's the we are very confident will go to now we are in 90 different markets. I think we'll add more market in the future.
And Elle, just about the cash flow question. So I think there's a larger operating cash flow outflow in the Q1 this year. So I think a couple of points. I think first quarter is typically the low season of the cash flow. So if you look at the company history, our operating cash flow generation is very strong.
As a lot of you guys follow, we have a negative cash conversion cycle, meaning when we grow revenue, actually, it should be operating cash inflow, assuming the working capital base resume cost. And so despite from a full year perspective, it has been a very strong cash flow generation. 1st quarter is typically below season. And the reason is because a lot of purchase was made in Q4 that we need to pay the supplier in Q1. So that's a typical case.
I think for this quarter, I think there's a few specific other situation considerations. I think one is in preparation to 5 gs, which has higher bill of material, the payable we have was higher. That's coupled with lower receivable the lower cash received this quarter because of the pandemic. So because of the pandemic, we get less money from customer typically this quarter. So that's one.
And the second is the inventory also increased quarter by quarter. And but inventory increase was really not a big issue. It was mainly by the pandemic. I think, Xiang Zhou mentioned it earlier during the presentation. The increase in inventory is really in the raw material.
So because of the production disruption, so we have a lot more material not produced into finished goods in the Q1. So that cost, the absolute amount of inventory increase, which again is a cash outflow.
Okay.
So this will conclude the call tonight. Thanks, everyone, for joining.
Thank you. Thank you for joining.