Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 2020 first quarter results. I am Steve Lin, the Director of Core Finance and Joint 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 Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, company's financials prepared in accordance with IFRSs. Joining us on the call today are our President and Acting CFO, Mr. Wang Xiang. To start with, Mr. Wang will review the 2020 first quarter business and financial performance.
Following that, we'll move on to Q&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-19 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 the cash donations to China and other countries around the world. In the first quarter of 2020, we delivered solid results despite the challenging environment, reflecting the strength and resilience of our business model. In the first quarter of 2020, our total revenue was CNY 49.7 billion, up to 13.6% year-over-year. Adjusted net profit for the period was CNY 2.3 billion, 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. 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 CNY 49.7 billion, up 13.6%. The first point I would like to talk about is the impact of COVID-19 on our business. The first quarter, our global smartphone shipment actually increased while 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 had also rebounded strongly and largely recovered. Looking ahead, let me summarize the short-term impact of COVID-19 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. What we are seeing is that in 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 third week of May, the activations 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 third 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 13th in Mainland China. Upon its launch, Mi 10 Pro ranked number one in DXOMARK for overall camera photo, video, and audio performance. Mi 10 series has been well-received by the market. Two months after the launch, shipments of Mi 10 series in Mainland China had already exceeded 1 million units.
The third key point I'd like to talk about is our overseas business. In the first quarter, Xiaomi further strengthened our presence abroad. Our overseas revenue reached CNY 24.8 billion, up 47.8% 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. I would like to further discuss our smartphone business segment. Our smartphone revenue achieved CNY 30.3 billion, showing a robust growth of 12.3% year-on-year, with smartphone shipments totaling 29.2 million units. In the first quarter, we introduced highly competitive 5G smartphone products across different key price points, and continued to gain market share in the 5G smartphone market. Our flagship Mi 10 series 5G smartphone models ranked in the top three by sales volume in CNY 4,000-CNY 6,000 premium segment, according to the third-party statistics.
Our high-end priced models, Redmi K30 5G, Redmi K30 Pro series, and the Mi 10 Lite 5G series, also expanded our 5G portfolio. In the first quarter, our 5G smartphone market share reached 14% in mainland China, according to the third-party statistics. Our high 5G penetration rate, premium smartphone rollouts, and the growth in developed markets, our smartphone ASP has increased by a great extent. In the first quarter of 2020, our smartphone ASP increased by 7.2% year-on-year, with a 13.7% year-on-year growth in the overseas markets, and an 18.7% year-on-year growth in mainland China. On top of product rollouts, we launched our latest version of MIUI. We call it MIUI 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 the IoT segment. Our IoT lifestyle products revenue was RMB 13 billion in the first quarter 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 first quarter of 2020, Xiaomi continued to expand our global leading consumer IoT platform. According to IDC, Xiaomi was the largest consumer IoT platform in the world in terms of number of connected IoT devices as of December 31st, 2019. This number further grew to 252 million units as of March 23rd, 2020, up 42.6% year-over-year. Moreover, the number of users who have five or more devices connected to the company's IoT platform reached 4.6 million, an increase of 67.9%.
In March 2020, our AI system, Xiao Ai, had 70.2 million MAU, an increase of 54.9% year-over-year. In March 2020, our Mi Home app had 40 million 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 the overseas markets. In the first quarter, global smart TV shipments reached 2.7 million units, up 3%, despite the decline in global TV market according to AVC. The first quarter of 2020, we ranked number 1 in mainland China for five consecutive quarters. As a leader in the smart TV market, Xiaomi continue to explore future of smart TVs. In March 2020, we launched the Redmi Smart TV Max 98", priced just CNY 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 TWS earbud, wristband, mini electric scooter, and robot vacuum cleaner increased by 619.6%, 56%, 40.7%, and 40%, respectively. According to Canalys, we ranked number one in terms of wearable band, electric scooter shipments, and third in terms of TWS shipments globally in 2019. Moving on to internet service segment. In the first quarter, internet service revenue reached CNY 4.9 billion, up 38.6% year-over-year. Revenue from advertising, online gaming, and other internet value-added service grew by 16.6%, 80.5%, and 62.1%, respectively. Our user base continued to increase in Q1 2020.
In March, global MIUI MAU increased by 26.7% to 330.7 million, while MIUI MAU of mainland China reached 111.5 million, an increase versus previous quarter. Our smart TV MAU, meanwhile, grew by 46.8% to 30.4 million, and our paid users grew by 53.7% year-on-year to 4.3 million. Advertising. Our advertising business remained solid in a difficult environment. While advertising budget was decreased, our advertising revenue reached CNY 2.7 billion, a year-on-year growth of 16.6%. The growth was mainly driven by, number 1, diversified monetization methods, including search, pre-installation, and newsfeeds. 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 four major drivers for the advertising business growth. Gaming.
In the first quarter, our online gaming revenue increased by 80.5% to CNY 1.5 billion, mainly due to, number 1, fast-growing online gaming market in mainland China. 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 first quarter of 2020, our internet service revenue coming from outside of advertising and gaming, including FinTech, Youpin e-commerce, TV internet, and overseas internet services, continue its strong growth momentum with 71.5% year-over-year and representing 38.1% of our total internet service revenue. Let's move on to our overseas business. In the first quarter, we continued to expand our global footprint. Revenue from overseas market in the first quarter of 2020 amounted to CNY 24.8 billion, an increase of 47.8% year-over-year. For the first time, accounting for half of our total revenue.
That's a very important milestone. Following our continuous internationalization endeavors, our overseas smartphone shipments achieved remarkable growth in the first quarter of 2020. Let's give a few examples. In Latin America, Europe, and Africa, our smartphone shipments grew by 236.1%, 68.3%, and 284.9% year-on-year respectively, according to Canalys. 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 four vendors, according to Canalys. Also, for the first time, we have become number 1 smartphone brand in Spain, with 28% market share, and a year-over-year growth of 46% by shipments, according to Canalys. In India, we continue to expand our market share, and we were the number 1 smartphone brand in terms of shipments for the 11th consecutive quarter.
We have also leveraged our strength 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%. I'd like to go over the financials. We achieved financial performance in the first quarter 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 CNY 2.3 billion, which grew by 10.6%. Note that our profit was impacted by foreign exchange loss of RMB 503 million this quarter. We have witnessed an upward trend in our overall gross margin from 11.9% in the first quarter of 2019 to 15.2% in the first quarter 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 67.1% respectively. During the pandemic outbreak, we also effectively controlled our operating expenses from CNY 6.9 billion in the last quarter of 2019 to CNY 5.3 billion in the first quarter 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 the inventory days, which was impacted by the pandemic.
If you look at the absolute inventory level, our inventory, excluding the provision of impairment, was CNY 34.8 billion, only slightly more than CNY 33.5 billion in the first quarter of 2020. The increase was mainly from raw materials inventory, which increased from CNY 15.4 billion to CNY 22.2 billion because of the production disruption in Q1 2020. The finished goods inventory, on the other hand, declined from CNY 18 billion to CNY 12.6 billion. 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 31st, 2020, we have invested in more than 300 companies with an aggregate book value of approximately CNY 32.3 billion, representing year-over-year growth of 11.4%. In May 2020, one of our investee companies, Kingsoft Cloud, successfully listed on Nasdaq with a market capitalization of $4.8 billion on the day of its IPO, with Xiaomi owing 30.8% of its shares. In conclusion, Xiaomi is still in the rapid growth stage. Unfortunately, like many other businesses, we are facing certain challenges this year due to the epidemic. Nevertheless, the demand for smartphone and IoT products has proved to be resilient. We have also comparatively 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 lifting 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 investors, please limit your questions to a maximum of two.
Ladies and gentlemen, we will now open for questions. If you'd like to register for a question, please press star one on your telephone. Thank you. Our first question comes from Piyush Mubayi with Goldman Sachs. Please go ahead. Thank you.
Thank you for taking my question. My first question is 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 % of these sales that you were able to book in the first quarter came in from the premium smartphone category? Also a feel for the premium ARPU that you've been able to post on the internet revenue lines on the back of that. My second question is related to the pattern of normalization that you talked about through the months of April and May. 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 related to the premium tier smartphones and its ARPU, right? Actually, yes, we are very happy to see the first result of our Mi 10 series. We launched that product in mid of February just post the China pandemic, the outbreak. The market response was very, very good. After two months of the launch, we shipped over 1 million already. This is the first time in Xiaomi history our selling price reached to CNY 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-tier. That also give us confidence on the dual brand strategy. Regarding to the ARPU, we don't disclose the specific ARPU number by models. I can share with you, for example, the gaming revenue.
Actually, the ARPU from the premium tier smartphone actually has a higher ARPU. It's very, very easy to understand because of the performance of the device. With the flagship processor, with the optimized graphic processor and the software capability, that works better for the complicated games. I think that's understandable. The second question. Okay. The second question regarding to the second quarter. Yes, the second quarter will get the hit because if you look at the history, China outbreak happened in the late January and early February, right? At that time, actually, most of the Chinese cities were locked down. In Europe and India, the outbreak in Europe happened in, I think, early March. Gradually, many of the European cities were locked down. 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. What I can share isThe smartphone product and also some of the ecosystem product actually are kind of resilient. The people need smartphone much better than the other device. The first product or market rebound will be smartphone related. We are very confident with the recovery of the European situation. We are confident in June timeframe and beyond, we'll see a good recovery. Right now, based on the current number, our smartphone activation in Europe is 90% above the normal situation. That's a good signal for us. The message in Q2 is still a challenging quarter for us. India is kind of, we are still monitor very closely.
India also situation improved a lot in the last maybe 10 days. Right now, also we see probably 50%-60% of the recovery, activation recovery. We'll continue to monitor the progress there.
May I also clarify, when you talk about normalization, when you look at gaming revenue that was so strong in the first quarter, can I just make sure that there was nothing abnormally strong that was both because of COVID and people staying at home? Such 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. Actually, number one, we will maintain those customers. Of course, we gain those customers, we will maintain them, number one. Number two, for other segment, internet service segment, will also grow. For example, the advertising, and other internet services also grow. I think for us, it's opportunity to grow, to keep those customers in our service.
Thank you.
Next question, please.
Thank you. Our next question comes from Lisa Tsai with Morgan Stanley. Please go ahead. Thank you.
Thank you for taking my question. First of all, just congrats on the results for first quarter. My first question is actually regarding the overseas markets. You mentioned that especially your market has recovered to like 90% of the pre-COVID-19 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? As for India, you also just mentioned in the past 10 days, you have rebounded quite quickly. 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 in our business model, we are 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. Our customers still buy our product through online channel. That's our strength, Number 1. Number 2, I think we always pursue a very big performance and price ratio. People who know us will buy our product first. This I think also help us, make us less impacted compared to our peers in other industry. Regarding to India, we are very closely monitoring the development there. Now it's 60%, so it highly depends on the pandemic situation in India and other markets as well.
Okay. Thank you. My second question is regarding the gross margin on the internet service. Because it looks like because gaming is so strong, and also together with the advertising, that should have the positive impact to gross margin. Instead, gross margin looks like a decline. Could you just give us what's the revenue mix here, especially for the others and just within these categories, if there any gross margin decline, which is the part that we see the more impact from? Thank you.
Maybe I can answer. Also, I'd like Steve to add more. I think, yes, the gross margin percentage-wise is below the expectation. The real reason is actually during the pandemic, our FinTech business. It was in the challenging time. We want to minimize our risk. We raise the bar. Also, we see a lot of challenges there. That's one of the reasons the gross margin was not as high as we expected. I think that's the major reason. Maybe Steve can add more.
Yeah. I think the gross margin was 57.1% this quarter, which is lower compared to last quarter and also from a year perspective. I think the main reason is what Wang Xiang 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. I think that is the biggest reason. I think there's also a reason on the product mix. If you observe, I think this quarter, the growth of gaming and the growth of other value-added service outgrew advertising. Among our three segments, advertising has the highest gross margin. From a product mix perspective, if the percentage of advertising decreased, that will also cause a decrease in gross margin.
Yeah.
Okay. Thank you.
Next question, please.
Next question comes from Leping Huang with CICC. Please go ahead. Thank you.
Okay. Thank you for taking my question. The first question is about after this pandemic in China. What's your latest view on the 5G adoption rate in China this year for the market and for yourself?
Actually, the company strategy will continue to drive the 5G adoption in China and the market where it has the 5G. That's why in January, we launched the first model, Redmi K30 5G. It's the first model, as I mentioned, below CNY 2,000. We'll continue to drive that. I think that the carrier, if you want to drive a new market in the wireless industry based on the past experience, there are two challenges. Number one is the technology adoption, the coverage, right? I believe all the three Chinese carriers, they will accelerate the network build-up. They will build more base stations across the country. That will improve the signal coverage significantly in the rest of the year. That will help drive the 5G adoption. That's number one. Number two 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. You can drive more applications, better ecosystem. We are determined to invest into the 5G market to grow the 5G subscriber base together with our partners, specifically the operators.
Do you have some.
Among all the Chinese vendors, we have 14%, right? The total 5G smartphone.
25%. 26%.
Yeah, 26% of our smartphone sold were the 5G device. In the 5G adoption, actually, we are 14%.
5G smartphone market share.
Yeah. 5G smartphone share, we are 14%.
Yeah.
Okay. The second question is, you mentioned that you see the demand is recovering in both the Europe and India. How about the supply side? Because I think, I remember you have most of the smartphone India are made in India, right? Does your production in India recover and I remember in end of March, there was some logistic issues between China and Europe. How this works now? Yeah. Thank you.
Yeah. The China supply ecosystem, I think, is 100% recovered already. As the in India, just, I think it's still at the very early stage. The Indian government just lift the restriction gradually, actually. We are working right now 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 that.
Will you face a similar, how to say, short of inventory issue when the market recovers? That you don't have enough product to sell?
Yes. Unfortunately, yes.
Are you-
Working very hard. We prepared everything. The production restarted. The factory just reopened. We are working very hard on that. At the same time, monitor the pandemic situation in that market.
Okay.
Yeah.
Thank you very much.
Actually, this is an encouraging message because Indian 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. Just go ahead. Thank you.
Great. Thank you. Yeah, my first question is about smartphone. I just want to get a sense, because as you had explained, a lot of markets shut down and reopened. Can we say in the second quarter, the smartphone shipment, particularly compared to the first quarter, can we say it has some quarter by quarter growth? Also can you help give us a sense on the growth situation in China market and the overseas? In first quarter, you really see the ASP and the gross margin on smartphone, both of them have increased. Can we still proceed the uptrend in the second quarter or third quarter? Thank you.
We don't give any specific guidance on the shipment for Q2. Actually, as I mentioned, April was very challenging because of the pandemic, because of the lockdown. We see a very fast recovery in Europe. We see a pretty good recovery in India right now. We are working very hard on the market recovery. I think the key is in the second half of May and also June. Yeah, we remain confident and also monitor the environment very well carefully. This is what we can do.
How can we see the ASP and margin for the smartphone in the second quarter and third quarter?
Yeah. I'd like Steve to answer the question in regard to the margin.
I think the ASP increased 7.2% this quarter year-on-year. The driver is clear. I think one is the 5G smartphone. I think in the beginning of the year, we always talk about 5G smartphones because the higher BOM cost, the ASP will be higher. 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. The higher percentage premium smartphone also help or is increased both in China and overseas market. I think from a year-on-year perspective, a lot of those drivers are still true. Of course, if you look from it, you also have to consider product mix, right?
For example, I think Xiang earlier mentioned about what we're trying to do is use our efficiency to continue to bring the 5G smartphone price to a lower price point to enable more people to enjoy the 5G technology. Also need to consider in that factor when you think about ASP. Overseas, what we're seeing, the driver has always been the mix between the developed market and the emerging market. A market like Europe will naturally have a higher ASP versus market like India. If the growth rate in the developed markets like in Europe is faster than regions like India, then naturally the overseas ASP will increase. That's on the ASP side. The gross margin for smartphone this quarter was 8.1%, so it increased both from a quarter-to-quarter perspective and also from a year-on-year perspective.
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. Relatively, I think the first quarter gross margin for smartphone was quite normal.
Okay. Can I have another follow-up question on internet? Because you mentioned about advertisement sometimes very high growth in first quarter, even have the virus situation. Because it sounds like a lot of internet companies, they are spending on advertisement this year, it actually has some decreasing. How come your advertisement can make it equal? I mean, how do you work with the business or the forecast for this year? Also the same thing, because you mentioned about the slowdown coming or slow growth from FinTech. I just want to know about you guys' expectation on this business. Thank you.
Okay. I will answer the first half. You talk about the question related to the advertising revenue growth, right? Other internet companies, they decreased their forecast from the advertisement. 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 vertical markets, new vertical market for us, so that we work with those vertical market players very closely. Number 1. That's an increase. Number 1. Number 2, actually, after years of effort, we continue to optimize our recommendation algorithm so that we can offer a more efficient recommendations to every customer so that we can get a better return for both our customers and ourselves. That's the 2 major reasons for us to grow our advertising revenue.
The second half is related to FinTech.
Yeah, FinTech. I think as Steve already explained.
Yeah
the FinTech. Yeah, you continue.
On the advertising, I just want to supplement that. I think there's another factor is we're just more diversified. In addition to China, right? I think a lot of peers.
Yeah.
you compare to are China companies. While the China advertising market is challenging, more overseas advertising is actually growing very fast.
Yes.
I think having the fast-growing overseas also help us to achieve that growth in the first quarter.
Thank you. Very important.
As for the sort of the FinTech outlook, I think we didn't disclose the FinTech number. I think the only number we share is Youpin FinTech, TV internet and overseas, right? These four, which are less related to the China smartphone, grew at a rate of 71.5%. You see the internet service continue to diversify, and these segments continue to grow very fast. That also included FinTech. I think in reality, I think we also mentioned in the last quarter call is we do realize, although we see the very long-term prospect of the FinTech business for Xiaomi, I think in the short term, we realize that there's a pandemic situation, and the overall credit environment in China is also more challenging. I think starting from fourth quarter last year, we start to control the FinTech business.
We have lowered approval rate of our new customer and control the credit quality. From a year-on-year perspective, there's growth. From a Q-on-Q perspective, I think for FinTech, for this year, at least for short term, we'll try to control the pace. Okay. Thank you. Yeah.
Next question, please.
Next question comes from Gokul Hariharan with JP Morgan. Please go ahead. Thank you.
Hi. Thanks for taking my question. My first question is on the internet side. When I look at your year-on-year reported numbers of subscribers of MAU, almost two-third of it is now outside of China. Steve, you just mentioned some of the advertising business is starting to grow quite fast in overseas market. Could you give a little bit more color on how that is progressing, maybe especially in the two big overseas markets that you're in? Europe, probably a higher ARPU market, but a newer market for you, as well as India, probably a lower ARPU market, but a much more established market where you'll be number one for two years plus.
Okay, thanks a lot.
Steve will answer that question.
Thanks a lot for that question. We just talked about overseas advertising actually drive the growth for us in first quarter. We didn't disclose the detailed number, our overseas internet service is still growing very fast, driven by both the growth in user and also the growth in ARPU. The progress, I think we're very happy as a company. We're very happy with the progress of our overseas internet service. Right now, I think in the past, we talked about the different stages of developing overseas internet service. The first stage is obviously developing a large enough user base.
Yeah.
Which right now in India we have, but in a lot of overseas markets, I think the focus is still more on the user rather than monetization. The second phase is to give the service. I think on that front, we continue to do, and we see the progress each quarter. I think in this quarter, I think we share a number that we're quite happy with. If you look at globally within the Xiaomi smartphone or browser, actually become number 1 browser among globally smartphone. With the more service penetration on that, we'll be able to start to monetize a bit more. 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 our overseas advertising customer base.
In addition to leveraging big advertising platforms for them to fill our inventory, we are also making very good progress on building the relationship with advertisers. On that, we'll also be able to further drive up the output we have. That's what we can share. Thanks.
Okay. Thank you. My second question is on China market share. I think there seems to be a little bit of a Beijing sign initially on 5G. Could you think about it, I think the market is so consolidated now with four players, basically four 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 what you're trying to do from addressing the channel gaps or any of the?
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. 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. Efficiency will be the key. We'll continue to do that. I think we will have a partnership with the carriers, for example, for the 5G adoption for this year. This is also what we are going to do in 2020 in China. Overseas market, I think in Europe, for example, In 2020 Actually, we started building a partnership with our carrier partners in Europe since early 2019.
We'll continue to grow or strengthen that partnership in year 2020. You 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 time constraint, this will be last question.
Thank you. The question comes from Thompson Wu with UBS. Please go ahead. Thank you.
Shang-jen, Steve, thank you for taking my question. Hope you are both doing very well in this current environment. I just have one last question. I think we'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 five vendor specifically in Latin America. Could you just talk a little bit about the channel strategy, both on carriers distribution, but also on production supply chain? I know that's generally been a pretty challenging market to break into, given some of the import tax issues. Just on Latin America, can you walk through your strategy there?
Okay. It's a good question. Actually, we started investing in Latin American market I think in the early 2019. Our headquarter, we built our first office in Mexico. The Latin American market is very fragmented. As you mentioned, there's many different countries, but except Brazil, they are all Español, Spanish spoken territory. Yeah, that's good for us because we have many friends in Spain. We can share a lot of content with Español. That's good. Also in Mexico specifically, it's a carrier-driven market. There is the biggest wireless operator called América Móvil. In Mexico, it's called 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 Xiaomi stores.
We build our offline channels on our own, and also we build a partnership with the América Móvil. 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 or 70% of the smartphone market are through carrier channels. We will work with our carrier very closely. Brazil is an exception. Brazil is a Portuguese language spoken country. It's different. They have regulations on the local manufacturing. Do local manufacturing yet. We have a Xiaomi store there to demonstrate our product, just demonstrate and sell product there. We focus more on the Spanish-spoken countries at the moment.
Okay. I guess just to follow up on that, for the time being, most of the strategy is really focused on carrier relationships on smartphone. It'll require a little bit more time to roll out the IoT portfolio. Is that correct?
Actually, this is very important. Actually, almost every carrier, they all are very interested in building a partnership with us on the ecosystem products. The challenge for both of us is several things. Number one is the local certification. It takes a lot of time because every country, every market, they have a different certification requirement. We have to do it one by one. It takes time and engineering effort. That's number one. Number two, a lot of carrier partners, they want us to do some kind of customization for them for the ecosystem IoT products. This also takes time. We are working with them. We'll solve the problem one by one. I think it will happen. It takes a little time.
Okay. Thank you very much for your time, Raymond.
Actually, we'll take one more question. Yes, please link up the next question. Over.
Sure. The last question comes from Kyna Wong with Credit Suisse. Please go ahead. Thank you.
Thank you. Thanks for taking my question as the last question. Can I just try two small questions? First is about, because there's some fears of China retaliation in regard to the Huawei restrictions and some may also worry about any risk in banking or 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 we see a large outflow and would like to have more detail, explanation from the company. Thank you.
Yeah, 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 important technology partner for Qualcomm, for Google, and also a good partner for many European technology companies. We are working with them very closely. We don't see any reason that we don't continue to strengthen the partnership. This is number one. 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. In that sense, I think, well, I don't see any reason that we don't continue to strengthen the partnership. Everything so far is going well. That's the number. We are very confident. Now we are in 90 different markets.
I think we'll add more market in the future.
I'll address about the cash flow question. I think there's a larger operating cash flow outflow in the first quarter this year. I think there are a couple points. I think first quarter is typically the low season of the cash flow. If you look at the company history or operating cash flow generation, 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 all the working capital days we do cost. From a full year perspective, it has been a very strong cash flow generation. First quarter is typically a low season. The reason is because a lot of purchase was made in Q4 that we need to pay the supplier in first quarter. That's a typical case.
For this quarter, I think there's a few specific other situation considerations. One is in preparation of the 5G, which have higher bill of material, the payable we have was higher. That's coupled with a lower receivable, the lower cash received this quarter because of the pandemic. Because of the pandemic, we get less money from the customer, typically, this quarter. That's one. The second is, the inventory also increased quarter-by-quarter. Inventory increase was really not a big issue. It was mainly by the pandemic. I think Wang Xiang mentioned it earlier during the presentation. The increase in inventory is really in the raw material. Because of the production disruption, so we have a lot more material not produced into finished good in the first quarter.
That caused the absolute amount of inventory increase, which again, is a cash outflow. Okay.
Thank you.
Yeah. This will conclude the call tonight. Thanks everyone for joining.
Thank you. Thank you for joining.