Good evening everyone. Welcome to Xiaomi Corporation 2018 annual result conference call.
2018年小米交了一份非常亮丽的成绩单。
In 2018, Xiaomi had very strong annual results.
总收入1749亿人民币，同比增长了52.6%。
Our total annual revenue was RMB 175 billion, and our year-on-year growth was 52.6%.
调整后的净利润达到了86亿人民币，同比增长了59.5%。
Our adjusted net profit was RMB 8.6 billion, with a year-on-year growth of 59.5%.
据IDC的数据，在去年全球手机销量下滑4.1%的前提下，小米手机销量同比增长了32.3%。
According to IDC, Xiaomi achieved a 32.2% year-on-year growth in smartphone shipments while the global market declined by 4.1% over the same period.
按我们的财报，小米在去年总计销售了1.19亿支智能手机。
According to our own data, we sold 118.7 million units of handsets in 2018.
取得这么良好的业绩的背后，是小米在技术上的持续的多年的投入。
One of the main reasons why we could achieve such results was because of the investment in innovation that we have done over the many years.
我举两个例子。
I'm going to give you two examples.
第一个例子是拍照。
First, on photography.
我们刚发布的小米9在相机方面排在全球第四，Mi MIX 3并列全球第六，都达到了世界顶级水平。
Our recently launched Mi 9 achieved the number 4 rank according to DXOMARK, and our Mi MIX 3 achieved the number 6 rank globally. This is a very high global standard.
视频拍照，小米9达到了全球排名第一。
According to the same ranking, Mi 9 ranked number 1 for video.
这个评价是全球最权威的相机评价机构DXOMARK评价的。
This is a ranking from DXOMARK, which is the most authoritative camera rating company in the world.
今年2月，小米在巴塞罗那发布了小米MIX 3的5G版。
At the Mobile World Congress in Barcelona in February, we launched our first 5G phone, Mi MIX 3.
小米在技术上取得一系列的成绩的背后，是小米去年的研发投资高达58亿人民币。
The reason why we could achieve such a breakthrough was because we invested RMB 5.8 billion in R&D expenses last year.
整个研发投入比上一年增长了超过80%。
If you compare this with our R&D expense in 2017, the growth was over 80%.
第二点，小米在设计上又取得了新的进展。
In terms of design, we also continue to win international global awards.
小米去年获得了两项国际设计的顶级大奖。
We won two international top design awards last year.
一项是德国iF的设计金奖，一项是德国红点的最佳设计奖。
The first is Germany's iF Design Gold Award, and the second is Germany's Red Dot: Best of the Best Award.
获得了主要的设计大奖，去年全年总计43项。
We won 43 major design awards in 2018.
第三点，质量。小米在质量上获得了非常大的进步，获得了去年三个中国最权威的质量大奖。
In terms of our quality improvement, we were widely recognized by the most authoritative quality organizations in China last year. We won three of the most authoritative prizes in this year.
我举个例子，我们在中国大陆的手机的故障的返修率同比下降了43.7%。
In terms of numbers, our Chinese smartphone fault feedback ratio has decreased by 44% in 2018 year-on-year.
有了这样的质量的底气，我们今年1月份开始试点18个月的超长质保，这是目前苹果、三星、华为质保水平的超越了50%。
Because of such significant quality improvements, particularly over the last year, we were able to offer an 18-month-long warranty program, which is 50% higher than the industry standard set by Samsung, Huawei and others.
在过去的三个月，小米的手机业务产生了翻天覆地的变化。
In the last three months, Xiaomi smartphone business actually had very significant changes.
最核心的变化是把原来的红米从产品线变成了独立品牌。
The most significant of these changes is execution of our multi-brand strategy, where we separated Redmi into an independent brand.
这样的话，小米拥有了两个品牌，一个是小米，一个是Redmi。
We now have two major brands. One is called Xiaomi and the other is called Redmi.
它服务不同的人群，比如说Redmi，我们会死磕高品质和性价比。
They actually serve very different customer segments. For example, for Redmi, we will relentlessly pursue the highest price to performance ratio with the best quality in the market.
小米的话，主攻中高端手机。
Xiaomi will be used to penetrate the mid to high end market.
在过去的三个月里面，我们办了三场发布会，发布了五款产品。
Over the last three months, we have actually had and launched five new products.
一月份发布了红米Note 7，这是一款1000块到1500块的产品。
In January 2019, we launched Redmi Note 7, which is a CNY 1,000-CNY 1,500 mid-range smartphone.
2月份发布了我们年度旗舰小米9和小米9 SE。
In February, we launched Mi 9 and Mi 9 SE, which is our flagship product for 2019.
昨天发布了七八百块钱的红米7和1500到2000档的红米Note 7 Pro。
Just yesterday, we launched our entry level Redmi 7, which is below CNY 1,000 in price, and our mid range Redmi Note 7 Pro, which is CNY 1,500-CNY 2,000 in price.
都取得了惊人的成功。
All these phones have actually achieved outstanding results so far.
比如说一月份我们发布的红米 Note 7。
For example, Redmi Note 7, which was launched in January this year.
不到一个月，我们在中国就销售了超过100万支手机。
Within just one month of launch, we managed to sell more than 1 million of these units, just in mainland China alone.
而且中间还包括两个星期的春节的长假。
This month included two weeks of Chinese New Year break.
到今天为止，我们拼命生产，我们才能敞开供应。
We have been trying our best to ramp up production, it is until very recently that we can sell as much as the demand is out there.
我们供应了巨大的量，一次供不应求，花了两个月才满足了用户的需求。
We have been ramping up production very aggressively, but we couldn't fulfill all the demand until very recently.
小米9在2月4号发布，也取得了同样巨大的成功。
Mi 9, which was launched in February, had very similar levels of success.
2月20号。
It was launched on the 20th of February.
虽然我们供给了巨大的量，可是依然严重供不应求。
Even though we have actually supplied a lot of volume into the market, we are still significantly below the demand levels.
这是我们今天被用户一致批评得非常严重的问题，我们正在全力改善产品的供应。
This is one of the most critical points where our users are criticizing us today. We don't have enough supply to meet their massive demand, but we are doing our utmost to improve our supply.
这个需求甚至有一些用户误解，我们是在故意饥饿营销。
The far outstanding demand has made some consumers believe wrongly that we are controlling our supply on purpose.
以至于在今天，我们不得不向整个市场披露了我们的目标，在3月底，小米9系列的产品供应量预计会超过150万台。
Therefore, we want to make an official announcement today that our Mi 9 series supply is likely to exceed 1.5 million units by the end of this month.
我们想用这个行动来向所有支持我们的用户表达，小米绝对不是故意搞饥饿营销。
We want to use this announcement to express to our loyal users that we are not purposely curtailing our supply.
这需求远远超过了我们的想象。
It's because demand has far outstripped our expectations.
[Foreign language] Redmi Note 7 Pro.
Yesterday we launched Redmi 7 and Redmi Note 7 Pro.
也取得了空前的成功。
We have also achieved a lot of very strong initial feedback.
所以过去的五个产品，分布在五个完全不同的价位。
The five products that we launched in 2019 were in five different price points.
在今天手机市场整体下滑的情况下，小米又回到了几年前用户需求非常强烈的状态。
In a market where the global shipments of smartphones is declining, we believe that we are very optimistic about our future as we have returned to very high levels of demand as in the last few years.
有用户说，就是他们所熟悉的小米又重新回来了。
Some users anecdotally say that the Xiaomi that they are used to is back.
好，我举一个小米9为什么表现如此出色。
I'm going to give an example of why Mi 9 is performing so well in the market.
小米9的相机做得非常出色。
Mi 9's camera is very outstanding.
它是4800万像素的广角微距三摄。
It is an AI triple camera with Sony 48 megapixel image sensor.
它的画质受到了广泛的欢迎。
The photographic quality has enjoyed very widespread praise.
比它高的单反手机其实也只高两分。
The three other phones that have a higher DXOMARK score than this phone is only higher by a little bit.
那些手机比小米9的售价要贵两到三倍。
Those three phones that we mentioned just now are about two to three times more expensive than Mi 9.
所以小米9也有非常强的性价比。
Mi 9 has a very strong price to performance ratio as well.
欢迎大家有机会到我们小米之家的体验店去看一看米 9。
We welcome everybody to go to our Mi Homes to experience the Mi 9.
然后第二点，我们Redmi品牌独立以后，专注死磕高品质和极致性价比。
Now that our Redmi brand is an independent brand, the focus will be on high product quality and ultimate price-performance ratios.
为了这个计划，我们邀请了行业里面评价非常高的卢伟冰加入了小米。
In order to make sure that this brand is well run, we invited Mr. William Lu, who is a very well-respected figure in the industry, to join our company in 2019.
他有20年行业经验。
He has 20 years of smartphone industry experience.
今天我也邀请他参加了我们今天晚上的电话会议，我想请他做一个简单的介绍。
He is here on this call as well, so let's welcome him to say a few words.
大家好，我是Redmi的负责人总经理卢伟冰。
Hi everybody, I am William Lu. I am the general manager of the Redmi brand.
在这里我跟大家简单地介绍一下，Redmi在过去的不到三个月里，我们取得的一些成绩。
Let me please share with you the results of Redmi in the last three months.
如雷总刚才讲的，我们在1月10号发布了Redmi Note 7，在发布会后不到一个月的时间，我们的业绩在中国区已经超过了100万台。
As Lei Jun mentioned just now, shipment in Mainland China for Redmi Note 7 has exceeded 1 million units in less than one month after its launch in January.
那么我们预计在本月，在全球的出货会超过400万台。
We expect that global shipment for this phone will exceed 4 million by the end of this month, March 2019.
由于我们有一些产出会在海外的工厂，所以大家后面会看得到，我们在海外的出货会加快很多。
Some of this shipment will come from our international sales. You will see the proportion of international sales for this phone increase over the next few months.
在2019年，Redmi将在如下几个方面来确定我们的战略和目标。
In 2019, our strategy for Redmi is the following.
第一点，我们的portfolio。
The first is the extension into mid to high-end smartphones to enrich our portfolio.
那么在过去的时候，红米是一个小米品牌下的手机系列。
In the past, Redmi was just a sub-brand within the big Xiaomi umbrella.
那么未来它是一个独立品牌的话，我们会从原来的中低端的产品上升到中高端的产品。
Now that it is an independent brand, we will extend the smartphone market for Redmi into mid and high end as well.
第二个，原来的话，红米它只代表手机。
In the past, Redmi also only represented phones.
但是在未来的话，我们会拓展其他的品类。
In the future, we will diversify Redmi product categories as well.
那么昨天的发布会，我们同时发布了真无线蓝牙耳机和机甲的白色家电，洗衣机。
For example, at the launch event yesterday, we also launched Redmi earphones and Redmi washing machine.
那么在未来的话，我们还会推出其他的产品。
We will launch more products in the future.
第三点，我们会加快我们国际化市场推进的步伐。
Third, we will accelerate our international market expansion for Redmi.
大家知道我们在印度和印尼有着非常强的领先的位置。
A lot of you may know that we have a leading position in India and Indonesia.
今年的话，我们会加快亚洲和欧洲这些市场拓展的步伐。
This year, we will expand more aggressively into Asia and Western Europe.
并且今年我们已经进入了拉美和非洲的市场。
We have also entered Latin America and Africa this year.
那么以上三点就是我们近期的战略和目标。
This is the near-term strategy for Redmi in 2019.
谢谢伟冰。
Thank you, William.
我们的co-founder和总裁林斌也加入了今天的电话会议，他的主要精力在负责手机业务的技术、研发、运营和供应。
Our co-founder and president, Bin Lin, is also with us on the call today. His time now is spent mainly on the smartphone division's R&D, product management and strategy.
大家好，我跟大家汇报一下过去一年小米在手机研发上的成绩。
Hello, everybody, I'm going to take some time to share with you the results of our R&D in our smartphone business last year.
主要三点。
Mainly three things.
第一，我们过去一年，我们手机研发部门从年初的1000多人，成长到了年底将近3000人。
First of all, the number of engineers in our smartphone team, I think our hardware team.
手机硬件研发方面。
Our smartphone R&D team has gone from 1,000 people at the beginning of last year to 3,000 people.
To almost 3,000 people.
By this year.
而且里面有很多是在行业里面的各个领域的技术专家。
Many of these engineers are actually experts in their respective categories.
包括在刚才雷总介绍的我们拍照技术的巨大的进步背后，是很多的工程师和新加入的技术专家一起努力的结果。
For example, the rapid increase in our photographic experience is due to the hard work of many experts who have joined us.
这些技术专家不单只是拍照，他们包括器件、镜头、摄像头、模组，还有马达，还有软件算法、调教、评测，是各个细分领域的技术领域的专家。
They are not only experts in just photography. These are experts in the components within the camera, the modules, the model, the software team and the tuning team. These are experts in many categories.
所以这是第一点。第二点，我们在过去的一年时间里面，在技术上取得了很多新的突破。
Second of all, I want to share with you the different innovation that we have in the last year.
刚才雷总介绍的拍照技术有了长足进步以外，我们在小米9上还有很多的技术创新。
On top of just an increase in photographic experience for Mi 9, there's also a lot of innovation that happens in the phone.
因为技术创新太多了，所以我们这次小米9的发布会，雷总的发布会从历史上做两个小时的发布会，我们改成了做了一个星期的微博发布。
There were so many cutting edge features, we couldn't finish all the content in one launch event, and actually had to extend into a one week long social marketing campaign to be able to explain all the features in the phone.
一个星期每天雷总发8到10条的技术科普帖，详细描述我们在小米9上投入的技术创新。
We had to send 8-10 different articles on social media every single day to be able to properly explain all the innovation that has gone into the product.
从拍照到显示，到触控，到软件管理，还有Game Turbo的软件技术，是全方位的技术创新。
Not only in hardware innovation, but also in software innovation. For example, in the Game Turbo experience.
还有外观设计，还有工艺，全方位的技术创新。花了整整一个星期。
There was a lot of innovation in CMF and in design as well.
Yeah, materials, new materials。这是第二点。第三点，小米9是在过去我们创办小米这么多年以来，旗舰手机发布之后，在一个月之内能够达成将近150万的出货量的最快的成绩。
Third, Mi 9 is our first flagship product. The Mi 9 series is the first flagship product that we have launched in our history, that we could actually deliver and supply 1.5 million units just one month after launch.
这也是得益于过去一年时间，我们在供应链管理、在生产制造、自动化测试方面的巨大投入。
This is because of all the investments we made in our supply chain management, in our automated testing and in all other related fields to our supply.
对于手机研发部门来讲，未来我们会持续在专家技术、创新产品以及供应链交付上持续投入。
For our smartphone division, we will continue to invest in experts, in talent, in R&D, and in other important components that make up the phone.
好，接下来。
Thank you.
过去的八年，Xiaomi都是围绕手机来拓展我们的业务的。
Over the last eight years, Xiaomi's main strategy always revolve around the phone.
今年一开始，我们正式启动了手机加AIoT的双引擎策略。
Starting from this year, we officially launched the smartphone plus AIoT dual engine strategy.
我们把AIoT看得和手机同等的重要。
AIoT is as important to us as our smartphone business today.
对于手机业务来说，我们已经看到了5G即将来临的巨大的机会，所有的手机都会换成5G手机。
For smartphones, we see the massive 5G opportunity ahead of us. Almost all phones will be a 5G phone sometime in the future.
我相信未来几年我们的手机业务有机会再次实现在换机浪潮中的持续的爆发性增长。
I believe that our smartphone business will have the opportunity to grow very rapidly in order to capture the 5G smartphone revolution in the future.
AIoT是小米另外一个历史性的战略机遇，我们将会all in AIoT，在未来五年持续投入超过100亿人民币。
AIoT is also a very historic opportunity for us. We believe we can be pioneers in this very, very large field, and we will continue to invest up to RMB 10 billion in this in the next few years.
截至去年年底，我们的IoT平台共连接了1.51亿台设备，其中不包含手机和笔记本电脑。
As of December 2018, we have 151 connected IoT devices, excluding smartphones and laptop computers.
设备连接数同比增长了193%。
This is a 193% year-on-year growth in terms of connected devices.
其中拥有五个以上的小米IoT设备的用户数达到了惊人的230万，同比增长了109%。
We have 2.3 million users today with more than five Xiaomi IoT devices, outside of phones and laptop computers, and this number grew by 109.5% over the last year.
智能音箱是未来智能家庭的核心入口。
AI speakers will be one of the most important entry points into a smart home in the future.
我们的小爱音箱累计的出货量超过了900万台，小爱同学的月活跃数达到了3880万人。
We have over 9 million accumulated AI speaker shipments today, and our AI assistant has over 38.8 million monthly active users today.
小米在AIoT上取得的成绩，跟我们多年来在AI技术上的大量的投入是密不可分的。
The reason why we can achieve such accomplishments in AIoT is because of the large investments we have made into AI in the last many years.
我举一个例子，日经中文网统计
小米的AI专利申请数在全球排名排在第11位，在中国属于名副其实的第一阵营，远超众多的同行。
For example, nikkei.com released a report recently for the top 15 enterprises with the most AI patent applications. Xiaomi was ranked 11th globally, ranking at the front of many important companies, and has one of the most patent applications for a Chinese company today.
为了未来的持续的高速成长，我们认为重点在于全面提升管理能力。
In order to make sure that we can execute the immense opportunity ahead of us, we think the most important thing is to continue to optimize our organizational structure.
第一点是继续聚焦技术创新，成立了技术委员会，由崔宝秋博士出任主席，来持续关注我们技术创新和近万名研发人员的管理。
The first is increased focus on technology innovation through establishing the Technology Committee. This committee will be led by Dr. Cui, who will be in charge of the technical development of our 10,000 engineers.
强化总部的管理职能，成立了组织部和参谋部，协助CEO管人和管战略。
In order to strengthen the management functions of headquarters, we formed the Organization Department and the Strategic Advisory Department to assist the CEO for top management functions.
梳理业务，优化组织结构，提拔大量的年轻干部。
Third of all, we streamlined our business units and promoted a significant number of next-generation leaders to important positions within the organization.
将小米丰富的业务线重组成16个新的业务部。
We reorganized our business units into 16 more streamlined, efficient new business units.
在业务推进的过程中锻炼队伍和选拔人才。
In the process of executing our strategy, we have a system to recognize talent and promote them within our ranks.
具体业务请我们的CFO周受资来为大家详细介绍。
My name is Shou, I'm the CFO, I'll continue with the rest of the presentation on more detailed financial numbers. The first section I would like to share with everybody is our smartphone business in a bit more detail. Our smartphone revenue reached CNY 114 billion in 2018, representing a 41.3% growth. This is a year-on-year number. I see some friends are also asking us about our Q4 numbers. Our Q4 revenue for smartphones reached CNY 25 billion, representing a 7% growth from a year ago. One of the most important engines behind the growth is the increase of our smartphone ASP. As an example, our Chinese smartphone ASP grew by 17% in 2018, whereas our international ASP grew by 10% due to our expansion into more developed markets like Western Europe.
The reason for the ASP increase is because of our strategy in 2018 to strengthen our position in the mid to top-tier smartphone market. To give you a sense of our success in this strategy, 32% of our smartphone revenue in Q4 2018 actually came from phones above CNY 2,000 in price. This reflects a successful entry into the mid to high-end market. Of which, we want to emphasize Q4 2018. A lot of friends have also asked us recently about Q4 2018. Just to give everybody a recap, we launched only two new smartphone models in Q4 2018. They were respectively the Mi MIX 3 that we launched in October 2018, and Mi Play, which we launched on the 24th of December 2018.
Because Mi Play was launched so close to the end of the year, in reality, there was only one new model that was available in the market for Q4 2018, and that was the Mi MIX 3. Mi MIX 3 is a very important product for us. It is our most premium smartphone. This phone actually enhances our presence quite greatly in the high-end market. However, because it is the most premium phone, we do not actually expect a large shipment number from this product category. In Q4 2018, we had a period of adjustment to prepare for the launch of our Redmi brand and our new products in Q1 2019.
As our CEO Lei Jun mentioned just now, starting from January 2019, with the separation of the Redmi and Xiaomi brand, we have launched five new phones in 2019 so far, we are not even at the end of Q1 2019. Just as a quick recap, we launched Redmi Note 7 in January 2019. We sold 1 million units of that phone within one month of launch, we expect to sell 4 million units of that phone cumulative by the end of this month. We launched our flagship Mi 9 in February 2019, we expect to supply 1.5 million units of Mi 9 by the end of this month. We launched our Redmi Note 7 Pro and Redmi 7 yesterday, so far the feedback has been very strong.
If you look at our product launch schedule over the last few months, it is more accurate to look at it from a Q4 and Q1 perspective. We want to give a bit more detail on this, on IoT and lifestyle products. Our revenue for this business line reached CNY 44 billion in 2018, representing an 87% year-on-year growth. Of which we want to highlight the strong sales of our smart TVs. Our smart TV sales volume reached 8.4 million units in 2018, achieving a 225% growth. By the end of Q4 2018, we were the number one smart TV brand in China by shipments. With the success of this category, we had the playbook to further expand into the white goods category. We launched Xiaomi Air Conditioner in July 2018, the Xiaomi Washing Machine in December 2018. So far, the demand for these two products are very strong.
Apart from these white goods, a number of key IoT products also drove significant growth for us in Q4 2018. They include our wristband, which is now, according to IDC, the number two wearable product by shipment in Q4 2018, including our scooters, which are extremely popular especially in Western Europe, our robotic vacuum cleaner, which was the number two robotic vacuum cleaner by shipment in China in 2018. Our IoT platform is no longer only constrained to our own devices. Starting from quite some time ago, we expanded our IoT platform to other players in the market as well. For example, Xiaomi and IKEA established a global strategic partnership in IoT in 2018. Today, all IKEA smart lighting products in China can be connected to the Xiaomi IoT platform.
We are also very pleased to say, not only are we expanding into different brands on the devices platform, our Xiaomi app, IoT app, called the Mi Home app, is also increasingly become an app that crosses beyond the Xiaomi smartphone devices. Today, the Mi Home app has 20.3 million monthly active users, over 50% of our Mi Home app users are non-Xiaomi phone users. Which is to say that this device has successfully crossed over to many other phones outside of the Xiaomi smartphone devices as well. The next section is something I'm very pleased to report on, which is our internet services revenue. Our internet services revenue reached RMB 16 billion in 2018, representing a year-on-year growth of 61%. This is underpinned, of course, by strong MIUI user growth.
Our MIUI user growth globally grew from 117 million in 2017 to 242 million in 2018, representing a 42% growth. What is also very important to us is that this revenue stream is becoming increasingly diversified. Let me share four sets of numbers with you. Internet services revenue from our IoT devices, particularly from televisions, is now 8.2% of all our internet services revenue. The year-on-year growth of this revenue stream is at 119%. In terms of our international internet services revenue, by the end of 2018, international internet services represented 6.3% of all our internet services revenue, with a year-on-year growth of 1,296%. Our two cross-Xiaomi device apps, Youpin and Xiaomi Finance, also achieved very strong growth. Youpin now accounts for 4.1% of all our internet services revenue, and it has a year-on-year growth of 427%.
Xiaomi Finance represents 11.9% of our internet services revenue and had a year-on-year growth of 81%. Today, in aggregate, over 30% of our internet services revenue comes from outside of advertising and gaming from China smartphones. We believe this diversification makes our internet services more robust and less prone to cyclical changes in the market. In terms of international revenue, our international revenue reached CNY 70 billion in 2018, representing a year-on-year growth of 118% and 40% of our total revenue. As many of you may know this, we are very strong in India, and we have been, in terms of smartphone shipments, number one in India for six consecutive shipments. Sorry, six consecutive quarters. According to Canalys, last year in India, we were amongst the top four. We were not only number one, but the fastest-growing in terms of our shipment growth.
In Indonesia, we are now the second-largest smartphone maker in Indonesia with year-on-year growth of 299.6%. Western Europe was also a very important market for us last year. In 2018, we were ranked number four in Western Europe with a 415% year-on-year growth. In terms of our margins, our hardware margins in Q4 2018 were 7.7% compared to 6.3% in Q4 2017. Our internet services growth margin remained relatively stable at 63% in Q4 2018. In terms of operating expenses, our operating expenses in 2018 was still below 10%. We are immensely proud of this. The biggest driver of our operating expenses growth in 2018 was actually our increase in R&D expenditure.
Despite having one of the lowest operating expense levels in the industry, we managed to expand our efficient new retail network in 2018. Our number of Mi Homes grew from 281 shops to 586 shops in mainland China in 2018. Our number of franchise stores grew 22 times from 62 to 1,378 stores in mainland China in 2018. All this, when we flow it down to the bottom line, we just want to have a recap that right before our IPO, we made an announcement after unanimous consensus within our senior management and with our board's blessing, that our hardware business will not have an overall net profit margin of more than 5% per year. We believe that this is a very important promise, not only for this generation of Xiaomi management, but for the next generation and the generation beyond that.
The reason why this promise is significant to us from a company's perspective is because we believe this is the only way we can achieve our company's mission, which is to relentlessly pursue the best products and honest prices in order to let everybody in the world enjoy technology. We are very pleased to say that after review by our auditors, our overall hardware business is profitable, with hardware profit net margin of less than 1%. This is only our hardware net profit. Our group net profit in 2018 was RMB 13.5 billion, of which our adjusted net profit was slightly above expectations from Bloomberg consensus at RMB 8.6 billion, achieving a year-on-year growth of 59.5%. We have been asked several times, because our hardware business has thin margin, what is our return on equity?
We did the math, and in 2018, our return on equity was at 16.2%, which we think is a leading number in the industry. If you take away all the net cash proceeds that was raised during the IPO, our return on equity in 2018 was at 32.6%. The last section of this is on cash flow. In Q4 2018, we maintained a negative cash conversion cycle of negative 36 days. Some of you may have noticed that in Q4 2018, our inventory turnover days, excluding our real estate business, was at 65 days. The reason for this is because of decline in sales in order to prepare for Q1 shipments of new products in 2019.
We want to give you a sense that by January 2019, our inventories have declined by 12% according to management accounts, and our inventory turnover days by the end of January was at 55 days, which is the same as the full year 2018 inventory days. We believe it is at a healthy level today. Our net cash generated from operating activities was positive RMB 3.4 billion in 2018. In Q4, this number was negative RMB 4.6 billion, and the reasons for this are twofold. One, Q4 2017 was also a negative operating cash flow quarter due to seasonality. The second is because of the adjustment in product launch schedules that we talked about just now, resulting in an increase in inventory. This is the reason why Q4 had this number.
As of the end of 2018, our cash resources, which includes cash and cash equivalent, restricted cash, and short-term bank deposits and investments, was at RMB 39.7 billion. Beyond this, as many of you recall, we have invested in over 260 companies as of December 2018. In 2018, nine of these companies successfully completed their IPOs. Today, the investment book value of all these investee companies is at RMB 27.3 billion, which represents a 32.6% year-on-year growth from the year before. We believe that in 2018, we could see the strong portfolio of our investment companies that have gone public, could see us start to reap more significant investment returns from these investments. With that, I would like to conclude the management presentation part of this call. Thank you again for your support of Xiaomi, and we will now open the floor to questions.
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.
Thank you for taking my question. I have two question. The first question is about the internet services. It'll be great if the management can share the drivers for MAU and ARPU growth in 2019, given that the softening smartphone demand in China and worldwide. Also we noticed that Xiaomi Finance and Youpin E-commerce had very strong growth last year. Can we share a bit about the details or growth driver there? For example, the GMV size, key product categories of the e-commerce business, and the growth outlook similarly for Xiaomi Finance. Any detail there will be very appreciated. Thank you.
Thank you, Grace. This is Shou here. I will answer your first question on the key drivers of our internet services business. Underpinning everything is, of course, the growth in our monthly active users. As we disclosed in our announcement just now, our global MAUs have increased from 170 million to 240 million over the period of 2017 to 2018. As you know, we don't break this down by geography, but I can share with you that as of today, our year-on-year growth for our Chinese MAU has also increased from a year ago as of today. In terms of ARPU, we believe that the increase in ARPU is down to a few things. One, of course, is the continuous upgrade of our advertising algorithm in order to provide a better advertising experience for our advertisers, therefore, organically just increasing advertising ARPU.
The second is, just to clarify here, because this was asked last quarter, our ad load for our advertising business is actually very similar to relevant comparable ad loads of comparable products in China. There is nothing that strikes us as being different here. Now the second is, of course, we talked about the diversification of our internet services revenue. We believe that by providing a whole suite of different internet services, we can better service our customers, and the result has been, as you can see, very strong growth in internet services revenue outside of advertising and gaming from Chinese smartphones. We expect that the diversification will continue over the next few quarters and over the next few years. I will hand over to our CEO to talk about Youpin.
Youpin 是我们两年前开始孵化的一个电商平台。
Youpin is an e-commerce platform that we incubated two years ago.
主要的思路是用小米模式做生活消费品，然后做纯平台。
The key here is to have an e-commerce pure platform that is very close to the Xiaomi philosophy of product selection and price to value, and sell lifestyle products.
把我们生态链企业和合作伙伴做的优质的生活消费品，以相对厚道的价钱推给我们的消费者。
The idea is to sell products from our ecosystem companies or other partners, the lifestyle products from their portfolio, using a relatively good price to performance ratio to provide our consumers with a whole slew of different lifestyle products.
去年的话，GMV超过了50亿人民币。
Last year, the GMV for Youpin exceeded RMB 5 billion.
而且成长速度非常快。Youpin的用户的话，非小米手机的用户超过了50%。
The growth for Youpin is actually very fast. There is already a very significant number of users on Youpin that are not Xiaomi users.
我觉得Youpin的成功，充分证明了小米模式的伟大。
Youpin's success is testament to the strength of the philosophy underpinning Xiaomi.
并且也证明了小米模式非常易于扩张。
It also proves that the Xiaomi philosophy is actually very easily expanded across industries.
我希望大家下载一个小米Youpin的APP，去看看里面有什么。其实各种极为优质的产品，并且非常的便宜。
He's encouraging everybody to download the Youpin app because I personally recommend it too.
中国用户吧。
China users.
Only China users.
So far, only China users. It actually has a whole portfolio of very outstanding products.
这是一个非常有趣的一个business。
This is a very interesting business for us. Great. I'll spend a second on the internet finance as well. Our internet finance business is underpinned by two key businesses. One is consumer finance, and the other is supply chain finance. Consumer finance was started earlier, a few years ago, and the logic underpinning consumer finance is users who want to borrow give us permission to run through the privacy compliant immense amounts of data that we have in order to give them a credit score. Then based on this credit score, we give them an appropriate loan. This business has been running for three to four years, and it has been growing at a very significant clip. The other business that we launched roughly a year and a half ago is our supply chain financing.
Because we are engaged in the manufacturing business as part of our business, we actually have a lot of, in particular, suppliers who have payables with us, which allows us to do factoring and different kinds of supply chain financing. This has also grown very quickly for us. Thanks. Let's take next question, please.
Thank you. Our next question comes from Han Joon Kim with Deutsche Bank in Hong Kong. Thank you.
Great. Thanks for the chance to ask a question. I've noticed that your overseas internet revenues have gained a little bit further traction this quarter from last quarter. If you can just provide with us an update on the progress there and how you look at 2019 trajectory, that'd be fantastic. Thank you.
小米的国际业务增速非常快，使我们MIUI在国际上的用户也超过了，日活也超过了一亿。
Our international business is growing very quickly, and this has allowed our MIUI outside of China, our DAU to exceed 100 million. We will gradually replicate all the successful internet services models that we have in China to all the relevant international markets. We believe that our 2019 internet services revenue outside of China should exceed 100% growth. Let's take the next question, please.
Thanks for taking my questions. I have two questions. The first is about your product launch plan in the rest of the year, given you have launched five new models in the first quarter to boost the shipment. Just wonder what's the new product plan for the Q2 and Q3, and how should we look at your overall shipment growth for this year? If possible, could you break down by China and overseas? This is number one. Number two is about your ARPU trend. Given we noticed that in the fourth quarter, there were some quarter-on-quarter declines in the advertising revenue and also the ARPU. Just wonder what's the reason behind that. Is that because of the seasonalities, about the macro slowdown, or even about the pickup from the overseas customer base, given generally they have a lower ARPU? Thank you.
Okay, thank you. Give me a second to translate, please. In Q1 so far, we have launched five smartphone products covering CNY 600-CNY 4,000 price points. If you split it into Redmi and Xiaomi, you will see that both brands don't have a full product portfolio for every price point yet. Over in Q2, we could launch up to four new devices to make sure that the price point for these two independent brands are full. Looking at our Q1 2000 numbers so far, we are very optimistic about 2019 shipments. Even though today we are at the dawn of 5G, or more accurately, we are before the dawn of 5G. The entire smartphone market is still under a bit of pressure before the 5G era. We believe that Xiaomi's growth momentum is still strong. Our overseas business is also growing very rapidly.
We expect it to grow this year, in particular in Western Europe, Latin America, and Africa. We believe that with this new multi-brand strategy, we can still grow in the Chinese smartphone market. Okay, I will explain the ARPU trend. I think as you pointed out, one of the biggest factors for ARPU is of course the denominator, which is MAU. Because of international internet services revenue is still significantly lower than China and the international business is growing at a faster clip, then you can expect that this ARPU number is slightly distorted from that perspective. What we also want to point out in Q4, compared to the last few quarters, is we are closely monitoring the advertising market in China. We are cautiously optimistic, although we believe there could be some adjustments in the market compared to a year ago.
The gaming market is still at its dawn in terms of licensing. You can see that in Q4 2018, our gaming revenue is not as strong as a year ago. Again, we are seeing the dawn of this with the release of licenses. As a platform, we are affected by the entire gaming market. With the release of more licenses, we believe that this will bring about a new wave of growth in the gaming sector. Overall, I think that's the trend that we see for ARPU. Next question, please.
Thank you for taking my question. The first question is, I remember in your IPO that you mentioned you have a strategy. Now you are talking about the AIoT strategy. What will the new strategy change the company, I mean, in let's say two to three year, or what will be the major? I think you mentioned you will increase the
R&D a lot and what we should expect the new revenue to come out. 第一个问题我想问一下，就是今年我看到在提新的战略，叫手机加AIoT。雷总能不能帮我们分享一下，AIoT具体我们接下来要三五年投100亿下去，具体我们希望能够看到一些什么样的商业模式，会能够从我们小米来做，有什么商业模式能够走出来？谢谢。
在过去八年，小米的策略是以手机为中心，连接所有设备，所以它的本质是手机为中心。
In the last eight years, our strategy was that the smartphone device is the most important IoT device, and we will connect all IoT to the smartphone.
然后AIoT是配合手机策略的。
Our IoT strategy in the past was complementary to the smartphone strategy.
去年年底，我们战略发生了调整，就是把AIoT提高到跟手机同等重要。
Last year, our biggest strategic change is that we have promoted AIoT's importance to the same importance as our smartphones.
我们成立了AIoT战略委员会，来协调所有相关的业务部门。
We established the AIoT strategy committee to coordinate all AIoT efforts internally.
我们成立了专门的AIoT的销售运营部来协调营销资源。
We established a specific AIoT sales and marketing sales strategy division in order to optimize our AIoT sales.
这样使整个集团对AIoT的重视度提高到了一个战略的层面。
This allows the entire company to promote the importance of the AIoT internally to the highest strategic level.
我们要解决的本质的问题就是使这些智能的家电和智能的设备能够全部无缝地连接在一起。
The fundamental problem that we are trying to solve here is we want all devices in the world to be able to seamlessly connect with each other.
我会尤其关心互联的用户体验。
What he cares about the most is the user experience when interacting with all these devices.
它最大的吸引力是会使忠实的米粉愿意买一个设备到买五个，到买10个，到买50个AIoT设备，以至于他们家里所有的设备都是小米的，变成真正的小米之家。
What could happen here, if we provide a seamlessly integrated user experience, is that a Xiaomi user could buy one device, and then five, and then 10, and before we know it, his entire house is a proper Xiaomi home.
所以AIoT的盈利模式，其实第一，有的设备本身就是互联网的入口，具备自身的变现的能力，比如说电视，我们电视的互联网收入增长也非常之高。
How do we monetize AIoT? First of all, some devices inherently allow us to make Internet services offer. For example, televisions. Our Internet services revenue from televisions is actually increasing significantly.
比如说小爱音箱，它本身是互联网的入口，它其实也开始有互联网收入。
For example, our AI speaker is also an entry point to the Internet. The AI speaker has actually started to monetize Internet services revenue as well.
AIoT的极致的互联体验，会推动整个AIoT设备的销售和增长。
If we can create an extremely well-thought-out user experience for IoT, it will actually increase our IoT product sales.
最近几个月，我们电视业务已经在中国市场排在第一位。
In the last few months, especially at the end of last quarter, our TV shipment is already number one in China.
我们希望有更多的IoT设备都排在中国市场的前三位。
We need more of our IoT devices to be ranked top three in the markets that we are in.
所以未来五年的100个亿，核心在于，第一，改善我们IoT之间的互联，我们会设立一个高水平的测试实验室。
The first direction of the RMB 10 billion investment that we talked about, it will be invested in increasing the user experience of our IoT devices. We will set up a very high-end testing lab in order to facilitate this.
我们会进一步扩大研发队伍，来解决里面的使用体验。
We will continue to expand our R&D team in order to enhance our IoT experience.
第二个的话，我们会投资更多的IoT的设备，来帮助这些设备改善用户体验，进一步扩大市场份额。
We will also invest in more ecosystem companies that make IoT products, that there will be more products that can better service our customers.
甚至可能会考虑采用并购的手段。
We will not rule out some large M&A in order to achieve this.
包括结盟和投资结盟。
Including using investments to achieve these strategic partnerships.
比如说两个月前，我们跟TCL形成了在IoT设备上的深度的战略结盟。
For example, through investing in TCL a couple of months ago, we established a very deep partnership with them on the AIoT direction.
已经产生了很好的协同效应。
It has already created very strong working synergies.
好，谢谢您的提问。
[Foreign language] the second question I think is mainly for Shou, is the smartphone that you change, you adjust your accounting treatment for the fourth quarter for the warranty. Can you help us to understand, because it's quite complicated, you increase the provision and then reduce. What's the financial impact to the fourth quarter profits? Thank you.
Okay.
Yes, thank you for this question. Over the period of 2018, first of all, it is through the investment that we have made in our product quality, all the work that we have done, including through the work that is done by the group level quality committee that we established last quarter. We have actually seen very significant improvements in our product quality. We won a lot of awards, but the number that is very significant here is that our fault feedback ratio for our mainland Chinese ones, for example, actually went down by 44% year-on-year in 2018. What we have noticed over the course of 2018 is that the warranty provision is actually significantly higher than the actual repair cost that is being incurred.
In Q4 2018, we adjusted that level to a more reasonable level, which we think is adequate to cover all the warranty expenses. Now, in terms of the total warranty provision pool that we have, it is CNY 1.7 billion at the end of 2018, which is the same number as CNY 1.7 billion in 2017. Because product improvements has increased so much, we could give out longer warranty programs and still be more than enough to cover for all the actual warranty expenses. This impact is actually a positive impact on our gross margins. Now, because we knew that we were going to do this, the philosophy of the company, as you know, is to return the savings to our customers.
Through a series of adjustments, for example, increasing our warranty period for future products and through pricing promotions on some of our existing portfolio, we have actually returned a part of this to our users as well. The direct result of this, as you reduce prices for your existing portfolio, is that you have to increase the inventory provision. That is a negative impact on gross profit. These two impacts, one was a positive impact and one was a negative impact. The overall impact on our hardware business is that our gross margin was at 7.7% in Q4 2018, versus about 6.3% in Q4 2017.
Okay. Yeah. Thank you very clear.
Okay. Due to the time constraint, we'll take the last question.
Thank you again for your time this evening. Just a point on clarification for gross margins. It does seem like in 2018, smartphone gross margins took a little bit of a dip. I know partly because of currency midway through the year, it seems like there's an impact from warranty reserve in fourth quarter. How should we think about reserves as it relates also to your growth in ASPs in 2019? Do we expect margins essentially get back to maybe 2017 levels, or should we continue to look at it as closer to the levels we saw in 2018? That's my first question.
Give me a second to translate this, please.
Sure.
Because we promised that we will make no more than 5% income margins on our hardware before we went public, our goal internally is actually to make 2%-3% in the future. The number that we focus on is hardware. It's our net income margin. He cares about three things the most. One is the Net Promoter Score of our products, which is a reflection of the overall satisfaction of our customers on all our products. Over the last three months, the new products that we launched have actually received very widespread acclaim from our users. The second is smartphone shipments, in particular in China and in Western Europe. We need to prove that we are also very popular in developed countries. Third, we need to deepen our internet services offering to ensure that our internet services revenue continues to expand rapidly.
These are the three main focuses for him at this point in time. Okay. We will now conclude the call tonight. Thank you everyone for participating. Thank you.
Thank you for participation. This concludes the conference.