Xiaomi Corporation (XIACF) Q1 2026 Earnings Call Transcript

ladies and gentlemen welcome to Xiaomi's 2026 first quarter results announcements investor conference call and audio webcast today's conference is being recorded if you have any objection you may disconnect at this time if you have any question and would like to raise during the Q&A session later please press star 1 1 on your telephone keypad to register your question should you wish to cancel your question please press star 1 1 now I would like to hand the conference over to your host today Mr. Shiran, General Manager of Group Investor Relations and Capital Markets Department. Please go ahead. Good evening ladies and gentlemen. Welcome to the Investor Conference call and audio webcast hosted by Xiaomi Corporation regarding the company's 2026 Q1 results. 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 risk and uncertainties may not be realized in the future for various reasons information about general market conditions comes from a variety of sources outside of Xiaomi this presentation also contains some unordinated non-ifrs financial measures that should be considered in addition to but not as a substitute for the company's financials prepared in accordance with IFRS joining us on the conference today I'm mr. William Lu partner and president of Xiaomi corporation and mr. Ellen Lam vice president and CFO of Xiaomi corporation to start mr. Lu will share recent strategic and business updates of the company thereafter mr. Lam will review the company's financial performance in the first quarter 2026 following that we'll move on to the Q&A session I will now turn the call over to mr. Lu good evening everyone thank you for joining our Q1 2026 results announcement conference call the first quarter of 2026 marks the first full quarter of our new five-year plan over the past five years we have completed the strategic closed loop of our entire ecosystem encompassing human vehicles or cars and homes and achieved comprehensive breakthrough in areas such as large appliances EVs chips and AI looking ahead to the next five years in the short term we face the challenge of a triple cycle of cost demand and competition in the long term we're entering a new phase where AI is reshaping our entire ecosystem of human cars and homes tonight I will mainly share three aspects with you first we will review our key performance in the first quarter 2026 second will respond to issues that everyone is concerned about third we'll look ahead to our strategic development direction and business focus for the next few quarters First, in Q1 2026, our group's total revenue was 99.1 billion RMB, adjusted net profit 6.1 billion RMB. Looking at business segments, first, in Q1, we proactively controlled shipments of mid-to-low-end products and channel inventory, while our smartphone shipment declined, our ASP reached record high. We also maintained our position among the top three globally. According to OMDIR data, our market share in Q1 2026 was 11.3%, maintaining our position among the top three globally for 23 consecutive quarters. Our smartphone shipment ranked second in Latin America, with market share of 17.4%, up to percentage points compared to the previous period. We ranked third in Europe, Southeast Asia, and Middle East and Africa, with market shares of 17.2%, 16.9%, 13, and 9.2% respectively. in q126 we ranked among top three in smartphone shipment in 47 countries and regions worldwide and among top five in smartphone shipments in 65 countries and regions worldwide for GP margin the sharp rise in memory cost in a short term has ushered in a new normal for the entire industry will not simply pass on the increased cost linearly to consumers instead will reposition user needs and achieve a balance between scale and profit through profit product matrix upgrades software optimization and leveraging our operational capabilities in q1 2026 we achieved a gross profit margin of 10.1% for smartphone which reflects the operational resilience brought about by our own capabilities iot business in q1 2026 iot business achieved revenue of 24.7 billion RMB mainly due to a year-on-year decline in domestic revenue caused by the high base of national subsidy last year however thanks to expansion of overseas channels and the increase in overseas product categories overseas revenue reach record high and achieve double-digit year-on-year growth among them TWS earbuds ranked a second globally wearable products were ranked a third globally and tablets ranked fifth globally for gross profit margin of our IOT business this quarter it was 25.2 percent which fully demonstrates our ability to hatch against fluctuations in a single industry through a multi business energy this quarter the business can provide more profit to mitigate the risk of declining gross margins on smartphone business for Xiaomi EVs we delivered eighty thousand eight hundred fifty six cars in the first quarter 2026 mainly the Xiaomi u7 series as of May 6 2026 our new generation through seven has accumulated over 80,000 pre-orders in 48 days since launch this demonstrates that our EV business has withstood severe challenges and has emerged from most difficult period as of 30th April 2026 Xiaomi U7 has achieved a cumulative delivery volume of 232,000 units in 10 months. On 21st May, we officially released Xiaomi U7 GT, positioned at a sports car level SUV suitable for long-distance travel, priced at 389,900 RMB. After extensive tuning and testing, Xiaomi U7 GT finally broke the SUV lap record at the Norberg Ring, becoming the fastest SUV in Norberg Ring history. Xiaomi U7 Standard Edition is priced at 233,500 RMB to refine its extreme handling capabilities. Xiaomi U7 GT underwent testing at the Norberg Ring noise slave. The issues of AI and Android that everyone is concerned about, we have emphasized on multiple occasions that deep integration of AI with physical world is the next stage of intelligent technology. Xiaomi, with its hardware ecosystem reaching over 1 billion users, has a tremendous opportunity to become a leader in the AI era. If we don't create our own large-scale model, our understanding of the base model will always be like looking at flowers through the fog. Only by mastering core technologies end-to-end can we truly create products with differentiated competitiveness. The industry is still exploring the ultimate form of the combination of AI and hardware. However, only those with core technologies and application scenarios can quickly keep up when the trend becomes clear. Latest progress. In April 2026, we released Xiaomi Mimo V2.5 series. Xiaomi MIMO v2.5 series includes MIMO v2.5 pro v2.5 TTS series and v2.5 ASR. This represents a comprehensive leap from usable to easy to use. On artificial analysis, a global authoritative comprehensive intelligence ranking list for large open source models. Xiaomi MIMO v2.5 pro ranks first in the comprehensive intelligence index among global open source large models and is among the top five in the overall global ranking of large models. At the same time, the agent index ranks first among global open-source large models. At end of March, MIMO V2 Pro set another record on open router platform, achieving first place in the daily, weekly, and monthly rankings. In the week of March 31st, MIMO V2 Pro's weekly token consumption surpassed $4 trillion. After a free trial period ended, our average weekly token retention rate reached 35%. On April 3rd, 2026, we launched a Xiaomi MIMO token plan, offering four tiers, light standard Pro and Max, aiming to help users improve productivity at reasonable prices. Since launch of our token plan, the Pro and Max tiers have accounted for over 50% of revenue. According to open router data released on May 12, MIMO ranked first in terms of Hermes agent model call volume contributing an accumulative 1.45 trillion token calls in the past month. This means that the world's fastest growing open source agent product has chosen Xiaomi MIMO as its preferred inference engine. in real-world high-intensity task scenarios. To reward global developers, Xiaomi officially launched MIMO Orbit 100T token program, distributing token benefits to AI users worldwide for free, with a plan to distribute a total of 100 trillion tokens within 30 days. As of morning of 12 May, nearly 80 trillion tokens have been distributed. We'll continue to iterate on our base model. The moment of AI mobile phone has arrived. Perhaps 2026 will be a pivotal year for AI smartphones, and arrival of such a moment will profoundly influence future changes in mobile phones AI phones are not simply adding AI features to existing smartphones nor are they simply creating an agent app instead it shifts from an app centric interaction approach to an OS agent centric interaction approach me claw is our initial attempt recently CAICT launched an evaluation of mobile smart assistants and Xiaomi me claw became one of the first mobile smart agents in China to pass this authoritative evaluation at the same time the packaging and testing categories of our meet law have expanded to multiple terminals such as tablets PCs Macs and speakers with screens marking significant upgrade and cross-platform capabilities in the future mobile phones will be upgraded from operation tools to executive assistance and digital clones for people we will deeply evolve our search OS taking the agent as the core and further increase the deep count coupling between model and upper level framework we continuously enhance product experience of assisted driving in In March of this year, we officially released Xiaomi XLA Cognitive Big Model Architecture, enabling Xiaomi's assisted driving to move from perception and imitation to understanding and reasoning. In May 2026, building upon XLA, we took it a step further and officially released and fully open sourced the Xiaomi One VL Autonomous Driving Model, a one-step latent space language visual reasoning framework. It unifies the three major technical approaches, VLA, world model, and latent space reasoning into a unified framework and then an embodied robots we continue to explore the boundaries of physical intelligence and body robots are the ultimate integrator platform for AI capabilities chip and OS capabilities and manufacturing capabilities and have extremely high barriers to entry on April 27th we'll bring a new capability demonstration and officially release the full process of training on a real device with a Xiaomi robotic zero on the same day Xiaomi robot which had turned from tightening screws in the factory came to the Xiaomi group investor day event and made a hot shake with gas winning praise from many friends the current progress is just the beginning robots will open up entirely new industrial and market opportunities for Xiaomi so we believe that we are going to achieve a lot of good results so we are going to be a leader in hardcore technology will continue to do more in innovation and many other smart areas will continue to innovate and upgrade and support our healthy development of various segments so that's all in my part so I'll pass the floor to mr. Allen thank you mr. Lu hello everyone good evening as mr. Lu shared with everyone 2026 will be a year of both short-term challenges and long-term opportunities let me talk about our results in q1 2026 our total revenue was 99.1 billion RMB overall gross margin was 22% looking at various segments our smartphone times a iot segment revenue was 79.3 billion rmb smartphone times a iot segment growth margin was 22.5 percent up 2.5 percentage points quarter on quarter for smartphones the continued significant increase in memory cost has had an overall impact on the smartphone industry we focused on optimizing our sales structure and channel management revenue in this quarter was forty four point three billion RMB accounting for forty four point seven percent of our group's total revenue our global smartphone shipments reached thirty three point seven nine million units our average selling price for smartphones thanks to our strategic adjustments reach a record high of 1,310 RMB representing a year-on-year increase of 8.2 percent according to third-party data in first quarter 2026 our high-end or premium smartphone sales in mainland China accounted for 23.5 percent of our overall smartphone sales according to OMDIA data in the first quarter 2026 we ranked among the top three globally in smartphone shipments with market share of 11.3% maintaining our top three ranking for 23 consecutive quarters despite rising memory prices through proactive control of mid to low end phone shipments and channel inventory our smartphone growth margin remained relatively healthy at 10.1% regarding IOT in Q1 our revenue of IOT business reached 24.7 billion RMB with overseas revenue maintaining steady growth achieving double-digit year-on-year growth and setting a new record we prioritized private profitability refrained from participating in industry price competition and simultaneously expanded our overseas channels and increased our overseas product categories this quarter gross profit margin for IOT reached twenty five point two percent of five point one percentage points quarter on quarter from product category perspective this quarter we ranked third globally in wearable band shipments and second globally in tws earbuds shipments our tablet business performed steadily ranking among the top five globally this quarter regarding internet services we have accumulated a large user base globally in March 2026 our global MAUs reached 750 million up 3.8 percent year-on-year among them MAUs in mainland China reached a record high of 196 million up 8.1 percent year-on-year in the first quarter 2026 our internet services revenue was 9.5 billion RMB up four point three percent year-on-year in this quarter gross margin for internet services was seventy six point one percent advertising business continued to drive internet business growth advertising revenue of this quarter reached seven point one billion RMB up seven point eight percent year-on-year let me talk about intelligent or smart EVs AI and other new initiative segments revenue reached 19.9 billion RMB this quarter up 6.9 percent year on year accounting for 20% of the group's total revenue specifically due to a decrease in quarterly deliveries of the zoo 7 series we delivered a total of 80 thousand eight hundred fifty six new cars in q1 2026 for smart EV sales revenue it reached 19 billion RMB for other related business revenue it was nine hundred million RMB our average after tax selling price this quarter was two hundred thirty five thousand RMB affected by purchase tax subsidies and rising raw material costs gross profit margin of smart EVs AI and other new initiative segment was twenty point one percent this quarter in q1 2026 our smart EVs AI and other new initiatives segment incurred an operating loss of 3.1 billion RMB as of 23rd April 2026 cumulative deliveries of the new generation Su7 exceeded 26,000 units as of 30th April 2026 cumulative delivery of Xiaomi u7 in the past 10 months reached 232,000 units in the first quarter 2026 our R&D expenses was 8.95 billion RMB up 33.4% year-on-year capex reached 3.27 billion RMB up 20% year-on-year of this smart EVs AI and other new initiatives business accounted for 45.6% of total capex for net profits in the first quarter of 2026 adjusted net profit was 6.1 billion RMB at the same time we focused on enhancing shareholder value and actively repurchased shares in the open market since the beginning of 20 26 our share buyback amount has reached about 8.4 billion Hong Kong dollars exceeding the total amount for the entire previous year demonstrating the company's confidence in our long-term development we actively practice the concepts of sustainable development in April 2026 we released the Xiaomi group 2025 ESG reports marking our eighth consecutive year publishing ESG reports the reports comprehensively showcases our strategies and achievements in 2025 regarding data privacy governance responsible marketing and service is circular economy sustainable supply chain talent development and corporate governance so in terms of ESG ranking in March 2026 we maintained our a rating in MSCI ESG rating besides we received the top 1% of Chinese companies honor in the S&P global CSA score and were included in the S&P global sustainability yearbook China edition 2026 demonstrating continued recognition of our ESG initiatives thank you everyone that concludes what I wanted to share with you today now we can begin the Q&A session thank you Ellen now we will move on to Q&A in order to allow more investors to ask questions please limit your questions to a maximum of two thank you thank you the Q&A session is now open to register your questions please press star 1 1 on your telephone keypad should you wish to cancel please press star one one first question is from Morgan Stanley Eddie please mr. Lu Allen good evening congratulations given the pressure in smartphone industry you still performed and exceeded expectation I have two questions first question for AI OT business in Q1 gross profit was very good and last week after the launch your earbuds also sold well so this year for a IOT business while achieving high profit high gross profit in terms of revenue scale can you achieve good performance in the coming two quarters when it comes to new product launch and overseas market development what are some significant highlights thank you aiot business I'm sure you all are interested in that so last year in q3 we already expected that that would be memory cost increase and it is going to be a super long cycle and the extent of cost increase is also big so for products relying on big memory like tablets and so on that would be bigger impact so memory cost accounted for quite a big share of some of these products an AIOT business to our group is important so we want to achieve a balance and also alleviate the pressure from memory cost so in Q3 last year for AIOT business we enhanced its importance and in mainland China and overseas we adopted different strategies for China markets we focused on premiumization this year I think you gradually see many of our products so our products are doing well they are well received by users we achieve good word-of-mouth and in recent launch we introduced a very good product with good external appearance and also sound quality and also the connection with super AI assistant and so on at the same time you also see our air conditioner so it became very hot and it also sells very well users like our air conditioner because it cools very fast and also the fan effect is very good and then for refrigerator it keeps the freshness of foot in a very good way and then it is well received especially when people need to redecorate their homes so progress has been very good within mainland market for overseas we are expanding our scale overseas our share in overseas market is still very small but then for our aiot business there are many markets that we need to enter so given this situation last year basically we have solved the issues in many countries now we're in many countries and we have expanded our product mix besides we collaborated with many other e-commerce players and so we're able to double our growth so here if you look at our overall AI OT business growth we're able to achieve a good gross profit margin in the future I think potential is too huge if you look at the China market our earbuds our watch well our share is due on the low side there is still a long journey for us for overseas well overseas market is two times the potential of the Chinese market and the competitive environment of overseas is different from the China market I think for IOT business that's my answer let me supplement with some numbers just now mr. Lu talked a lot about strategies and categories and channels and also about our overseas expansion of IOT now this is not a peak season of busy season but for a IOT revenue overseas in q1 it reached double digits growth year-on-year it already achieved it already reached a record high in history and it is around 40% of the overall a IOT total okay thank you mr. Lu and Alan my second question is about Xiaomi EVs so after the launch of u7 and also looking at the buyer profile regarding new generation to seven and last year u7 what are the differences in user profile with the launch of the two new models in terms of sales volume and profits comparing with the situation without these two not two models regarding sales volume revenue and profits and important metrics what will be the impacts of these two new models for u7 you can see that we have introduced two new products so the u7 standard and also we have introduced a u7 GT model so for the two models or versions one important idea is for 27 comparing with model 3 I think they may rather similar but then for you seven I think there are still differences and after doing some analysis for what model Y standard or entry-level version it accounted for 70% of the sales and we realized that we may have some disadvantages in terms of cost and then for users scenario 600 kilometers range I think that needs can be met but when it comes to even longer range well that may be cost issue given all these considerations we have introduced a standard version and also a new 7 GT version regarding the u7 GT we have already broken the SUV succeed in the Nordenburg ranking so it is for well it is a ceiling of SUV functionality for these two products in the future I'm sure they can actually complement to our overall product line and after users have bought the cars more than half of the users choose our four hundred twenty nine thousand nine hundred option that is the full configuration so more than half of them have chosen this version so I have done a market research and I realized from the research that there are some u7 users who are buying this and also many of the users are owners of bands Mercedes-Benz and BMW cars so right now for u7 GT at the initial launch every month the capacity is around 2,000 odd units I think if you need it you can continue to place order the cycle will be shorter for the standard version I think that it can very well solve the daily community compute commuting needs so a range of 600 kilometers roughly so I think the price can also suit your budget in that case I think in my market research I asked the frontline colleagues many of them join Xiaomi from Tesla and they said that as long as users can try can give it a trial of our product then they will choose our model so when it comes to car style called degree of comfort functionality and so on our products are very satisfactory for gross profit margin the price difference is twenty thousand and then for u7 GT I think gross margin will even be better now sales volume is not out yet so I cannot really give concrete comment but then on the total volume I think on U7 GT is going to do well thank you thank you mr. Lu thank you okay thank you for your question next question is from Goldman Sachs Timothy Jow please okay mr. Lu Allen good evening thank you for taking my questions I have two questions first AI so we are happy to see that this year you have exceeded market expectation in your AI progress so when it comes to AI business development and also a bigger investment by many AI companies well this year you are talking about 16 billion of AI investment budget from MIMO 2.5 launch all the way to now do you have other operation data to share with us for MIMO large model rhythm how will it be and then for me claw what will be the future plan and also next generation a iOS roadmap and timetable how do they look like that my first that's my first question thank you okay let me comment on our meat claw and for AI expenses I'll ask Ellen to supplement for me claw now we are promoting it with full force so with clause emergence I think we are very quickly launching me claw and then we are trying to make sure that it can be used with our tablet our wearables and also our future EVs our sound box and so on so in the future what is important is whether we can connect user data and then whether we can improve user experience I think it is going to enhance experience a lot but of course all these cannot depart from large model and our framework and our AI OS hyper OS transformation I think all these are important now we are proceeding with full force and our team is collaborating this year for the OS launch we are moving towards that direction this is important okay another question is about AI token and so on so let me make a few points as you can see right now we have already started some token attempts and we have introduced different token packages for our users so far feedback has been quite good as mr. Lu said 50% of the users using our new new versions especially for the high-end models the use and deployment is very high so as a result there are revenue related to AI token so you asked about our AI investment and also our judgment at the beginning of the year we mentioned to 16 billion and when our AI business develops we will also continue to adjust this number because we realize that there are huge opportunities about AI and regarding model iteration if we get users recognition then we will also release more volume for inference and in the future there may be a higher budgets but then this has to be based on our clear IO IO ROI calculation when making new investment thank you okay thank you mr. Lu and Alan now my next question is about EV business so looking at delivery in Q1 more than 80,000 units in April more than 30,000 units comparing with the whole year 550,000 unit target so it seems as a run rate shows a difference so what is your plan about new model and then for EV business and new initiatives gross margin in Q1 on course on quarter basis there is decline Ellen just said that there is cost increased pressure at the same time there is one-off impact from cross year order and also tax subsidies so can you quantify the impact and then for overall gross margin how should we look at it in terms of new new vehicles yes let me first comment in q1 in q1 in January and February there is only delivery of u7 and for sue 7 we are talking about this iteration we have spent two months of not selling the old products so we look we have also looked at the fast iteration of our other peers and so we have spent two months to work on our old products so that users know that we are launching the new product new 27 after doing that users word of mouth is very good so that's because of our huge efforts and then in January and February in q1 only 80,000 units were delivered and then in April our delivery increased in April for 27 delivery the delivery any time was rather short actual delivery was a lot more than 30,000 units so we do look forward to bigger volume and then there is a larger model that would be launched in the second half of the year we believe that that model is going to be like a new platform that model is very innovative it is highly competitive so we have a lot of confidence in that model so for the whole year targets we have confidence that we can attain the full year targets regarding EVs in this quarter you can see that the gross margin of our EV business had declined as you said first of all there is the purchase tax subsidy issue that's the main reason so regarding the end of last year there were undelivered orders and then there was the VAT subsidy so 10,000 to 15,000 a yen was the amount so ASP cost impacts on gross margin that's the first point secondly we started to sell some display car and so that's what also affect ASP and gross margin at the same time for the macro environment there are issues regarding batteries and memory and also commodities which would increase our cost however there are some factors that affect the whole industry and relatively speaking our ASP is higher than our peers so there is cost increase but then it did not affect our gross margin that much that's one point so even though gross margin has declined our overall gross margin within our industry is still on a high side as mr. Lu just said we delivered 80 odd thousand units in this quarter which would affect the apportionment of our fixed cost so now we're going to deliver the new generation sue seven and also the u7 standard u7 GT so on a quarter on quarter basis I think volume will increase and secondly TT delivery will drive our quarter on quarter ASP the size regarding suppliers we will continue to put in place some cost reduction measures so there will be some catching so these are the few factors that will affect our gross margin in the coming few quarters Thank You mr. Lu and Thank You Alan okay thank you for your questions next question is from CICC when hunting please go ahead good evening thank you for the opportunity I have two questions first about the smartphone business this year memory cause pressure was big and in Q1 for your smartphone business shipments and gross profit had still shown some resilience so in the future given such crisis and challenges how can you balance various metrics including quantity price and gross profit right thank you well we have discussed that many times so this trend about the super cycle of memory cost increase did not differ a lot from our judgment the cycle is very long at the same time the increase is of a big extent since q2 last year the cost started to increase and then in q3 as well and then in that quarter the cost increase was big in q2 this year based on market quotation and also contract price if we look at contract price I think the increase is still big so when the cost to cost increase and also cost for a smartphone this is a very big challenge besides it is not going to end yet it is a very long cycle I think we have to look towards 2027 and 2028 in Q3 well in the past the increase is 60 to 80 percent or even 100 percent on a quarter-on-quarter basis but I believe that in Q3 this year the increase will slow down but still the pressure is going to be huge because the base is very high even though there is just a small increase the absolute value is very big already so the impact on the overall industry is big not only for a smartphone well for many products memory cost account for a small share I mean I believe that there would be huge impact on the overall consumer electronic industry given that we have done a few things in Q1 you can see that we have made some adjustments first we have to dynamically balance selling price cost volume and gross profit margin and the relationship among these factors so short term price increase or price reduction may not be very wise we have to come to a judgment about the market and q1 for volume there is some decline but for ASP it's increased by about 10% and our gross margin rose two percentage points so this shows that our strategy is effective besides this year we introduced some new products max and some of the new products so in terms of cost I think we cannot just simply pass on the cost increase to the consumers so if we just increase the call at the price linearly it is difficult for consumers to accept we have to look at the users needs as well we have to make products that can meet users needs and then sell the products to users at a reasonable price that should be something we need to do so we have to rationalize our product lines given the overall environment of price increase I think we are still doing well in the China market if you look at a VCA activation we have like 14% market share this is because of our very important strategy besides we tried our best not to increase price for all products even if we increase price it is a small one only so we are the last to increase price we started to increase price in mid-April overall speaking users still understand our stance so we have put in place this overall strategy to face up to the coming increase in this super cycle given this environment we have to seize the AI phone opportunities and AI related opportunities okay thank you mr. Lu for the clear answer my next question is about your going abroad plan just now you shared with us your progress in EVs so regarding going abroad and also your rhythm of new EV launch and also the increase in number of overseas sales centers can you do more sharing with us for going abroad I think comparing with the last quarter we did not differ a lot so first of all in q3 q4 2027 we have to go abroad in terms of store opening so we will first go to advanced countries and then developing countries so first high-end and then high to medium to high end so that's our strategy and so far for our team we are doing preparation for going abroad because going abroad is complicated there are a lot to do there are a lot of legal and compliance requirements and there are also localization needs for product match and then we have to also make plans about network and cell centers so we are actually doing all these preparation work thank you thank you mr. Lu I have no further questions thank you thank you for your question next question from CITIC in CG please mr. Lu Ellen greetings I am from city securities thank you for this opportunity I have two questions first about me more large model you just said that the daily average deployment already exceeded 1 trillion tokens so I want to ask right now for token plan what is the user conversion rate and retention rates for your AI team in terms of future commercialization do you also have internal appraisal targets or metrics my second question is about AI OT business just now Ellen said that for overseas AI OT business in Q1 the number and share rose fast so in the coming three quarters especially towards the end of this year for overseas AI OT business how much would be the growth and would that be new guidance for growth and share thank you let me first comment on a IOT Ellen can talk about memo large model so I think the first question is this we still think that a IOT business is in the coming few years the way that we can balance out the increase in memory cost and the impact on our business this is going to be a very important balancer for our business so for AIOT business we wanted to grow fast regarding AIOT business in the China market we insist on premiumization premiumization is the key so in the recent launch you can see that we have launched a few products all those launched products that have reached our internal targets for ear buds it had exceeded our target two times and for our products so I think our product capabilities have an heart have been enhanced a lot and market acceptance is also very good in overseas market the room is very big our share is just quite low still so we have to do more product development overseas some products can satisfy overseas needs but then very often there are thresholds and barriers that are still high in overseas in the past two years I spent a lot of time to work on that and the third issue is channels for channel starting last year we put in investment in e-commerce so I think that for overseas a IOT development will still meet a lot of resistance so AI OT business overseas growth can be fast and I believe this is going to be a long cycle the room is huge overseas AI OT business will see three times four times growth potential all right let me get back to your first question about deployment of Nemo let me make a few points we have introduced token plan after that we saw a few interesting phenomena that I can share with you first fee paying a volume is high token deployment exceeded 30% of fee paying so fee paying ratio is very high besides for token max version token deployment exceeded 50% third points overseas number is high the share overseas exceeded 50% retention rate we did not disclose this number but I think retention rate is also high however we are now working on AI models and so far we have not reached the business closed loop stage if you look at many analysis about China and overseas there are many new models being launched we are still in the iteration cycle we hope that when users deploy tokens we continue to learn and iterate our model so in the future we still need to follow the market to adjust our token plans and in the growth stage we will collect data and iterate our models that's the stage that we're in we have still not reached the ultimate token plan fee model being a large business so I hope you can understand this okay thank you management I have no further questions right thank you for your questions next question is from City Kina Wong please go ahead thank you mr. Lu and Alan for the opportunity I want to follow up on AI large models okay right now in the market there are many large models companies that will launch some new versions in June and July so once every two to three months there will be an iteration so regarding Nemo large models what is the renewal time points are you going to follow the market rhythm or are you going to have your own plan so you have your own strategic consideration just now you talked about deployment so we have seen some price decrease it seems that operators are launching large models and they are also have they also have some sale plan so what is your positioning in the market what are your strategies regarding your company's efficiency enhancements how can it be seen will it be realized in all paths so that's my question about AI second question is about EVs for q1 union AI and new initiatives business segment operation loss is 3.1 billion so in the future as mr. Lu said you have much confidence in reaching the target so in the coming few quarters will see more than 100,000 breakthrough in shipment so for operating loss I think in q1 there will be the chance to cover the operating loss but you still need to look at the AI investment of your company so EV AI and new initiative segment for this year how will be its profitability what would be its direction thank you okay let me talk about AI and then Ellen can comment on the next part we do not have an internal target of iteration once every three months we do not have a specific timeline regarding model iteration we do not have the need to announce it we should not announce for the sake of announcing so we have our own rhythm and our grass for AI large models social memo large models should serve our business it must be coupled with our business this is very important now we have many business centered around scenarios with the data and also the AI large models we also have to look at its cost so without business closed loop it is difficult to assess so we need to strengthen our large models at the same time we will also sell tokens to the market of course that depends on market competition that may be helpful to Xiaomi we will take this two-pronged approach so I think it will be a balance between medium and long term and also horizontal and vertical this will be a more favorable approach I think this is the biggest difference between Xiaomi and other companies right yes let me supplement on a few points just now mr. Lu said that we are not a system focusing on large models we our main business is not to sell tokens so we will not announce or launch new models large models for the sake of launching we will launch when we are ready regarding internal enhancement we encourage our employees to use our MIMO models more but this is to help them enhance efficiency and they can also generate more data to help us to iterate our own models so that our models will be better so this is this is part of efficiency enhancements it is not only to enhance our own efficiency but also are the capability of our models these are two parts and your second question is about our EVs EV AI and other new initiatives future direction I think you can see quite clearly that in Q1 comparing with the previous quarters the biggest difference is deliveries have come down just now we have explained that in this quarter we did not deliver a few seven we focused on u7 and we prepare for the new generation through seven launch so there was some impact on revenue in the future in q2 quarter-on-quarter delivery for Evie will rise for sure that's the first point of course we will increase our investment into AI in the future I think these are the two main results of our operating profit or loss so it will be the result of these two factors together volume gross margin and in AI investment thank you thank you for your questions next question is from JP Morgan David Cho please mr. Lu Ellen good evening I'm from JP Morgan I have a question my question is in 2025 second quarter delivery reached the peak and then after that it declined what are the reasons behind how can you get back the expected growth momentum thank you okay for the expected delivery you said that there was a decline from the peak well the main reason is in q1 first of all when we made the expectation at first the volume was big but later on delivery cycle was rather long and when consumers waited there was also some disruption or disturbance some users switched to other brands we saw some PR brands which had which had locked in some users orders so some users are switched to other brands and looking at our product line layouts so basically we are benchmarked against model Y and then within the cities for daily commuting range is around 600 kilometers that can satisfy users needs we have also got another model regarding 800 kilometers so for 600 kilometers i think that range can satisfy people's commuting need already and for the overall car model launch we have already added one more model we have now u7 standard and u7 gt after the launch in the past weekend we saw quite good response from users test driving i think gradually we will be get closer to our expected volume thank you thank you mr. Lu I have no further questions thank you for your question next question is from UBS Jimmy you please go ahead thank you management for the opportunity my first question is about smartphone and impact on sales volume and then you will try your best to achieve some balance in q1 this year gross margin was rather steady on a quarter on quarter basis my question is your products have been enhanced that is part of it and besides there is global inventory factor so if you look at smartphones and consumer electronics in the future what is the outlook on gross margin what would be the trend taking into consideration cost increased for memory I think given the cost increase pressure will continue that is an objective fact so we need to solve this problem we need to balance scale profit and also gross margin we need to achieve a balance but more importantly when cost increases we have to ask a simple question so now users may need to spend more time are they still willing to do that we cannot simply pass the cost increase to consumers given the new cost structure we need to make sure that users are happy with the value for money so we have to satisfy our own values as well that is important besides we need to adjust our product structure and also quality scale decline is for sure but I think ASP increase can offset part of the impact from scale decline and we need to work on our GP margin then I think gross profit will be controllable that is our overall thoughts and strategies about smartphone business thank you for your question because of time we will conclude the call here thank you for your time I hope that you will continue to support Xiaomi group thank you and goodbye