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Worldwide currency wars made it costlier for Xiaomi to sell phones in India
- Xiaomi got affected due to the trade war between the US and China
- Xiaomi tripled its net profit to $ 276 million for FY18
- The cost of sales for smartphones increased by 45.4%, Xiaomi said
- Smartphones continue to be Xiaomi’s main source of revenue
The impact of the trade war between the United States and China on Apple and Samsung is well known, but Xiaomi, which has led the Indian market for six consecutive quarters, also seems to have been the most affected.
While the company tripled its net profit to $ 276 million for FY18, its cost of sales (basically how much it costs to build a device) for smartphones increased by 45.4%, the company said in its regulatory reports.
According to its annual report, the increase was mainly due to the increase in smartphone sales and the appreciation of the US dollar against the Indian rupee.
But despite the increase in costs, Xiaomi highlighted foreign markets because of its impact. Revenue from markets outside of China grew 118.1, which increased its share of Xiaomi's total revenues from 28% to 40% between 2018 and 2017.
The way Xiaomi makes smartphones leaves only a meagre 6.2% profit margin. But, given that the company uses a "triathlon" business model (its three segments are hardware, software and retail sales), the potential benefit of smartphones is much more than the sale of the device itself.
The software and the retail portion of its business model have their own profit margins for users who consume application services and ads integrated into Xiaomi devices.
That said, smartphones continue to be the company's main source of revenue, which accounts for 65.1% of its total revenues.
The Rupee No Longer Falls
Since last year, the Indian rupee has recovered and is currently the best currency in Asia. In fact, according to Bloomberg, investor optimism regarding the upcoming general elections and tensions between India and Pakistan is what is fueling the robust flow. So much so, that the performance of the carry trade in the rupee was the highest in the world last month.
Xiaomi's annual report also indicated that the company will continue its international expansion in an attempt to replicate the success of the smartphone manufacturer in India. In February of last year, the company also launched its smart TVs in India that were reportedly well received, the largest in terms of online television shipments.
