Today, XIAOMI Group released its third-quarter results. According to the financial report, revenue in the third quarter was 53.66 billion yuan, compared with 50.846 billion yuan in the same period last year, an increase of 5.5 percent over the same period last year, while adjusted net profit was 3.472 billion yuan, an increase of 20.3 percent over the same period last year.

After the release of the financial report, Chairman XIAOMI and CEO Lei Jun, CFO Zhou attended the conference call and answered reporters' questions.

The following is the main content of the question and answer session of the analyst in this conference call:

• Question: how long is the replacement cycle of 5G mobile phones? What is the expected situation of the 5G mobile phone market by the end of next year?

Lei Jun:Next year, we expect to release more than 10 5G phones. We expect the penetration rate of 5G phones in the Chinese market to reach 40% Mel 50%. XIAOMI will still be able to achieve 5G phones with reasonable prices. I think everyone will switch to 5G phones in the next 3-4 years, which is a very big market demand. XIAOMI has good cash flow and ample inventory, laying a good foundation for the start of 5G business.

• Question: when will the thousand yuan 5G mobile phone era come?

Lei Jun:The year after next.

• Question: can you predict the profit margin of smartphones next year?

Lei Jun:I think the gross profit margin of our mobile phones increased to 9% this quarter, which is very normal, mainly reflected in the characteristics of our sound operation this year. XIAOMI's business model we expect our gross profit margin to be stable around 8%. I predict that we should be between 8% and 9% next year.

• Questions:With regard to network services, XIAOMI now that 49% of network services come from non-smart phones, what will it be like in the future?

Weekly funded:Some of our revenue from web services comes from technology and finance, and some from non-smartphone platforms. Like in India, Indonesia and other countries, we can also build very good network services for users. For example, our music, our applications, our browser services, these are all ranked first in the number of users on our smartphone platform.

The more people come to use our services, the more they will allow us to cash out. It is difficult for us to tell you how much it is expected to account for in the future, but I think what we can tell you is that more and more network revenue will be contributed by our overseas markets in the future.

• Question: the R & D investment in 5G is relatively high in this quarter. Please introduce the R & D investment next year.

Lei Jun:Our research and development of 5G began in 2017, and XIAOMI has steadily increased R & D investment over the past three or four years, with an increase of more than 30 per cent in the third quarter compared with the same period last year. I expect that our R & D investment will be 7 billion RMB this year, and next year we will further increase our R & D expenditure in a reasonable proportion. At this stage, XIAOMI's R & D investment supports our scale today. It should be said that there is no problem at present. We will steadily increase our R & D investment according to our financial resources.

• Question: what do you expect about the business of financial technology? What is the biggest driving force for your web services in 2020?

Weekly funded:XIAOMI's financial technology has two pillars. The first is our consumer financing, especially for some of our smartphone users. We provide network services for these smartphone users. We do have relevant business licenses and will also comply with relevant online financial regulations and laws. Although you say what our future direction is, it is actually very difficult to predict. Although the whole market is in line with the relevant laws and regulations, it is also difficult to predict the future market in disguise.

At present, we also hope to be able to use our advantages in production and cooperation with our partners to further expand our supply chain in financial technology. We will disclose the content of this business to you at an appropriate time in the future, but now I just want to give you a brief overview of this business.

• Question: what are the advantages of XIAOMI's 5G mobile phone? Forecast the market share of XIAOMI's 5G mobile phone in China, especially at present, the entire smartphone market in China is relatively saturated.

Lei Jun:I think in the 5G era, XIAOMI's advantages are: 1, XIAOMI's price advantage, unlike competitors' retail prices will add 100% to the cost price. 2, our inventory pressure is not great to lay the foundation, there is no burden in the 5G mobile phone era. 3. XIAOMI's R & D investment and innovation culture, our technological strength has been unprecedentedly enhanced.

Weekly funded:Next year is the first year for the popularity of 5G. XIAOMI is expected to release more than 10 5G phones next year, and XIAOMI expects the penetration rate of 5G phones in the Chinese market to reach 40 to 50 per cent.

Although the cost of 5G mobile phone is much higher than that of 4G mobile phone, because of XIAOMI's efficient model, XIAOMI can also make 5G mobile phone with reasonable price, which is believed to have great attraction in the market. "with the beginning of the 5G era, I believe that everyone's mobile phones will be replaced by 5G phones in the next three or four years, which is a huge market demand. "

XIAOMI adopted a sound business means, the current cash accumulation is very good, while the inventory is benign, whether own inventory or channel inventory is very low, so that XIAOMI laid a good foundation for the start of 5G.

• Question: Mr. Lei just mentioned that the gross profit margin of mobile phones is 8% Mur9%. Is XIAOMI's strategy to occupy a larger share of the Chinese market?

Lei Jun:XIAOMI's model is a gross profit margin of 8% and 9%, and XIAOMI's performance-to-price ratio is a relative concept. XIAOMI's products have advantages in the same comparison of 5G mobile phones. XIAOMI model does not need to change much in the 5G era.

• Question: what is the impact of 5G service on IoT service

Lei Jun:5G has a great effect on IoT, and will have an impact on IoT equipment in the year after next.

• Question: how much market share can XIAOMI get in the European market?

Lei Jun:We have made great progress in entering the European market for two years. At present, it has ranked fourth in the European market, with a year-on-year increase of more than 70%, and the growth rate is very fast. For example, we have ranked second in the Spanish market and number one in the open market, so overall progress is very fast. But after all, the company has only been in the European market for two years, and half of the European market is the operator market, and the operator business is public business, so we need a little more time.

• Questions:Can you tell me some details about XIAOMI's network service? What are your expectations for the future of this business?

Weekly funded:At present, the gross profit margin in the service field is about 6.9%. In the long run, the nature of value-added services or network services is very complex, and the growth rate of 6.9% or 7% is relatively healthy.

Internet service is very important for the whole Chinese market this year, and its growth is also very fast. We are now building a more complex recommendation engine, and we have started to make a lot of investment from the end of last year to this year. You can see that our advertising revenue has increased on a quarterly basis, which also reflects our strengthening in this area.

At present, the penetration rate of online advertising itself in the entire advertising market is not very high. But as the advertising market gradually starts to improve, our advertising revenue on the Internet will be even better in the future.

• Questions:Just now Mr. Lei said that the current gross profit margin of XIAOMI's mobile phone is about 8% to 9%. If XIAOMI wants to gain more share of China's smartphone market, should he adopt a more radical strategy? Especially in the year of 5G next year, the production cost of 5G mobile phones will definitely be higher than that of 4G mobile phones, so how do you maintain a gross profit margin of 8% to 9%?

Lei Jun:I think XIAOMI's model is a gross profit margin of 8 to 9 per cent. XIAOMI's concept of performance-to-price ratio is that the same thing has the most generous price. 5G increased a lot of costs, competitors' prices will be more outrageous, more expensive, compared with the same product, XIAOMI's performance-to-price ratio will be very good.

The gross profit margin of 8% to 9% is very low, our sales model is mainly e-commerce sales, and the final customer will buy the mobile phone very cheaply. The most important thing is that our own gross margin is very low, the middle channel is very short, and finally the price in the retail market is still very attractive. XIAOMI's model does not need to change much in the 5G era.

• Questions:What is the impact on XIAOMI's IoT business during the 5G transition phase? What are the measures of your IoT business in the 5G field?

Lei Jun:In fact, 5G plays a huge role in promoting IoT. At the beginning of 5G, it may first affect the mobile phone terminal. We think that the year after next and the annual meeting will have an impact on IoT devices, because the characteristics of 5G are essentially designed for the IoT era.