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Revenue from smartphones, which makes up 60% of total sales globally, fell 11.1% on-year, dragged down by low margins in India and flat growth in overseas markets.
“As we are launching into Diwali, the gross margin in India in the third quarter tends to be much lower than the second quarter,” said Alain Lam, vice-president and chief financial officer, Xiaomi<\/a> Corp during its third quarter earnings call.
The inventory clean-up has resulted in a quarter-over-quarter decline in terms of gross margin, he added.
The decline in gross profit margin growth from India happened on account of more sell-ins, promotions and partnerships, said Tarun Pathak, research director, Counterpoint Research.
Xiaomi said its raw material inventory remained healthy as supply normalized, while finished goods fell through inventory clearing in overseas markets.
“India (inventory) after Diwali has… gone down to a pretty healthy level, although I think it might take another quarter or so for that to be clear,\" Lam said in response to an analyst's query.
Xiaomi Corp's net income declined 59.1% on-year to 2.12 billion yuan in the third quarter on account of softening consumer demand and Covid-19 restrictions in its home market in China.
“India helped Xiaomi to ease out inventory. The entry tier faced pressure and inventory in India is now better than what it was a quarter ago,” Pathak said.
India remains a key market for the company, contributing almost 23% of global sales, Pathak added. “Xiaomi will be looking at the mid- to premium segment growth in India in the coming quarters,” he said.