Chinese smartphone maker Xiaomi Corp has posted a steep drop in second quarter revenue as the world’s biggest smartphone market shrank, hit by strict Covid restrictions. The company’s trouble seems to be both in India and its home country, China. Overall, Xiaomi registered around a 20 percent drop in its global sales at $10.31 billion in the June quarter (Q2).
‘Tax evasion’ troubles in India
In its quarterly financial statement, Xiaomi said that the ongoing investigations and allegations in India could take a long period of time to settle, and the company could receive judgements or enter into “settlements that may adversely affect its operating results or cash flows”. “…it is not practical to quantify” related financial effects (of India probes) “at this stage,” the statement added.
In April, the Enforcement Directorate (ED) had said that they seized Rs 5,551.27 crore of Xiaomi India, lying in the bank accounts under the provisions of Foreign Exchange Management Act, in connection with the illegal outward remittances made by the company.
The company said in its quarterly results that since December 2021, Xiaomi India has been involved in various investigations and notifications initiated by relevant Indian authorities including the Income Tax Department, the Directorate of Revenue Intelligence and the Directorate of Enforcement “in relation to compliance of relevant income tax regulations, custom duties regulations as well as foreign exchange regulations”.
Xiaomi India further received an order on August 11, “whereby certain of its bank deposits were continued to be restricted, alleging Xiaomi India has inappropriately deducted certain costs and expenses, including purchase costs of mobile phones and royalty fees paid to third parties as well as companies within the Group”.
Covid restrictions continue to hurt Chinese market
China’s long-stagnant smartphone sector has been especially hit by the downturn, with unit shipments down 10% year on year in the second quarter, according to research firm Canalys. The country’s consumer consumption has struggled to rebound from the impact of lockdowns in Shanghai and other cities in the first half of the year. Smartphone sales for Xiaomi, which generate more than half of the company’s total revenue, fell 29%. Smartphone sales fell 20% year on year to 70.17 billion yuan ($10.31 billion), missing estimates and marking a steeper decline from the previous quarter, when the company posted its first-ever revenue drop since listing. Net income fell 67% to 2.08 billion yuan, missing analysts’ estimates.