Good evening, ladies and gentlemen. Welcome to the investor conference call hosted by Xiaomi Corporation regarding the company's 2020 fourth quarter and annual results.

I am [indiscernible] Investor Relations Director. 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 risks and uncertainties and may not be realized in the future for various reasons.

Information about general market conditions is coming from a variety of sources outside of Xiaomi. This presentation also contains some unaudited 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 call today are Mr. Wang Xiang, Partner and President of Xiaomi Corporation; and Mr.

Alain Lam, Chief Financial Officer and Vice President of Xiaomi Corporation and Deputy Chairman of Airstar Digital Technology. To start, Mr.

Lam shares strategic initiatives of the company and review the business and financial performance for the fourth quarter and full year of 2020. Following that, we'll move on to the Q&A session.

I will now turn the call over to Mr. Alain Lam.

Thank you, [indiscernible]. Good evening, everyone.

Thank you for joining us today. I'm very pleased to say that our business has delivered a very solid fourth quarter to end 2020, and I’d like to probably share with you our latest business update.

As you can see from the press release that we sent out a couple of hours ago, in the full quarter of 2020, we continued our full trajectory as our revenue grew 24.8% year-over-year to reach RMB70.5 billion. We also recorded strong growth in our adjusted net profit, which increased to RMB3.2 billion, which represents a year-over-year growth of 36.7%.

In 2020, we achieved record revenue of RMB245 billion, which is up 19.4% year-over-year in a very challenging market, while our adjusted net profit for the period increased to RMB13 billion, which is a record for us and a year-over-year growth of 12.8%. Overall, our business segment delivered solid growth, reflecting the resilience of our business model in a very challenging market.

I would also like to highlight the strong performance of our smartphone business in 2020. In particular, in the last quarter of the year our global smartphone shipment maintained our top-three position with a market share of 12.1%, and we achieved the highest year-over-year shipment growth among the top five smartphone companies.

Moreover, we expanded our global footprint. As of December 31, 2020, our smartphones were sold in more than a hundred countries and regions globally.

We continue to gain our market share in Mainland China. Smartphone shipment rose to 12.2 million units in the fourth quarter of 2020, according to Canalys from 8.1 million units in the fourth quarter of 2019, which was up 51.9% year-over-year.

Correspondingly, as you can see from our presentation, our market share in Mainland China rose to 14.6% in the fourth quarter of 2020 versus 10.7% in the fourth quarter of last year. We continue to strengthen our position in the premium smartphone market.

In December, 2020, we launched our flagship Mi 11, which was the world's first smartphone to feature the Snapdragon 888 chipset. The shipment of Mi 11 in Mainland China surpassed 1 million units within 21 days of launch.

Notably, according to our information, more than 50% of the Mi 11 users in the first month after our launch were new Xiaomi users. In 2020 as a whole, we sold about 10 million premium smartphones globally, which in our definition represent retail prices at or above RMB3,000 in Mainland China and EUR300 and equivalent in overseas markets.

The relentless pursuit of cutting edge technology is part of our core values. In recognition of this, Clarivate Analytics named us among the top 100 global innovators for the third consecutive year.

A major testament to our advanced technology capability lies in the charging area. Following the successful launch of the 120 watt wired fast charging and the 80 watt Mi wireless charging technology in 2020, we launched the next generation remote charging technology, which we call Mi Air Charge in January 2020.

This latest technology enables our users to remotely charge smartphones without any cables, or wireless charging stands. In February, we launched our first quad-curved waterfall display concept smartphone which features an 88 degree hyper quad-curved screen that extends to cover almost the entire frame of the smartphone.

With a smartphone body free of ports or buttons, this futuristic design underscores another revolutionary exploration in the next generation of smartphones. And if you’ve watched the news, we're going to have our next gen product launch next Monday.

We are strategically expanding our retail channel as we seek to cover every country across Mainland China, and to make our Mi Homes accessible to Mi Fan everywhere. As of December 31, 2020, we had over 3,200 retail stores which was up over 1,000 stores on the end of September 2020.

To ensure high operating efficiency, we are building a fully digitized new retail system to support these Mi Homes. We are deploying our proprietary retail management platform to consolidate and analyze real time data, including user traffic, including in-store sales, and including our inventory to strengthen our stores and to strengthen our store management.

A lot of people are interested in our Internet business. We are pleased to say that during the fourth quarter of 2020, we have completed the reorganization of our Internet and software business units, which consolidated our historical Internet unit into three major units.

Number one, the Software & Experience department, which focuses on enhancing our user experience and interconnectivity across devices for our MIUI operating system. Number two, the Internet Business department, implements monetization strategies for our Internet services, including content distribution, business cooperation, and marketing strategies.

And number three, the Data Services Platform is focused on enhancing big data analytics, and leveraging our data to improve our business operations. We have appointed our next generation young talents to lead each of these Internet departments.

We believe this young management team will bring better experience to our users, help our Internet service business growth and create greater value for Xiaomi as a whole in the future. Now with that, let's dive deeper into each of the segments.

First, starting with smartphone. In the fourth quarter of 2020, our smartphone revenue increased 38.4% year-over-year to RMB42.6 billion, ending the year on a very upbeat note.

Smartphone revenue for the year was RMB152.2 billion, which was up 24.6% year over year. If you look at the operating results in our smartphone business, for both the fourth quarter and for 2020 full year, we achieved year-over-year growth in all of smartphone shipments, ASP and gross margin.

As we increase our smartphone shipment globally, we're also selling a higher proportion of mid to high-end phones and increased our 5G penetration, which help to lift the average selling price. We hope to further improve our product mix and achieve greater operating efficiency in 2021, which allows us to improve our smartphone gross margins.

In Mainland China, we further strengthened our leading position in the online channel. Our online smartphone market share increased to 29.5% in the fourth quarter of 2020, according to the third party statistics, from 17.1% a year ago.

Additionally, our sales volumes during the Singles’ Day and Double 12 Shopping Festivals in 2020 ranked number one amongst Android smartphones on all major e-commerce platforms including JD, Tmall and Suning. As we continue to execute our dual-brand strategy, we have become a more firmly established in the premium smartphone market.

Following the launch of Mi 10 series, as I mentioned earlier, we expanded our premium brand portfolio with Mi 11 starting at prices -- with prices starting from RMB3,999 and we’re very bespoke deep in the market as I previously mentioned. Also our launches of the Redmi Note 9 series priced at or above RMB999.

demonstrate our commitment to making smartphones -- to making 5G and advanced technology accessible to the mass markets. Now let's move on to the IoT and lifestyle products.

We remain committed to our core Smartphone × AIoT strategy, which continues to underpin our successful performance. At the same time, we've been very focused on improving our user experience by reducing our SKU last year.

Leveraging our large user base and leading position in this market our IoT and lifestyle product revenue increased 8.8% year-over-year to RMB21.1 billion in the fourth quarter of 2020. And as a leading consumer AIoT platform, we further expanded our global AIoT user base during the quarter.

As of December 31, 2020, the number of connected IoT devices on our AIoT platform reached 324.8 million, up 38% year-over-year. Moreover, the number of users who had five or more devices on Xiaomi IoT platform exceeded 2 million users for the first time.

And it was up 52.9% year-over-year. In December, our AI assistant had 86.7 million MAU an increased by 43.5% year-over-year.

Also on the Home App, MAU reached 45 million up 22.1% year-over-year. In the TV market, we further strengthened our leadership position and further broadened our premium and ultra large screen TV portfolio.

Global shipment of our smart TVs reached 12 million units in 2020. According to AVC, our TV shipment in the fourth quarter of 2020 ranked number one in Mainland China for the 8th consecutive quarter.

In particular, in the large screen portfolio, our shipment of over 70-inch smart TV also ranked number one in Mainland China with a market share of over 27%. We have devoted more resources to our AI speakers and routers to enhance smartphone connectivity and to enhance interactive experiences.

As you can see, the global shipment of AI speakers exceeded 10 million units in 2020. Global shipment of a router exceeded 15 million units in 2020.

Both of them achieved leading market share in the Chinese market. We have also expanded our overseas footprint for IoT and lifestyle products as our brand has become more recognizable globally.

Our IoT and lifestyle products was sold in more than 80 countries and regions in 2020. And products such as Mi Band, Mi robot vacuum cleaner, and our electric scooters continue to be well received by overseas users.

Looking ahead, we're trying to capture a greater share of the overseas market and bring a broader range of novel and innovative IoT products to an even bigger user base in the global market. Now let's move on to the Internet services segment.

In the fourth quarter of 2020, our Internet services revenue increased 8.4% year-over-year to RMB6.2 billion. In this quarter, our advertising revenue hit an historical high of RMB3.7 billion an increase of 23.1% year-over-year.

Also in the fourth quarter, our Internet service margin rise to 68.4%, which was an historical high due to a significant contribution from our advertising revenue, and as our fintech gross margin has recovered from the lows in the early part of 2020. Our global MIUI MAU increased 28% year-over-year to 396.3 million in December 2020.

In Mainland China, the MAU of MIUI grew from 109.4 million in September 2020 to 111 million in December 2020 and further extended to 114.5 million in January of 2021, which underscore a growing trend in our user base. Furthermore, if you look at our smart TV and Mi Box business, the MAU increased 48% year-over-year to over 40 million in December of 2020.

We want to deliver the best quality user experience to our users. If you look at our latest MIUI 12.5 system, it enhances user experience further and further protects user privacy.

To highlight a few improvements, MIUI 12.5 is faster, lighter and smoother and has an improved dynamic design and interface. To increase privacy protection, it provides fuzzy location and other functions to avoid unnecessarily disclosing sensitive user information.

An important feature of MIUI is also to facilitate cross-device collaboration, seamlessly synchronizing work between smartphones and laptops, which we're seeing increasing features in 2021 as we launch our new series of laptop products. Our Internet business overseas continues to grow rapidly.

In the fourth quarter of 2020, overseas Internet revenue increased 55.1% year-over-year and accounted for 14.1% of our total Internet services revenue. This growth was boosted by increasing overseas smartphone sales volume and the expansion of our overseas user base.

Talking about overseas let's turn to the overseas markets. In the fourth quarter, our overseas revenue grew 27.6% year-over-year to RMB33.8 billion.

Revenue from the overseas market reached RMB122.4 billion in 2020, up 34.1% year-over-year. Our smartphone market position remains solid in major markets worldwide, with our market share ranking number one in eight markets globally, and among the top five in 54 markets, according to Canalys.

Particularly I'd like to highlight our success in Europe. We ranked top-three in Europe for the third consecutive quarter while gaining strong growth momentum in Latin America.

In the fourth quarter of last year, our smartphone shipment in Europe climbed 33.9%. And we had a market share of over 15%.

Notably, we're ranked number one in Central and Eastern Europe for the first time ever and our smartphone shipment in the region increased 17.5% year-over-year with a market share of close to 25%. We also retained our top spot among top-three in Western Europe as our smartphone shipment rose 57.3% year-over-year.

Lastly talking about Latin America. Our smartphone shipment in Latin America surged 215.4% to achieve a market share of 9%, ranking number four in the region.

As an effort to increase our market share in the overseas market, I would like to highlight two channels. Number one is our online channel.

We shipped more than 16 million smartphones through the online channel in the overseas markets. This is more than 90% jump year-over-year.

If you look at our carrier channel, in the overseas market, our smartphone shipment has already exceeded 9 million units, which represents a growth of over 4 times year-over-year. And if you look at the market share, it has increased to 7.4% in the fourth quarter of 2020.

In the next few slides I'd like to discuss our financials. As I mentioned before, in the fourth quarter our revenue reached RMB70.5 billion which was up 24.8% year-over-year.

In the fourth quarter revenue from smartphones increased 38.4% year-over-year to RMB42.6 billion. Revenue from IoT and lifestyle products grew to RMB21.1 billion, which was up 8% year-over-year, and 16.2% quarter-over-quarter.

Revenue from Internet services reached RMB6.2 billion which was up about 8.4% year-over-year, and 7% quarter-over-quarter. Despite the pandemic, and the global economic uncertainty, our total revenue increased 19.4% year-over-year to reach RMB245.9 billion in 2020, which was driven by strong momentum in our smartphone business, as well as healthy performance from our IoT and Internet services segments.

Overall, our gross margin showed continuous improvement. Our overall gross margin increased to 16.1% in the fourth quarter of 2020, compared with 13.9% in the same period of 2019, and 14.1% in the prior quarter.

If you look at the gross profit margin for our smartphone segment, it has rose to 10.5% in the fourth quarter from 7.8% in the fourth quarter of 2019, which was mainly due to the improvement of our product mix. The gross profit margin for our IoT and lifestyle products increased from 9.4% in the fourth quarter of 2020 to 12.1% due to strong growth in IoT products with higher gross profit margin.

As I mentioned before the gross profit margin of our Internet services segment increased to 68.4% in the fourth quarter, due to higher revenue contribution from our advertising business. We continue to step up our investment in brand building and R&D.

Our operating ratio climbed to 13.4% in the fourth of 2020 from 12.1% in the same period of 2019. Our R&D expenses totaled RMB9.3 billion in 2020, which was up 23.5% year-over-year.

As a summary, our adjusted net profit went up to RMB3.2 billion in the fourth quarter of last year, which was up 36.7% year-over-year, and our adjusted net profit margin grew to 4.5% in the last quarter of last year. For 2020, despite increased investment, our adjusted net profit reached a record high of RMB13 billion, up 12.8% year-over-year, and represents an overall net profit margin of 5.3% for the year.

At the same time, we maintained our efficient approach to managing our working capital. Notably, our AR turnover days were relatively steady at 15-days in the fourth quarter of last year.

Inventory turnover days was 58-days in the fourth quarter, compared with 54-days in the third quarter. The cash conversion cycle was very healthy at minus 30-days.

We continue to generate strong operating cash flow in our business. In the fourth quarter net cash generated from operating activities totaled RMB13.3 billion, and the adjusted operating cash flow was RMB11.9 billion.

Net cash generated from operating activities reached RMB21.9 billion in 2020 and was RMB16.6 billion if you exclude the impact of our fintech business. Our enhanced cash position set us up with a solid foundation to capture better market opportunities.

As you can see from this chart, as of the end of last year, we had cash resources of over RMB100 billion, which was up 63.5% year-over-year. Thanks to strong operating cash flow and our financing in the capital markets.

Our strategic investments make remarkable achievements with an increasing number of our investee companies having gone public in both Mainland China and overseas in 2020. As of December 31, 2020, we have invested in over 310 companies.

In 2020, we generated an after tax net gain of RMB2.2 billion from disposal of investments. As of the end of last year, the total value of our investments reached RMB67.3 billion, which represents HK$3.2 per share.

We'll continue to build on our resources and advantage and invest aggressively to empower our ecosystem companies, which we believe will generate business synergies, and steer the evolution of smart manufacturing over time. Finally, I'd like to give everyone an update with regard to the ongoing litigation in the U.S.

On January 14th of this year, the U.S. Department of Defense designated Xiaomi as a Communist Chinese Military Company, or CCMC, which would have prohibited U.S.

investors and U.S. persons from investing in our securities.

We believe that this designation is on mobile. And as such, on January 29th, we filed proceedings in the U.S.

District Court against this designation. On March 12th as all of you may have seen, the court has agreed and has granted our motion for preliminary injunction, thereby removing restrictions on purchasing and holding Xiaomi securities by U.S.

persons. We do believe that this decision -- the decision to designate us as a CCMC is arbitrary and capricious.

And the judge agreed with us. We will continue to request that the court permanently remove that designation.

And we will keep everyone updated on new developments. With this, we've concluded our prepared remarks.

We'd like to open it up for questions from the investors.

Thank you, Alain. We will now proceed to the Q&A session.

Please limit your questions to a maximum of two, so that we could allow more investors to ask their questions.

My first question is regarding the monetization in overseas markets. Looks like that seems to be picking up quite steadily, what about 12% of revenues in Q3, looks like about 14%, growing at about 55%.

Could you talk a little bit about what are the avenues that you're exploring in terms of monetization? And could you also talk a little bit about what is in store for the future?

That's my first question. Second question is specific to China.

We have seen fairly good market share gains in the last several months, going from 10% to 14%, 15% market share, MAU just starting to grow. So how should we and investors think about the relationship between Xiaomi smartphone share gain, and China MAU growth, given that that’s going to be one of the key drivers for Internet services growth in China?

Thank you.

Okay. This is Xiang.

Maybe I will give my comment and then Alain will add. So the first question is related to the Internet service revenue overseas, right?

So I think officially -- we have not officially started the monetization outside of China, but because of our strong growth of our smartphone business, because of the market share increase in many, many regions, especially in the European regions, that will generate very healthy Internet service revenue growth. And at the same time actually we are building partnership with the local players, try to build a ecosystem for the future to further monetize our business, actually our overseas Internet service business overseas -- in overseas market.

That's the answer. We'll see a very, very healthy and strong growth in that segment.

So the second question is related to?

China MAU

Of course in China, you see, we have very healthy MAU growth, and also not only because of the MAU increase and also because we are driving more high and premium tier smartphones that will also help to generate higher ARPU from the Internet services, for example, gaming and other services. And also we continue to increase our MAU not only on smartphones, but also on smart TVs.

That's also helped us to have a more service opportunities to our users. That's a major reason for the growth.

Hi, Gokul, it’s Alain. To supplement what Xiang has said, in a couple of ways.

In the overseas market obviously we’re exploring different ways of monetizing further, whether it is gaming, whether it’s advertising. We saw quite healthy growth in our browser business actually in the overseas market.

So that's number one that we'll continue to explore other ways to monetize that further. But as you can see, I think the growth in our user base allowed us to have extract a higher percentage of our Internet services business in the overseas market.

In China I mean, obviously we understand a lot of analyst concerns about our Chinese monetization and that's why we decided to put in the January 2021 MAU numbers. As I said -- as I mentioned before, the Mi 11, a lot of the users come from new Xiaomi users, which allow us to grow our MAU base and we continue to see quite healthy trends in February and in March of that MAU numbers.

So that's point number one. Point number two is on the premium side we've also seen a much higher monetization in our premium smart phones versus our entry level smartphones in terms of Internet service, right?

I think, the gaming revenue as we look at Mi 11 versus some of the other phones, it has monetized very well. In fact, it's multiple times over some of the other phone models, number one.

Number two is also, I think, if you look at the pre-low revenue -- pre-low ARPU coming from the premium smartphones, is also much higher than the other kind of entry level smartphones. So with that, I think hopefully, as we continue to penetrate the premium side of the market, we continue to see higher monetization in our Internet services revenue.

I mean at the same time, I'll caveat by saying that we've also been trying very hard to improve user experience by streamlining some of our advertising space. So, I think this is kind of a balancing act, but I think we’ll see very healthy advertising revenue this year.

Gaming has been -- I think we have to see the effects from some of the revenue sharing model going away. And then we hope growth will starting second half of this year.

And then I think that, we are obviously exploring other monetization avenue like Xiang said in the TV market where we have a very good market share.

My first question is about gross profit margin. Your gross profit margin in fourth quarter is very strong, especially for smartphones, which increased to 10.5%.

What’s behind this positive change? And how much of foreign exchange affected?

And how can we forecast gross profit margin in 2021 since there is some prices of semis or raw materials goes up a lot? That's my first questions.

And then I’ll have a follow-up.

Yes, we have a very strong growth margin increase in Q4. I think the reason, the major reason is number one, the product mix, while we are shipping more and more premium tier smartphones to the market.

So that’s generated more profit. That's one.

Number two is -- that’s product mix. Number two is, because of the shortage, so we were not very aggressive on marketing or promotions.

So that's also helped us to have [Audio Gap] supply. I think we want to carefully use our resources.

We hope we can maintain healthy gross margins.

And my second question is about the offline store. Since offline store will be a very key strategy to improve premium end market especially in China, could you tell us what's your plan and strategy for opening those stores, especially in third tier or fourth tier cities in China?

We have a plan to cover all the countries of China with Xiaomi stores. So we are on track to build those stores.

By the end of 2020, we have 3,200 stores, right? So actually, we keep adding the numbers, you see the increased rate will be very high.

So that's one side, we continue to build more stores. Actually, even more importantly, not only building more stores, but also we use our -- we do our own system to manage the stores.

We will have a -- we designed a system to track the traffic, and also the sales of each store so that we can improve the efficiency of the sales channel. This is long-term strategy for Xiaomi offline sales, the Xiaomi offline sales.

I think, in the 2021, we will build more and more stores in the tier two, in the tier three, tier four, tier five cities to cover almost every company, that’s the goal.

I think in respect to our offline store strategy, obviously, we are approaching it from a relatively asset-light approach as well. We rely on a lot of our partners to open the stores.

And we will support it with our system to enable them to achieve the same level of operating efficiency that we’re achieving in our own stores. So, I think that the plan is obviously to build it -- to have an aggressive plan of building the store network out to compete with some of our competitors.

But at the same time, I think we will maintain a relatively asset-light approach. And -- but using our systems enables our partner to achieve the same level of operating efficiencies.

Thanks for taking my questions. So, the first question, actually, I would like to ask on the strategy of the company in order to acquire some of the ecosystem company like -- just the announcement of Zimi.

So I would like to know the intention and how to complete this co-proposal in the IoT business. That's the first question in terms of IoT strategy.

The second thing is about, we see the growth in the IoT business, seems a bit lower in terms of third quarter recovery. What's the reason behind and how should we see the growth momentum in 2021?

What's the plan for the product launch and how the company achieve further product expansion and also market expansion? Thanks.

Sure. Thanks, Kyna.

I think on Zimi, I think I will note a couple of things and thanks for pointing this out. We did release a circular today that said we're going to apply remaining 50.1% of Zimi that we didn't own already.

So first of all, as a background, we spent -- it required US$100 million last year to acquire 27.4% of Zimi, which -- because we have some existing ownership which took us to 49.9%, that was last year. And this year, we're spending close to US$200 million to acquire the remaining portion, which if you do the math, it's actually the same valuation as the year ago, when Zimi had continued to grow.

The reason for acquiring Zimi is because we do think that they have a number of core competence that we like, especially in terms of IoT [Audio Gap] that not only is the product development capability, they also have their own kind of supply chain management system that can help us. And so I think that we will selectively look at [Audio Gap] portfolio further.

Second with respect to IoT business, I think two things impacted the growth this year. Number one is, obviously, the pandemic, which delayed the rollout of some of the larger white good products earlier part of this year, which we’ve seen picking up in the second half.

Second is, we have been trying to optimize the number of SDKs to focus on those that are more focused -- connected to our smartphone business. That's why we have deliberately tried to manage the number of SKUs that we have in our portfolio.

One to further enhance the interconnectivity with the smartphone and second to help enhance user experience, like how we do it through our Internet business. In the first quarter of this year, we have already seen a very significant pickup in the IoT business.

I think, especially the 50s and so some of the white goods are in the first half -- in the first quarter before Chinese New Year. We've seen some of them shipping very well.

And as you can see on TV, which we launched Redmi TV last month, I think it’s also been selling quite well. We're seeing a pretty significant recovery in that business in the first quarter.

And also the second thing is obviously, as I mentioned before in my prepared remarks, we have seen -- we're going to expand aggressively into the overseas business. We already had a pretty significant business last year in the overseas IoT business.

And we'll continue to focus on that, again, leveraging on our [Audio Gap] smartphone market share, our brand name to get more of our IoT products overseas.

My first question is about the Internet sector. Take the Internet sector as an overall, we find that the cellphone companies face difficulties in the same area in the second quarter -- second half last year.

But however, we still got double-digit increase in Internet revenue. So we think that is good.

Could you please give us more colors on this year's Internet revenue increase? This is my first question.

And the second one related to AIoT. We noticed that some third-party AIoT part companies is trying to enlarge their exposure in AIoT area to empower or enable more home appliance companies to be connected in this area.

So how do you see this kind of competition with our AIoT? Considering the competition will we be more ambitious in the AIoT area?

And what's more, how do -- another question, how we consider about another AIoT like auto, because auto is very interesting AIoT area investors are curious about? Thank you.

Sure. Let me take the Internet question first.

I think we’ll continue to see a pretty healthy growth in our Internet business this year. I think obviously, our Internet business has a lot of different components.

And I think last year, the growth was certainly impacted by our fintech business because as we try to -- as we continue to reduce our balance sheet usage, so you've seen a corresponding decrease in revenue in our fintech business. But I think in the second half of last year, we’ve already seen although the revenue decreased -- continued to decrease for fintech business on a year-over-year basis, but the margin has improved, as we shifted to a more kind of a platform business as opposed to a balance sheet business.

And we expect that to continue this year. So if you look at our Internet business this year, we are quite optimistic, but we'll get hit in a couple of ways I think.

Number one in our gaming business, when year-over-year comparison in the first half will be very difficult, just given last year it was a good first quarter in the gaming business due to the pandemic. And also on the fintech business, again, as we continue to shrink our balance sheet usage the top line will decrease, but the margin will continue to improve.

So I think that’s the first part. Second part is obviously as we mentioned before, as our shipments continue to grow, we do expect the advertising revenue to pick up as a result and as our premium segment of our smartphone continue to grow, we do expect the revenue to increase disproportionately versus some of the entry phones.

And also on the TV side, as we continue to maintain our leadership position in TV, we are looking at beyond just kind of advertising is there other ways to monetize in terms of content and other sources. So I think that we are quite optimistic about the Internet business as a whole.

In terms of the AIoT competition I mean obviously, I think our success has certainly led to many of our competitors wanting to get into this area. I think we are differentiated in a couple of ways.

Number one is obviously, the connectivity that we are exploring to all of our AIoT businesses, AIoT products with our smartphones. So not only are we just producing kind of a value for money consumer electronics products, but we’re also exploring the interconnectivity between devices and between our cell phones, right?

So that's something that I think will have a competitive advantage over some of the other players that simply make one product or a couple of products, they don't have the portfolio to compete with us, right? I think that's the first part.

Second part obviously, as you know, we do our ecosystem product, AIoT product a lot from our investments, from our ecosystems. And so I think we do have a big network of people doing R&D for us.

So it's not just our own R&D. I mean obviously we have to have our own full R&D, but at the same time, through our 300 plus investee companies, more than a hundred are focused on ecosystem products.

I think we're using that and leveraging their R&D capability, leveraging their networks to help us build better products for our users.

Just add one more thing. We are putting a lot of efforts to improve the user experience, with our smartphones and AIoT products.

So not only in the connectivity side, but also user experience. So for example, a smartphone can very, very easily and smoothly connect to different screens to share content among different screens and the devices.

And also we use one simple app to manage all the IoT products, wearables in your home, on the go. So I think that's the uniqueness of our business.

We’ll continue to invest into that area. We are still the largest AIoT platform in the world.

So yes, we will focus on the user experience. I think that’s the strength of us.

Thanks Xiang and Alain. Could you just please talk a little more on auto?

So see we made announcement. We made a notice, right, in the Hong Kong…

Yes, we put out an announcement saying that we haven't really established an internal project on making electric vehicles. So, there's not much else we can say about that at this point.

Thanks for taking my question. I have two.

The first is about the GP margin on the smartphone. So given the current very tight chip supplies and also some chip shortages across the supply chain.

So, just wonder what's the strategy for Xiaomi to secure enough -- sufficient chip supply and whether there's any cost pressures related to our smartphone and IoT business? Thanks.

So, yes, right now, we are in the shortage, not only us, the whole industry is in the challenge of the shortage. So this is -- I think in the -- this is very normal in the semiconductor industry, every couple of years, maybe three, four years, the industry will have the similar challenges.

But this time, it’s very, very serious. So what we can do is, we work with our suppliers very, very closely to optimize the supply, and also the -- carefully manage our product launch schedule so that we can make up, how to say, to mesh with the supply to continually improving efficiency, carefully use the capacity or resources we have.

Another thing I want to mention is, we actually have a very, very strong growth in the 2021. So even during the shortage we'll continue to grow our businesses.

We'll see a strong growth. We are working with the major suppliers very, very carefully.

So we are -- I think we stay confident for the year 2021 for the business growth not only smartphones, but also in IoT products in China and also out of the China.

And then my second question is about your offline versus online distribution channels. Given you ramped up the offline channels in the lower tier cities, do you have any target regarding the sales contribution from offline in China in this year, and/or maybe in the coming few years?

And also, what's the implication on the margin side? Do we see any positive or negative impact from these sales mix changes?

So, our target is to have a Xiaomi store in every country of China. This is our plan for China domestic market.

So we are working on this plan, on the execution side. So we see a strong momentum for the increase of offline stores, not only the number of stores, but also the IT system to manage those stores.

So that we design our systems so that we can track on daily basis our activations, sell-in, sell-out, so that we can improve efficiency. That's the key part of our business model.

So yes, this is what we are doing now. So, yes, I think you see our -- the gross margin increase in Q4 is because of the shortage and also the product mix.

But we will continue to optimize our cost structure, so that we can offer more and more, very, very attractive products to consumer, that’s it, that’s our plan.

And just a very quick follow-up on the Zimi acquisition. So just to make sure we're clear that it is consolidated starting from this month or it will not be consolidated?

And is that possible to discuss a bit about their revenue size last year?

Yes, thanks. Well, I mean, we still have to go through the final process before closing.

We are hopeful that the closing will be in the first quarter of this year. So after that we'll consolidate Zimi as a 100% owned subsidiary, but it's not going to be a very significant impact to our P&L.

My question is on the Internet side. I think in the fourth quarter the Internet gross margin reaching to 68.4%.

This is much higher than the third quarter, even the same time last year. At that time it was basically only 60% to 63%.

So we want to know, what the main reason, high margin on the Internet business and can we expect this kind of margin going forward? And also on the Internet is basically on the revenue growth side, because if we're looking at this year, the value added revenue in fourth quarter, value added revenue actually declined 11%.

And the -- so we going forward are looking at that business -- I mean, the only one has high growth being advertisement, so -- and the gaming is actually -- is also now really growing. So can we say I mean, because of Alain mentioned about I mean being very positive on Internet.

So can we say that really high growth there, more kind of on advertisement? Okay, I think that’s my questions.

Thanks, Robert. I think as I mentioned before, I think Q4 the gross margin for the Internet business was really driven by product mix in a way, right, being the advertising revenue being a bigger -- a pretty high proportion of that business, number one.

And also number two is the fintech business, as I mentioned before, has improved in the gross margin over the few quarters. Is that sustainable going forward?

We would like to think that, over time, we would like to make sure that the Internet business become more balanced in terms of that portfolio, with a fair mix from advertising with a fair mix from games, and other value added services. So with that, I am not -- obviously I’d like to say we can achieve a higher gross margin, but I’d like to optimize our portfolio as well.

And make sure that we have a healthy mix between advertising and gaming and other value added services. If that makes sense?

Probably another follow-up is also on the margin side. Because I mean like Xiang said right now, I mean basically a lot of components, utilities, especially ICs, how do you think about the impact because of a lot of components, ICs recently go higher, chipset and there are all these components.

I mean do you expect this impacts margin on the basically second quarter or even whole year, this year?

I think yeah, we will continue to optimize the cost of our hardware devices. That's for sure.

We'll continue to do that. But we know during the shortage a lot of increase of our costs.

We may have to pass part of the cost increase to the consumer of the different cases -- in the different cases. So we will continue actually to monitor the cost impact on our hardware.

But far we are doing okay. We feel pressured but we are looking okay.

Thank you very much.

Thank you.