Tech Newsround – Google & Xiaomi

Google: A badly thought-through remedy.

• The US Department of Justice is recommending that Google be forced to sell Chrome as a remedy for its illegal monopolisation of the search market in a move that looks badly thought through and will probably fail on appeal.
• Google is a company that offers a diverse set of digital services to users and then monetises those services by selling targeted digital advertising based on usage patterns.
• Google is relatively unique in that it understands its users as a profile across all of the Digital Life services that it offers meaning that the key asset of the company is its knowledge graph of both the Internet and its users.
• Chrome is used for both data collection and service delivery meaning that if it were to be severed from Google, it would have very little value to its new owner.
• This is why I think this remedy has very little value meaning that forcing it to share its insights with competitors would be a much more effective solution to impose.
• Furthermore, it will be appealed meaning that there are years of wrangling ahead before any solution is reached.

Xiaomi Q3 24: A lone star in a dark sky

• The one bright spot in the deeply depressed Chinese technology industry is Xiaomi where its transition to making vehicles has gone well and where smartphone sales are also picking up.
• Q3 24 revenues / EPS were RMB92.5bn (up 30.5% YoY) / RMB0.21 just ahead of estimates of RMB90.3bn / RMB0.21.
• The high growth was driven by increasing penetration of the high-end smartphone segment which allowed a 10% increase in average price as well as 39,790 vehicle shipments which did not occur in 2023.
• The SU7 has been well received both as an EV and as part of Xiaomi’s IoT device ecosystem which has 686m active users almost all of whom are in China.
• The company remains on track to deliver 100,000 units this year and critically, this has not undermined financial performance.
• This is because Xiaomi has deliberately limited its profit on hardware, meaning that manufacturing vehicles fits very well into its business model.
• This is the exact opposite of Apple where I argued for years that making vehicles made no sense due to the negative impact that it would have on the company’s profitability.
• However, low profitability also means that the company remains quite expensive from a shareholder perspective.
• With the shares at HKD28.30, the company is on a 2025 PER of 27.0x which is very much at the higher end of the Chinese technology sector.
• This means that the company really needs to deliver on monetising the ecosystem which has been slow to materialise as almost all of the revenues still come from hardware.
• The addition of the vehicle has increased Xiaomi’s opportunity meaningfully as RFM thinks that digital services in the vehicle is a big opportunity, but there are plenty of others vying for this prize and at much lower valuations.
• Xiaomi remains one of the better-run Chinese technology companies, but I would like to see better visibility to profitability from the ecosystem before I pay a multiple of that size.