China's Xiaomi Posts 20% Revenue Slump on Covid Curbs

China smartphone maker Xiaomi Corp posted a big drop in second-quarter revenue on Friday after strict Covid restrictions on the mainland hit demand for phones.

Sales fell 20% year-on-year to 70.2 billion yuan ($10.3 billion), a steeper decline than in the previous quarter, when it posted its first revenue drop since listing.

Net income fell 67% to 2.08 billion yuan, missing analysts’ estimates.

China’s consumption has struggled to rebound from the impact of lockdowns in Shanghai and other cities in the first half of the year.

Data this week showed China’s economy slowed unexpectedly in July, indicating the world’s second-largest economy is struggling to shake off the June quarter’s hit to growth from Covid restrictions.

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Smartphone Shipments Down

China’s long-stagnant smartphone sector has been hard hit by the downturn, with unit shipments down 10% year-on-year in the second quarter, according to research firm Canalys.

Smartphone sales for Xiaomi, which generate more than half of the company’s total revenue, fell 29%.

In 2021, Xiaomi saw a sales surge after it grabbed market share from rival Huawei Technologies, whose ability to procure components was heavily cripled by US sanctions.

Yet the bump was short-lived, and the company’s stock price has tumbled nearly 40% since the start of 2022, hit by the slowing Chinese economy and weakening overseas growth.

In India, Xiaomi‘s strongest market outside of China, the company has been subject to government probes for allegedly dodging tax regulators.

In April, Indian tax authorities seized $725 million in assets from the company, claiming it illegally transferred funds abroad under the guise of royalty payents. Xiaomi has denied any wrongdoing.

The weak smartphone market in China and globally has led the company to seek new opportunities.

Xiaomi said earlier this month it had started testing self-driving vehicles in select cities in China.