Xiaomi Corp’s quarterly revenue slid 19 per cent in a reflection of crumbling demand for electronics and internet services in a sputtering Chinese economy.

Sales fell across all its businesses, led by a 24 per cent slide in smartphone revenue and 28 per cent plummet overseas. That overshadowed better-than-expected quarterly profit, after cost reductions and a big one-time gain from the value of its investments propped up the bottom line.

Xiaomi is in the midst of a capital-intensive transformation that co-founder and Chairman Lei Jun has called his last major undertaking: becoming a player in the electric vehicle market. The company, best known for razor-thin profit margins on high-spec smartphones, is looking to make a move into the crowded EV space and investing significant time and money into the project. Xiaomi aims to begin another round of testing for its prototype EV this summer, sticking with a target to begin selling models by 2024, executives said.

To offset the heavy investments required, Xiaomi has tried to keep a lid on costs such as marketing. Its net income came to 4.2 billion yuan ($596 million) for the March quarter, helped by a fair-value gain on investments of more than 3.5 billion yuan. That exceeded the average estimate of 2.5 billion yuan. Revenue of 59.5 billion yuan also came in above an average forecast of 58.8 billion yuan for the same period.

Chinese slowdown

To sustain its EV push, which would take years to pay off, the company has to rely on its traditional business of consumer electronics and online services, which has taken a big hit from China’s economic slowdown. Double-digit declines in the global smartphone market have yet to run their course, as IDC’s latest data show a 23.5 per cent drop in Xiaomi handset shipments during the first quarter.

“Of all the vendors that are suffering during this tough economic climate, Xiaomi is facing the brunt of it. Inventory is highest for Xiaomi in almost all the regions,” said Nabila Popal, research director with IDC’s Worldwide Tracker team. “Xiaomi also lost its lead in the India market, which has got to be quite painful for the company.”

Xiaomi launched a new flagship Xiaomi 13 Pro handset in February, which it quickly followed up with a 6,499-yuan Xiaomi 13 Ultra a month ago. Both phones feature Leica Camera AG branding and Sony Group Corp.’s most premium 1-inch image sensors, placing the emphasis on upgrading Xiaomi’s premium range. The company, like others in the market, is trying to gauge when the oversupply issue will be rectified.

“Everyone is anxious about exactly when the tide will turn and wants to be first to ride the wave of recovery,” Popal said. “However, it’s a tricky situation. Anyone who jumps in too soon will drown in excess inventory.”