Xiaomi Corporation ('Xiaomi' or the 'Group'; SEHK Stock Code: 1810), an Internet company with smartphones and smart hardware connected by an Internet of Things (IoT) platform at its core, and Meitu, Inc. ('Meitu' or the 'Company'; SEHK Stock Code:1357), a mobile Internet company that has been transforming the way its users create and share beauty, have entered into a strategic cooperation agreement today. Under the agreement, Xiaomi will receive an exclusive global licensing of the Meitu Smartphone brand and a global licensing of image-related technologies and domain names in relation to all future Meitu branded smartphones (other than the Meitu V7 model) (the 'Cooperation Smartphones') and certain smart hardware products. This cooperation mainly aims to integrate Meitu's advanced imaging technologies and its distinctive Meitu smartphone brand with Xiaomi's leading hardware and software experience and excellent supply chain and efficient new retail network.
Under the terms of the agreement, Xiaomi will be responsible for the design, research and development, production, business operation, sales, and marketing of future generations of the Cooperation Smartphones. In addition, Xiaomi is also granted the exclusive license to use the Meitu brand in relation to a range of smart hardware products, with the exception of certain skin-related smart hardware products. Meitu will provide its proprietary imaging technologies and beautification algorithms to Xiaomi for future Cooperation Smartphone camera in areas that include, but are not limited to: image enhancement, human pose estimation, image restoration, smart retouching, image segmentation, facial detection, and facial landmark detection.
The licensing arrangement is to be implemented over stages. Stage 1 begins upon the official launch of the first Cooperation Smartphone, Meitu will be entitled to a ten percent share of the gross profit from each Cooperation Smartphone unit sold. This stage will continue over a maximum of a five-year period. Immediately afterward, Stage 2 may commence at the election of Xiaomi, otherwise the cooperation will automatically terminate.
In Stage 2, Meitu will be entitled to a specific dollar amount for each Cooperation Smartphone sold, subject to an annual guaranteed minimum amount of US$10 million. This stage will continue for 30 years after the official launch of the first Cooperation Smartphone. Meitu will also be entitled to a fifteen percent gross profit per unit share of any Meitu branded smart hardware products sold under the licensing arrangement during a period of 30 years after the official launch of the first smart hardware product.
Earlier this year, Xiaomi embarked on a multi-brand strategy to cater to the needs of different user segments. In August 2018, Xiaomi launched a new smartphone brand, POCO, in India and is now available in most of Xiaomi's overseas markets. It also launched a gaming smartphone brand, Black Shark, to deliver the ultimate gaming experience to users. While males account for the majority of Xiaomi smartphone users, over 70% of the Meitu Smartphone users are female: by coming together in this way, both companies will have the opportunity to enhance the gender balance of their respective user bases.
'The strategic partnership opens up a broad range of possibilities to provide better user experience to users around the world, 'said Xiaomi Founder and CEO Lei Jun, 'Combining the image-related algorithms and technologies of Meitu, as well as the leading hardware, software, experience and capabilities in AI research and development and Internet services, strong supply chain and production capacity management, and efficient new retail network of Xiaomi, the Cooperation Smartphone business is set to create synergies to expand and diversify the user base and provide a new growth opportunity to Xiaomi's smartphone business.'
Since the launch of its first device in 2013, Meitu Smartphone has sold approximately 3.5 million units that empower its users to take photos of exceptional quality. This partnership will not only accelerate user growth for Meitu Smartphone but also for the Meitu photo editing and social sharing apps that will come pre-installed on the devices. It will also allow Meitu to develop an asset-light business model to quickly optimize its revenue structure and increase its gross profit margin. Finally, the deal will allow Meitu to better focus on developing its next-generation image processing, AI technologies, and image algorithms: Meitu plans to invest more personnel and resources into these key areas, while also leveraging Xiaomi's leading capabilities in smartphone business.
'As we look ahead and evaluate our strategy of continuing to grow our user base, we realize that working with a partner who has a scalable smartphone business will significantly accelerate the process of putting Cooperation Smartphones into the hands of more users,' said Meitu Chairman Cai Wensheng. 'We believe Xiaomi is the perfect partner because it is currently one of the world's largest smartphone brands. It has also established itself as the world's largest consumer IoT platform.'
Xiaomi has over 132 million smart hardware devices connected to its IoT platform, excluding smartphones and laptops. It's 2018 smartphone shipment has exceeded 100 million smartphones by end of October 2018.