Executive Summary / Key Takeaways

• Strategic Pivot Drives Profitability: Viomi Technology has successfully executed a strategic reorganization, divesting underperforming IoT businesses to focus exclusively on its core home water solutions, resulting in a significant financial turnaround and a return to net profitability in 2024.
• AI and Gigafactory as Core Differentiators: The company's "AI for Better Water" mission is underpinned by advanced AI technology, innovative purification methods, and a world-leading Water Purifier Gigafactory, providing a strong competitive moat through superior product performance, extended filter lifespans, and cost efficiencies.
• Robust Financial Performance in 2024: Full-year 2024 net revenues for continuing operations reached RMB2.1 billion, with income from operations totaling RMB156.3 million, both exceeding previous guidance, demonstrating the effectiveness of the focused strategy.
• Aggressive International Expansion: Viomi is actively pursuing global growth, with successful product launches in North America (Vortex series) and strategic partnerships in Southeast Asia, aiming to establish a significant international footprint.
• Key Factor to Watch: Sustaining Growth Amidst Competition: While the strategic pivot is yielding fruit, continued execution of product innovation, channel diversification, and effective cost control will be crucial for sustaining growth and enhancing market share against well-resourced domestic and international competitors.

The Dawn of "AI for Better Water": Viomi's Strategic Transformation

Viomi Technology Co., Ltd. (NASDAQ: VIOT) is undergoing a profound strategic transformation, shedding its broader Internet-of-Things (IoT) ambitions to sharpen its focus on the burgeoning home water solutions market. Founded in May 2014, Viomi initially ventured into a wide array of smart home products. However, recognizing the immense potential and its inherent strengths, the company has strategically pivoted towards a specialized "AI for Better Water" mission, underpinned by an "Equipment + Consumables" business model. This strategic evolution, culminating in a significant business reorganization in August 2024, positions Viomi to capitalize on increasing global demand for clean, healthy drinking water.

The home water solutions market in China, Viomi's primary operational base, is experiencing rapid growth, driven by rising public awareness of healthy drinking water and supportive policies fostering product innovations. Consumers, particularly the emerging middle class, are increasingly prioritizing high-quality, innovative, and AI-integrated products for modern living. This trend provides a fertile ground for Viomi's specialized approach, even as the broader smart home and appliance markets remain intensely competitive, with numerous players ranging from traditional appliance giants to nimble internet companies.

Technological Edge: The Heart of Viomi's Water Solutions

Viomi's competitive differentiation is deeply rooted in its advanced technological capabilities, particularly in AI and water purification. The company's core technology integrates AI into its water purification systems, offering tangible benefits that enhance user experience and product performance. Precision sensors enable real-time monitoring of the water purification process, facilitating data analysis and automatic adjustments with AI technology. This ensures optimal performance and water quality.

The company employs innovative purification technologies, including high-flow reverse osmosis (RO) membranes and ERO electrodialysis, which allow for a range of water solutions from pure to natural mineral water. For instance, the Kunlun Mineral AI Water Purifier, launched in March 2024, utilizes AI-powered mineralizing filter technology to ensure the sustained release of beneficial minerals, producing purified water with a mineral composition closely resembling natural mineral water. Notably, its silicic acid content can reach twice the national standard for natural mineral water. The Vortex series, introduced in North America, boasts a three-to-one wastewater ratio and a four-year long-lasting filter lifespan, enhancing filtration efficiency and reducing maintenance costs. These innovations directly address consumer pain points, offering superior water quality, convenience, and cost-effectiveness.

Viomi's commitment to innovation is further evidenced by its robust Research and Development (R&D) infrastructure. The company operates a "world-leading Water Purifier Gigafactory" within its Viomi Technology Park in Shunde, Guangdong Province. This facility features an integrated industrial chain, highly automated production lines, and a fully traceable quality control system for core components, maximizing economies of scale and accelerating product development. As of December 31, 2024, Viomi had 1,906 patents registered in China and 9 pending patent applications in the United States, with nearly 1,800 global patent applications in total, significantly outpacing the industry average. The R&D team, comprising 162 employees (31.10% of total staff), develops proprietary AI algorithms and leverages third-party components for features like voice recognition. This technological prowess translates into a strong competitive moat, allowing Viomi to command higher average selling prices (ASPs) for its premium products and drive recurring revenue from consumables, thereby enhancing profitability and market positioning.

Strategic Reorganization and Financial Rebound

The strategic pivot to home water solutions has demonstrably revitalized Viomi's financial performance. In August 2024, the company completed a business reorganization, divesting certain underperforming IoT@Home portfolio products (excluding range hoods, gas stoves, and water heaters) for RMB65 million in cash. This move, while leading to a slight reduction in overall business scale in the short term, was crucial for streamlining operations and enhancing profitability. The financial results of the divested businesses are now reported as discontinued operations.

For the full year 2024, Viomi's continuing operations reported net revenues of RMB2.1 billion (US$290.3 million), marking a substantial 29.3% increase from RMB1.64 billion in 2023, and notably exceeding the company's previous guidance. Income from operations for the year totaled RMB156.3 million (US$21.4 million), also surpassing expectations. This strong performance led to a net income attributable to ordinary shareholders of RMB63.4 million (US$8.7 million), a significant turnaround from a net loss of RMB84.7 million in 2023. On a non-GAAP basis, net income reached RMB79.9 million (US$10.9 million), reversing a non-GAAP net loss of RMB84.6 million in the prior year.

A closer look at segment performance reveals the impact of the focused strategy. Revenues from home water systems surged by 39% year-over-year to RMB1,498.4 million (US$205.3 million) in 2024, now constituting 70.7% of total net revenues. This growth was the primary driver of the overall revenue increase. Revenues from kitchen appliances and others also saw a robust increase of 45.2% to RMB342.9 million (US$47.0 million), largely due to increased sales to Xiaomi . However, consumables revenue decreased by 14.5% to RMB277.7 million (US$38.0 million), primarily due to lower sales of water purifier filters to Xiaomi, though this was partially offset by increased demand for Viomi-branded filters.

The consolidated gross margin for 2024 was 25.9%, a decrease from 31.9% in 2023, attributed to a shift in product mix towards lower gross margin products during the transition period. Operating expenses remained relatively stable, increasing by only 1% year-over-year, reflecting improved operational efficiency.

Robust Liquidity and Capital Strength

Viomi maintains a healthy balance sheet, primarily financing its operations through cash generated by operating activities. As of December 31, 2024, the company reported cash and cash equivalents and restricted cash totaling RMB1,167.50 million (US$159.9 million), a significant increase from RMB225.3 million in 2023. Management is confident that these resources, combined with anticipated cash flows from operations, will be sufficient to meet corporate needs for at least the next 12 months.

Operational efficiency improvements are also reflected in working capital metrics. Inventory turnover days improved to 31 days in 2024, down from 55 days in 2023, indicating more efficient inventory management. Accounts and notes receivable turnover days increased to 57 days in 2024, up from 10 days in 2023, which warrants monitoring, especially given the substantial receivables from Xiaomi. Capital expenditures for 2024 were RMB8.9 million (US$1.2 million), primarily for property, plant, and equipment, intangible assets, and the ongoing development of the Viomi Technology Park, which had RMB40.8 million in outstanding capital commitments as of year-end 2024. The company also demonstrated its commitment to shareholder returns by declaring a special cash dividend of US$0.0293 per ordinary share (US$0.0880 per ADS) in July 2025, paid in August 2025.

Competitive Landscape and Strategic Positioning

Viomi operates in a highly competitive market, contending with a diverse set of players including traditional appliance manufacturers, internet companies, and specialized smart home solution providers. Key direct competitors include Xiaomi Corporation , Haier Smart Home Co., Ltd. (1169.HK), Midea Group Co., Ltd. (000333.SZ), and Gree Electric Appliances Inc. of Zhuhai (000651.SZ). These rivals often possess advantages such as longer operating histories, broader product portfolios, and greater financial and R&D resources.

Viomi's strategic positioning leverages its niche focus and technological differentiation. Its strong strategic partnership with Xiaomi , a shareholder and its most important customer (accounting for 82.7% of net revenues in 2024), provides significant market access and collaborative innovation opportunities. This partnership, recently renewed for three years, helps Viomi counter the scale of larger competitors by integrating its specialized water solutions into a broader ecosystem. While Xiaomi offers a more comprehensive ecosystem, Viomi's proprietary AI and water purification technology provides a qualitative edge in specific product performance and user experience, such as the ease of mobile app integration and real-time data analytics for home devices.

Against Haier and Midea, Viomi's smaller operational scale can lead to higher costs and potentially narrower margins. However, Viomi differentiates itself through faster innovation cycles in its focused segment and a direct-to-consumer sales approach via its app and e-commerce platforms. Its AI water purifier's strong performance during the 2024 Double 11 Shopping Festival, ranking 4th, 5th, and 9th on Douyin, Pinduoduo, and Tmall respectively, underscores its brand influence and competitive standing in key online channels. The company's recognition as 439th in China's Top 500 Brands in 2024, with a brand value of RMB15.3 billion, further validates its market presence.

Outlook and Strategic Initiatives for 2025

Viomi is embarking on 2025 with a clear vision of "Global Water," aiming to provide fresh, healthy drinking water solutions worldwide. Management anticipates continued high-quality growth, with preliminary guidance for the first half of 2025 projecting total revenue exceeding RMB1.4 billion, representing a year-over-year increase of more than 70% from the first half of 2024. This robust outlook is based on current market conditions and the expected positive impact of its focused strategy.

The company has outlined four key strategic initiatives for the future:

• Strengthening Domestic Market Presence: This involves leveraging trade-in policy incentives and continuous advancements in AI technology to accelerate product innovation, meeting the evolving demands of Chinese consumers for an enhanced lifestyle.
• Driving International Market Expansion: Viomi plans to further penetrate key markets such as North America and Southeast Asia. This includes region-specific product development, like the successful Vortex series in the U.S. (debuted on Kickstarter and Amazon in late 2024), and enhanced brand positioning to elevate Viomi's international market visibility, as demonstrated by its participation in CES 2025 and a new strategic partnership with Malaysia's leading home appliance retailer in March 2025.
• Fortifying the Water Purification Product Portfolio: An unwavering commitment to R&D will ensure Viomi continues to lead industry innovation, providing smarter, healthier water purification solutions globally. The launch of the Kunlun 4 Pro Alkaline Mineral Water purifier in May 2025 exemplifies this commitment, aiming to usher in an era of "pure mineral water."
• Deepening Strategic Collaborations: Viomi will continue to maximize the advantages of its Water Purifier Gigafactory and reinforce partnerships, including with Xiaomi (XIACY) and JD.com (JD), to achieve synergy in growth and profitability.

Risks and Challenges

Despite the positive momentum, Viomi faces several pertinent risks. The company's Variable Interest Entity (VIE) structure in China introduces uncertainties regarding enforceability of contractual arrangements and potential regulatory changes, which could impact its operations and financial results. While Viomi has regained compliance with NASDAQ filing requirements, the historical risk of its ADSs being prohibited from trading in the U.S. under the HFCAA remains a long-term concern if PCAOB inspections are ever again restricted.

Operational risks include potential supply shortages, price fluctuations for raw materials, and reliance on a limited number of contract manufacturers. Product defects or quality issues could harm the brand and lead to significant warranty expenses. Furthermore, dependence on a few third-party e-commerce platforms for online sales and the significant revenue contribution from Xiaomi (82.7% in 2024) represent concentration risks. The company also acknowledges material weaknesses in its internal control over financial reporting, though it is actively implementing remediation measures. Geopolitical tensions, particularly between the U.S. and China, could also adversely impact international trade policies and consumer demand.

Conclusion

Viomi Technology's strategic pivot to an AI-driven home water solutions specialist marks a pivotal moment in its corporate journey. The successful divestiture of underperforming IoT assets and the sharpened focus on its core strengths, particularly in advanced water purification technology and efficient manufacturing through its Gigafactory, have already yielded a significant financial turnaround in 2024. This strategic clarity, coupled with aggressive international expansion and a commitment to continuous innovation, positions Viomi for sustainable and profitable growth in a market increasingly valuing health and smart living.

While competitive pressures and regulatory uncertainties in China persist, Viomi's technological leadership, strategic partnerships, and demonstrated ability to execute its focused strategy provide a compelling investment thesis. The company's strong liquidity and clear roadmap for product development and market penetration suggest a promising trajectory, making it a noteworthy consideration for investors seeking exposure to the evolving global home water solutions market.