Xiaomi Profit Drops 43% as Memory Costs and EV Transition Weigh on Growth

1. Xiaomi Corp. reported a steep decline in first-quarter earnings, with adjusted net profit falling 43.1% year-on-year to 6.07 billion yuan, missing analysts’ expectations [para. 1][para. 3]. Revenue dropped 10.9% to 99.14 billion yuan ($14.6 billion), below the consensus estimate of 103.4 billion yuan [para. 3]. The company’s shares slipped 0.8% to HK$29.76 on Tuesday, having nearly halved from a peak of HK$60 after a product launch in late September, erasing over HK$800 billion in market value [para. 4]. Xiaomi announced a new share-buyback program of up to HK$20 billion over the next 12 months starting from its annual general meeting on June 2, after repurchasing about 400 million shares for HK$14.6 billion under its previous program [para. 5].

2. Xiaomi’s smartphone business, which accounts for nearly half of total sales, saw revenue fall 12.5% to 44.3 billion yuan [para. 6]. Global smartphone shipments declined 19.2% to 33.8 million units, though the average selling price rose 8.2% to a record 1,310 yuan, reflecting a continued push into premium devices [para. 7]. Gross margin in the segment, however, fell 2.3 percentage points to 10.1%, driven by sharply higher memory costs and intensifying competition in mainland China [para. 7]. President Lu Weibing said Xiaomi deliberately reduced inventory of low- and mid-end devices in distribution channels [para. 6].

3. Memory contract prices have risen about fivefold since the third quarter of last year and are expected to continue climbing into the third quarter before easing, though the cost impact on consumer electronics will remain significant [para. 8]. JPMorgan said memory cost pressure is likely to persist into the second quarter, with DRAM and NAND prices potentially rising 40% to 60% quarter on quarter [para. 10]. Xiaomi is responding by adjusting product lines more quickly, limiting price increases on legacy models, accelerating high-end launches, and exploring AI-enabled smartphones; Lu said 2026 will mark the “first year of AI phones” with system-level AI agents [para. 9][para. 9]. CFO Lin Shiwei disclosed for the first time that Xiaomi launched a “Token Plan” subscription on April 3, with paid users accounting for 30% of token usage; Pro and Max packages (priced 329-659 yuan per month) account for more than half of usage, and overseas users represent more than half of paying customers [para. 11]. Xiaomi plans to invest 16 billion yuan in AI and embodied intelligence in 2026, with the budget potentially increasing if model upgrades gain traction [para. 12].

4. In the auto business, Xiaomi delivered 80,856 vehicles in the first quarter, up 6.6% year-on-year but down 44.3% from the previous quarter, reflecting a transition between the first-generation SU7 and a new lineup [para. 13]. The company reaffirmed its full-year target of 550,000 vehicles, implying average quarterly deliveries of about 156,000 units for the remainder of the year [para. 13]. Xiaomi halted mass production of the earlier SU7 in mid-February and began deliveries of the next-generation model in late March; locked orders exceeded 80,000 as of May 6, and cumulative deliveries surpassed 26,000 by April 23 [para. 14]. On May 21, Xiaomi launched the YU7 GT and standard YU7, with the latter priced from 233,500 yuan and positioned against Tesla’s Model Y [para. 14]. Auto revenue totaled 19 billion yuan in the quarter, while the average selling price fell to 235,000 yuan from 250,000 yuan in Q4 due to purchase-tax subsidies and lower-priced inventory clearance [para. 15]. Xiaomi’s smart EV and AI-related businesses posted an operating loss of 3.1 billion yuan after two quarters of profit [para. 15]. The auto gross margin declined to 20.1%, the lowest in six quarters, due to subsidies, higher component costs, and weaker fixed-cost absorption during the production transition; CFO Lin said margins are expected to improve next quarter as new models ramp up [para. 16][para. 16].

5. Xiaomi’s internet-of-things and consumer products segment fell 23.7% to 24.7 billion yuan, pressured by a high base in mainland China following last year’s subsidy-driven demand [para. 17]. However, overseas revenue reached a record high and grew at double-digit rates as the company expanded distribution channels and product categories abroad [para. 17].