Xiaomi Profit Tumbles 57% as Memory Crunch Outpaces EV Bet

Xiaomi’s net income fell to RMB 4.72 billion in the quarter that ended March 31, a 57% year-on-year drop that missed consensus by roughly five points. Revenue slipped 11% to RMB 99 billion (about USD 13.8 billion), the company’s first quarterly revenue contraction in nearly three years. President Lu Weibing called the spike in memory chip costs a magnitude “beyond imagination,” and Xiaomi is the largest Android maker whose first-quarter books now carry that bill in full.

That cost is not landing in isolation. The smart electric vehicle, AI and innovation segment posted an operating loss of RMB 3.1 billion on 80,856 deliveries, even as unit volumes set a quarterly record. Investors who priced Xiaomi as the company that could ride two simultaneous bets, premium handsets and a credible EV ramp, are now seeing both ledgers turn red in the same three-month window.

The Numbers That Broke the Streak

The headline lines are sharper than the consensus had modelled. Revenue at RMB 99 billion came in below the RMB 100 billion analyst forecast tracked by Quartr. Adjusted net profit of RMB 6.1 billion was the only top-line item that beat, and management framed the beat as evidence of cost discipline rather than demand strength.

The segment split shows where the damage landed. Smartphone revenue fell 12.5% to RMB 44.3 billion as global shipments dropped 19% to 33.8 million units. IoT and lifestyle products held up at RMB 24.7 billion with gross margin expanding to 25.2%. Internet services, the highest-margin line at 76.1% gross, grew 4.3% to RMB 9.5 billion. R&D spending climbed 33.4% to RMB 9.0 billion, an unusual posture during a profit shock and a signal that the company is not stepping back from silicon design or vehicle software work.

The table makes the divergence visible. The traditional businesses that throw off cash held steady. The handset line that historically drove unit margin contracted sharply, and the EV-and-AI line that the equity story now hinges on remains in the red. Full disclosures sit on Xiaomi’s quarterly results page on the investor relations site.

Why Memory Costs Pulled the Floor Out

The memory bill that hit Xiaomi this quarter is the same one that will hit every Android maker reporting in May. The mechanism is well documented but worth restating because it determines how long the squeeze lasts.

Conventional DRAM contract prices are forecast to rise 58% to 63% quarter on quarter in Q2 2026, with NAND Flash contract prices rising 70% to 75%, per TrendForce’s Q2 2026 memory contract price forecast. Spot prices have moved further. The driver this time is structural rather than cyclical. Samsung Electronics, SK Hynix and Micron Technology have reallocated fab capacity toward high-bandwidth memory (HBM, a stacked DRAM product sold to AI accelerator vendors at three to five times the revenue per wafer of conventional DDR5).

Three things compound the smartphone exposure:

• Demand from AI server build-outs is running near 35% growth in 2026 while DRAM supply growth tops out near 17%, according to IDC’s analysis of the 2026 memory shortage.
• Hyperscaler buyers have signed long-term agreements that lock in supply ahead of consumer device makers, leaving handset and PC OEMs at the back of the priority queue.
• The pass-through to retail prices typically lags input cost moves by one to two quarters, so the margin damage hits earnings before any catch-up pricing can offset it.

For Xiaomi specifically, memory accounts for roughly 15% to 20% of a mid-range handset’s bill of materials. A near-doubling of that input cannot be absorbed in a single quarter without a margin hit, which is precisely what the smartphone gross margin print of 10.1% versus 12.4% a year earlier reflects. The pass-through is already visible elsewhere in the hardware industry, with Nintendo’s USD 50 Switch 2 price increase for September and Sony’s 46% PS5 shipment decline in the same March quarter both tracing to the same DRAM and NAND cost line.

Samsung and Apple Took What Xiaomi Lost

The global numbers from IDC’s Q1 2026 global smartphone tracker show the memory crunch is not hitting every vendor the same way. Worldwide shipments fell 4.1% year on year to 289.7 million units, breaking a ten-quarter growth streak. Inside that decline, two vendors gained share and three lost.

Samsung reclaimed the top spot with 62.8 million units and 21.7% share, helped by Galaxy S26 Ultra demand. Apple held second with 61.1 million units and 19.6% share, with iPhone 17 demand particularly strong in mainland China. Both held back price increases at the top of their ranges, a posture that only a vendor with premium gross margins can sustain when input costs spike.

Xiaomi’s 19.2% shipment drop was the steepest of the top five and was concentrated in the entry and mid tiers, the bands where memory is the largest share of bill of materials and where the gap to a competing Samsung A-series unit or a refurbished iPhone narrows fastest. The mix shift inside the global market is sharper still. The premium phone segment, defined by IDC as devices above USD 600 retail, grew its share of total industry revenue even as units fell. The mid-tier is where the contraction is concentrated, and Xiaomi sits there structurally.

Record Phone Prices, Fewer Phones Sold

One number inside the Xiaomi print cuts against the headline. Average selling price for smartphones reached RMB 1,310 in Q1, a company record and up 8.2% year on year. That move is the visible result of management deliberately cutting low-end shipments to protect per-unit margin, and it is the lever the company telegraphed on the call.

The increase in memory costs is a magnitude beyond imagination. We are dynamically balancing selling price, cost, volume and gross profit margin.

That was Lu Weibing, president of Xiaomi Group, on the Q1 earnings call on May 25. The strategy works arithmetically only if the ASP gain offsets the volume loss. In Q1 it did not. Smartphone revenue still fell 12.5% and gross margin still compressed to 10.1%. Premium share inside mainland China rose to 23.5% of units, an improvement, but the premium tiers in China are also where Apple and Huawei push hardest, leaving Xiaomi with the narrowest pricing room.

He also warned in a livestream this month that top-tier handsets could breach the RMB 10,000 mark in China for the first time, a forecast that implies the ASP push has further to run and that consumers will see retail price increases through the back half of 2026.

The Electric Vehicle Drain Is Now Structural

A RMB 38,000 Loss on Every Car

The electric vehicle business delivered 80,856 cars in the quarter, up 6.6% year on year and the highest quarterly volume since launch. Revenue from the EV unit alone was RMB 19 billion. Yet the broader segment that bundles EVs with AI and other initiatives posted an operating loss of RMB 3.1 billion, working out to roughly RMB 38,000 (about USD 5,600) of red ink per vehicle delivered.

The per-car loss is sharply wider than the roughly USD 900 figure Xiaomi recorded a year earlier. Management attributed the deterioration to the Spring Festival production drag, the transition period around the SU7 facelift, lower deliveries of the high-margin SU7 Ultra, vehicle purchase tax subsidies absorbed during a Beijing-funded promotion, and higher input prices for battery cells and chips.

The Second SUV and the Europe Slip

Xiaomi is leaning into the unit rather than pulling back. The company is targeting 550,000 vehicle deliveries for the full year, a number that would require an average of roughly 156,000 units per quarter over the remaining three quarters, almost double the Q1 run rate. The second SUV model is scheduled to launch this year and would add capacity to that ramp.

Overseas expansion has slipped. The latest guidance reported by trade outlet CnEVPost has Xiaomi formally entering overseas markets in the second half of 2027, with Europe as the first stop. That timeline pushes any meaningful overseas revenue contribution beyond the window in which the smartphone margin pressure is forecast to peak, removing one possible offset to the consolidated drag.

Where AI Spending Sits Inside the Loss

The RMB 9.0 billion R&D line, up a third year on year, is the cost Xiaomi is choosing to keep paying through the squeeze. The company has pushed an updated MiMo foundation model, expanded its robotics work and held an investor showcase featuring a humanoid prototype. None of those efforts generate revenue in the current quarter, and all of them sit inside the segment that posted the headline operating loss.

The EV-and-AI segment is where Xiaomi spends to defend its long-term equity story, and where every additional yuan of investment widens the reported quarterly loss.

Why a HK$20 Billion Buyback Has Not Stopped the Slide

Management’s headline counter to the Q1 print was a HK$20 billion (about USD 2.55 billion) share buyback authorisation over the next 12 months, layered on top of HK$8 billion already repurchased this year. The first tranche bought back 349,400 shares on May 27 for HK$10 million.

The market has not been moved. Xiaomi closed at HK$28.40 on the day after results, a 4.6% drop, and the stock now trades at roughly half its July 2025 high of HK$61.45. The 52-week low of HK$28.24 was set the same week as the earnings release.

The reading from desk analysts is straightforward. Buybacks signal management’s view of intrinsic value, but they do not change the input cost line that produced the profit drop. Until quarterly evidence shows the memory cost increase narrowing, as the company suggested could happen from Q3, the price chart is set to follow the gross margin chart.

If Q3 prints the moderation Xiaomi has guided to, smartphone gross margin recovers toward the 12% line and the EV losses become the only visible drag on the consolidated result. If memory contract prices keep climbing through the third quarter, the smartphone segment carries the same compression for two more reporting periods, the EV ramp does not deliver its bridge volume in time, and the buyback runs out of credibility before the input cycle turns.

Disclaimer: This article is for informational purposes only and does not constitute investment, financial or trading advice. Equity in Xiaomi and other listed technology companies carries significant risk, including exposure to semiconductor input cost volatility, electric vehicle execution risk and foreign exchange movements. Readers should consult a qualified financial professional before acting on any information here. All figures cited are accurate as of publication on May 28, 2026.