Xiaomi Corp reported a sharp drop in second-quarter profit as soaring memory chip costs and weakening consumer demand battered the world largest smartphone maker, underscoring the toll the AI-driven component shortage is taking across the electronics industry.
Adjusted net profit fell 42.6 percent year-over-year to 6.2 billion yuan (approximately 860 million dollars) in the three months ended June, the Beijing-based company said Tuesday. Revenue declined 6.1 percent to 108.9 billion yuan. Overall gross margin deteriorated to 19.8 percent from 22.5 percent a year earlier, as higher component costs outpaced the firms efforts to shift toward premium devices.
Smartphone Margins Crushed
The core smartphone business bore the brunt of the memory cost explosion. Shipments slumped 26.5 percent to 31.2 million units as Xiaomi deliberately cut back on mid- and low-end models. While average selling prices surged 26 percent to a record 1,351 yuan per device, smartphone gross margins collapsed to 8.5 percent from 11.5 percent a year ago. Xiaomi President William Lu told analysts that memory contract prices have risen fivefold since the third quarter of 2025, a cost increase the company described as alarming. For entry-level phones, the memory component alone now pushes the minimum retail price to around 2,000 yuan, Lu said.
The Internet-of-Things and lifestyle products segment, which includes washing machines, vacuums and other appliances, also contracted, with revenue dropping 19 percent to 31.3 billion yuan. The decline was attributed mainly to reduced government trade-in subsidies in China, which had previously boosted consumer purchases of home electronics.
EV Business Shows Promise
The electric vehicle division provided the only bright spot. Revenue rose 17.1 percent to 24.9 billion yuan as Xiaomi delivered 104,199 vehicles, a 28 percent increase. However, the EV segment still posted an operating loss of 2.6 billion yuan as the company scales production. The average selling price of a Xiaomi EV fell 9.6 percent to 229,312 yuan, reflecting a shift in the product mix away from the higher-end SU7 Ultra.
Xiaomi has set an ambitious target of 550,000 EV deliveries for 2026, roughly a third more than last year. With 185,055 vehicles delivered in the first half, the company will need to nearly double its second-half pace to meet the goal. A new line of plug-in hybrid SUVs, the SkyNomad N90 and N70, is slated for a September launch and could help close the gap, though analysts warned the aggressive pricing may further compress margins.
Looking Ahead
Xiaomi continues to invest heavily in research and development, with R and D spending jumping 18.9 percent to 9.2 billion yuan. The company plans to invest 60 billion yuan in artificial intelligence over the next three years, with 16 billion earmarked for 2026 alone. Its new HyperOS 4 operating system is expected to launch in China in the coming weeks.
Citi analysts said Xiaomi earnings could reach a near-term trough in the current quarter as memory cost pressure persists. The company is also preparing to enter the European EV market in 2027, which could provide a new growth avenue as competition intensifies at home. Xiaomi maintained a strong balance sheet with 219.3 billion yuan in cash against 39.3 billion yuan in borrowings.
Sources: Dow Jones Newswire; Nikkei Asia; Kaohoon International; Bloomberg
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