Xiaomi announced that the heaviest pressures on its smartphone business have likely passed, even as second-quarter earnings missed analyst projections due to elevated component prices. High memory costs severely squeezed margins across its mobile division, but management expects cost inflation to temper throughout the second half of the year as its fast-growing electric vehicle (EV) segment claims a larger share of total revenue.
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The company reported a 42.6% year-on-year decline in adjusted net profit to C¥6.2 billion (R14.9 billion), missing LSEG’s consensus estimate of C¥6.6 billion. Revenue fell 6.1% to C¥108.9 billion, also falling short of the expected C¥112.2 billion.
- The contraction was heavily felt across Xiaomi’s core smartphone business:
- Revenue & Margins: Smartphone revenue dropped 7.5% to C¥42.1 billion, with gross margins eroding from 11.5% to 8.5%.
- Volume Decline: Research firm Omdia noted that shipments dropped 26% year-on-year to 31.2 million units, marking the second straight quarterly decline.
- Cost Exposure: Because more than 50% of Xiaomi’s handsets are priced below $200, the brand was significantly more vulnerable to memory inflation than higher-end competitors.
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Addressing investors, Xiaomi President William Lu confirmed that memory prices remained near historic highs in Q2 but noted that the pace of price increases has begun to plateau. The company has since adjusted its product launch schedules and portfolio mix to shield profitability.
Meanwhile, Xiaomi’s strategic diversification into EVs and AI is accelerating. The EV, AI, and new initiatives division generated roughly 23% of total corporate revenue, up from 18.3% a year earlier, with EV revenue alone rising 15.9% to C¥23.9 billion. Xiaomi aims to build on this momentum by launching its EV lineup in European markets by 2027.
