Xiaomi Has Another Weak Quarter Amid Increased Memory Costs, Competition — Update

By Jiahui Huang

Xiaomi reported another soft quarter as higher memory costs and intense competition weighed on its bottom line, and it remained unclear whether its fast-growing electric-vehicle business can translate sales growth into sustainable profitability.

The results highlight the headwinds Xiaomi continues to face across its major businesses, with pricier memory chips still pressuring smartphone margins, and reduced consumer subsidies adding to already subdued demand in China's consumer-electronics market.

Hurt by higher component costs and weaker sales, overall gross margin deteriorated to 19.8% in the three months ended June, falling from 22.5% a year earlier, the Beijing-based company said Tuesday.

Net profit dropped 20.5% to 9.46 billion yuan, equivalent to $1.40 billion, while revenue declined 6.1% to 108.92 billion yuan. Analysts had expected net profit of 6.01 billion yuan on revenue of 109.82 billion yuan, according to a Visible Alpha consensus estimate.

Smartphone revenue fell 7.5% to 42.1 billion yuan. Xiaomi said shipments slumped 26.5% to 31.2 million units, partly because it reduced shipments of mid- and low-end models. Weaker global demand amid rising component costs was also a factor. A shift toward more expensive models helped cushion the decline, as average selling prices jumped 26% to a record 1,351 yuan.

Still, the premiumization strategy wasn't able to fully offset higher component costs. Its smartphone gross margin fell to 8.5% from 11.5% a year earlier and 10.1% in the first quarter.

Xiaomi's Internet-of-Things and lifestyle products segment--which includes washing machines, vacuums and other appliances--was another drag. Segment sales dropped 19% to 31.3 billion yuan due to lower revenue in the mainland market resulting from reduced national subsidies, the company said. The division's gross margin fell to 20.1% from 22.5% a year earlier.

The company's EV business--its newest and fastest-growing division--bucked the declining trend. Revenue climbed 16% to 23.9 billion yuan as higher vehicle deliveries offset weaker selling prices.

The average selling price of a Xiaomi EV fell 9.6% to 229,312 yuan in the second quarter, mainly due to lower contribution from deliveries of the SU7 Ultra.

That left the company in a tough spot, especially as it has set a target of delivering 550,000 vehicles this year, about one-third more than in 2025. The 185,055 vehicles delivered in the first six months of 2026 means Xiaomi will need to sell nearly twice that in the second half to meet its goal.

The hope is that the company's new SkyNomad vehicle line introducing its first plug-in hybrid SUVs--the seven-seater N90 and the five-seater N70--will help it accelerate deliveries for the remainder of the year. The lower-than-expected pricing may attract buyers in a highly competitive market, but it also raises margin concerns, analysts said.

Unlike many Chinese carmakers that have gone abroad in search of growth as China's auto industry faces slowing demand, Xiaomi has yet to officially export its vehicles. It has plans to enter the European market in 2027, however, which could provide the company another growth avenue as competition intensifies at home.

For now, however, Xiaomi's core smartphone business remains under pressure. The company said global smartphone shipments fell 6% in the second quarter as the industry faced significant increases in memory costs. Citi analysts said Xiaomi's earnings could reach a near-term trough in the current quarter amid continued pressure on smartphone margins.

Write to Jiahui Huang at jiahui.huang@wsj.com

(END) Dow Jones Newswires

August 18, 2026 08:24 ET (12:24 GMT)