Xiaomi's Q2 profit slides 42.6% as memory costs squeeze smartphone margins

Xiaomi Corp reported second-quarter adjusted net profit of RMB 6.2 billion, down 42.6% from a year earlier and below the RMB 6.6 billion average analyst estimate, as soaring memory costs compressed smartphone margins.

Revenue fell 6.1% to RMB 108.9 billion, missing the RMB 112.2 billion consensus, according to LSEG data. Net profit declined 20.3% to RMB 9.5 billion, with basic earnings per share of RMB 0.37. The company declared no interim dividend.

"Rising component costs, particularly memory, pressured our smartphone gross margin to 8.5% from 11.5% a year ago," the company said in its results statement. Overall gross margin narrowed to 19.8% from 22.5% in the year-ago quarter.

The Smartphone × AIoT segment, Xiaomi's largest, saw revenue contract 11.3% to RMB 84.0 billion. Smartphone shipments fell 26.5% to 31.2 million units as the company trimmed low-end models, even as average selling prices hit a record RMB 1,351, up 25.9%. The Smart EV, AI and new initiatives segment provided the bright spot, with revenue rising 17.1% to RMB 24.9 billion and vehicle deliveries up 28.2% to 104,199 units, though the unit still posted an operational loss of RMB 2.6 billion.

Earnings were cushioned by non-operational gains. Fair value changes on financial instruments contributed RMB 6.5 billion, up from RMB 3.4 billion a year earlier, while subsidy income lifted other income to RMB 2.2 billion. Research and development spending jumped 18.9% to RMB 9.2 billion as Xiaomi invested in AI infrastructure and EV technology. Second-quarter capital expenditure totaled RMB 3.6 billion, including RMB 2.4 billion for the EV and AI segment.

Xiaomi holds RMB 219.3 billion in total cash against RMB 39.3 billion in borrowings. For the first half, revenue fell 8.4% to RMB 208.1 billion and adjusted net profit dropped 42.8% to RMB 12.3 billion.

The profit decline shows the cost pressure facing Chinese smartphone makers as memory prices surge, even as Xiaomi's premiumization push lifts selling prices. Investors will watch the September 2026 launch of the Xiaomi SkyNomad SUV, the company's second vehicle line, for signs that the EV business can narrow its losses and offset weakness in handsets.

This article is for informational purposes only and does not constitute investment advice.