Xiaomi's Profit Plummets 43% Amidst Cost Squeeze

Xiaomi Corporation reported a substantial 43% decrease in net profit for the first quarter, with earnings falling to 6.1 billion yuan ($899 million). This performance fell slightly below analyst expectations.

The primary drivers for this profit decline were escalating costs for memory and other essential components, coupled with fierce competition within China's smartphone market. These factors significantly squeezed profitability in its core handset business.

In response, Xiaomi outlined a strategy to expand its presence in international markets. The company views this as crucial for offsetting increased component expenses and mitigating competitive pressures. Industry leaders acknowledge a "new normal" of higher memory costs, though a narrowing of this trend is anticipated from the third quarter onwards.

Beyond smartphones, Xiaomi is making considerable investments in its electric vehicle (EV) and artificial intelligence (AI) divisions to foster new revenue streams. While the EV business reported a 5.1% year-on-year revenue increase to 19 billion yuan in the first quarter, it incurred a 3.1 billion yuan loss from operations. EV deliveries also saw a decrease of 44.3% compared to the previous quarter, although they were up 6.6% year-on-year.

Overall revenue for Xiaomi in the first quarter was 99.1 billion yuan, below the consensus estimate. The company shipped 33.8 million smartphone units, a 19% decrease year-on-year, marking the steepest decline among major global brands. Smartphone revenue dropped 12.5% to 44.3 billion yuan, with gross margins declining to 10.1%.

Looking ahead, the smartphone market outlook for 2026 remains uncertain due to the ongoing memory chip crunch, potentially extending into late 2027, and geopolitical tensions affecting consumer sentiment. Xiaomi plans to enter European markets with its EVs in 2027.