Xiaomi's Profit Plunge Masks a Two-Pronged Pivot: Budget Phones and Billion-Dollar AI Bets
Published on 07/24/2026 at 03:02 | Redaktion boerse-global.de
Xiaomi is navigating one of the most contradictory periods in its recent history. The Chinese electronics giant has dramatically raised its 2026 smartphone shipment target to 110 million units — up from roughly 90 million — even as its first-quarter earnings reveal a brutal profit squeeze. The strategy hinges on flooding the entry-level market with cheaper devices, precisely when memory-chip costs have surged by more than 300%, eating directly into margins.
The numbers tell a stark story. For the first quarter of 2026, Xiaomi reported revenue of 99.14 billion yuan, down 10.9% year-on-year, while adjusted net profit cratered by 43.1% to 6.07 billion yuan. The core smartphone and AIoT business bore the brunt: revenue from that segment fell 14.5% to 79.28 billion yuan, and handset shipments dropped 19.2%. The gross margin on phones slid from 12.4% to 10.1%, a direct consequence of soaring component costs. Memory chips now account for up to 40% of the bill of materials for devices priced under 1,000 yuan, and rivals like Oppo and Vivo have already balked at Samsung's proposed memory prices for the third quarter.
Yet the picture is not uniformly bleak. The average selling price of Xiaomi's smartphones hit a record 1,310 yuan, and the company now commands a 23.5% market share in the premium segment above 3,000 yuan. Sequentially, the operating profit of the core business nearly doubled from the prior quarter, suggesting some stabilization beneath the year-on-year declines. The broader Chinese smartphone market, however, remains under pressure: IDC estimates shipments in the second quarter of 2026 fell to roughly 66.01 million units, a 4% contraction from a year earlier.
Xiaomi's electric vehicle and AI division offered a brighter, though still loss-making, counterpoint. Revenue from that segment rose 6.9% to 19.86 billion yuan in the first quarter, with vehicle deliveries climbing 6.6% to 80,856 units. The SU7 sedan has become the top-selling pure-electric model above 200,000 yuan, while the sportier YU7 GT set a new SUV lap record at the Nürburgring Nordschleife. Still, the combined auto and AI operations posted an operating loss of 3.1 billion yuan, underscoring the heavy upfront costs of Xiaomi's mobility ambitions. The company is also building out infrastructure: through its subsidiary Hanxing Venture Capital, it invested in Zhejiang Xinglixing New Energy Technology to develop a battery-swapping network, with swap times targeted at three to five minutes. Two new models are on the horizon — the seven-seat SkyNomad N90 with range-extender technology is expected by late July, and the Xiaomi Pengcheng is slated for August.
Should investors sell immediately? Or is it worth buying Xiaomi?
The real centerpiece of Xiaomi's long-term strategy, however, is artificial intelligence. Research and development spending surged 33.4% to 8.95 billion yuan in the first quarter, and the company plans to invest at least 16 billion yuan in AI this year, with a three-year target exceeding 60 billion yuan. Its open-source language model, MiMo-V2.5-Pro, ranked first in an Open Source Intelligence Index by Artificial Analysis, and the company has launched an AI agent called Xiaomi miclaw. For the first time, the AI business generated its own revenue in the quarter, though the company did not disclose the amount. Xiaomi's cash reserves stand at over 220 billion yuan, providing a substantial cushion to fund this transformation.
The stock market has delivered a mixed verdict. In Hong Kong, shares fell 4.57% to 28.4 Hong Kong dollars immediately after the earnings release. In Europe, the stock closed at 2.99 euros, up 0.34% on the day, and has recovered 16.63% over the past 30 days. Yet the longer-term picture remains painful: the shares are still down 30.91% year-to-date and trade roughly 54% below the 12-month high of 6.51 euros reached in September 2025.
A new foldable device, likely to be branded as the MIX Fold 5, has received certification in China under model number 2608BPX34C. It is expected to feature a 7.6-inch inner display, a proprietary 3-nanometer chip, and a starting price of around 10,000 yuan, with a launch anticipated in August or September 2026.
Xiaomi at a turning point? This analysis reveals what investors need to know now.
Xiaomi is effectively running two races in parallel: a volume-driven sprint in budget smartphones, where margins are being crushed by memory costs, and a long-distance marathon in EVs and AI that demands billions in upfront investment. The next few quarters will reveal whether the company's financial stamina can sustain both.
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