Key facts
- Xiaomi's first-quarter net profit fell 43% to 6.1 billion yuan ($899 million).
- Revenue declined 10.9% to 99.1 billion yuan, the first year-on-year decrease in almost three years.
- Smartphone revenue dropped 12.5% to 44.3 billion yuan, with gross margins falling to 10.1%.
- Global smartphone shipments decreased by 19% to 33.8 million units.
- The EV business generated 19 billion yuan in revenue but reported an operating loss of 3.1 billion yuan.
- Xiaomi plans to launch EVs in European markets in 2027.
Xiaomi, the world's third-largest smartphone maker, reported a 43% year-on-year decline in first-quarter net profit, reaching 6.1 billion yuan ($899 million), which fell short of analyst expectations. The company's financial performance was significantly impacted by a surge in memory chip costs, exacerbated by high demand from AI data centers, and a broader slowdown in consumer demand for electronics.
Revenue for the quarter decreased by 10.9% to 99.1 billion yuan, marking the first year-on-year revenue decline for Xiaomi in nearly three years. The smartphone segment, Xiaomi's core business, saw revenue fall 12.5% to 44.3 billion yuan, with gross margins shrinking from 12.4% to 10.1% due to increased component prices and intense competition in China. Global smartphone shipments also dropped 19% to 33.8 million units, the steepest decline among the top five global brands.
In response to rising costs and margin pressures, Xiaomi has shifted its strategy towards higher-priced devices, increasing its average smartphone selling price by 8.2% to 1,310 yuan. Premium smartphones now represent 23.5% of its mainland China sales. However, this pivot carries risks for a brand built on competitive pricing.
Xiaomi's burgeoning electric vehicle (EV) business generated 19 billion yuan in revenue, a 5.1% increase from the previous year. Despite this growth, the EV, AI, and other new initiatives segment incurred an operating loss of 3.1 billion yuan due to heavy investment. EV deliveries in the first quarter were 80,856 units, down from the previous quarter but up 6.6% year-on-year. The company plans to enter European markets with its EVs in 2027, having recently launched a cheaper version of its YU7 SUV.
The broader memory chip shortage, driven by the demand for high-bandwidth memory (HBM) for AI accelerators, is expected to persist through at least 2027. This structural shift by chip manufacturers like Samsung, SK Hynix, and Micron, who are prioritizing HBM production, has significantly reduced the supply of standard DRAM for consumer electronics, leading to substantial cost increases for companies like Xiaomi. Analysts have consequently trimmed their fair value estimates for Xiaomi, citing lower projected revenue growth and softened margin assumptions.