Xiaomi's Two-Engine Strategy Hits a Speed Bump as Memory Costs Bite
Published on 08/18/2026 at 18:51 | Redaktion boerse-global.de
The arithmetic at Xiaomi is getting harder to ignore. In the second quarter of 2026, the company's adjusted net profit fell 42.6 percent year-on-year to 6.22 billion yuan, missing the analyst consensus of 6.6 billion yuan. Group revenue slipped 6.1 percent to 108.92 billion yuan, also short of the 109.82 billion yuan that the market had penciled in. On an unadjusted basis, net income declined 20.5 percent to 9.46 billion yuan.
The market's response was swift. Shares in the Beijing-based hardware giant traded at 2.73 euros on Tuesday, down 4.9 percent on the day, extending a slide that began last Friday when CICC issued its latest forecast. Since then, the stock has shed roughly 4.8 percent, and over the past three weeks — dating back to the SkyNomad series launch — it has lost a full 20 percent.
The Memory-Chip Squeeze
The core problem is hiding in plain sight: memory chip costs are exploding, and Xiaomi's smartphone division is absorbing the blow. Handset revenue fell 7.5 percent to 42.1 billion yuan, while unit shipments collapsed 26.5 percent to 31.2 million devices. The segment's gross margin compressed from 11.5 percent to just 8.5 percent.
What makes this particularly awkward is the pricing dynamic. The average selling price jumped 26 percent to a record 1,351 yuan — Xiaomi is selling fewer, pricier phones — but even that premium pricing couldn't fully offset the component cost inflation. CFO Alain Lam told investors during the earnings call that the company is pouring money into artificial intelligence, with first-half R&D spending up 25.6 percent to 18.2 billion yuan, but he offered no timeline for when that investment would translate into meaningful revenue. For investors hoping AI would quickly paper over the cracks in the core business, it was a clear signal to reset expectations.
Should investors sell immediately? Or is it worth buying Xiaomi?
The EV Conundrum
The electric vehicle division tells a more encouraging growth story, albeit one that remains deeply unprofitable. The auto and AI segment grew 17.1 percent to 24.9 billion yuan, with vehicle deliveries climbing 28.2 percent to 104,200 units. The SU7 sedan hit the 500,000-unit sales milestone within 28 months of launch. In the first half of 2026 alone, Xiaomi sold more than half as many EVs as Volkswagen managed globally in all of last year.
Yet the losses persist. The segment posted an operating deficit of 3.1 billion yuan in the first quarter, and media reports have characterized the division as a "billion-dollar hole" that weighs on group profitability. The average selling price of Xiaomi's vehicles also slipped 1.3 percent to 235,116 yuan, a sign of the pricing pressure endemic to China's brutally competitive EV market. A fatal crash involving a SU7 with its autopilot engaged in eastern China — now more than a year in the past — continues to cast a shadow over the division's safety reputation and has kept regulators watching closely.
A Question of Sequencing
The bull case rests on a simple premise: the EV business can eventually outgrow the smartphone drag. Xiaomi is targeting more than 500,000 vehicle deliveries for 2026, with an international launch planned for 2027. The company holds cash reserves exceeding 220 billion yuan, giving it ample runway to fund the transition. In AI, Xiaomi points to its open-source MiMo-V2.5-Pro model as evidence of world-class capability, and its internet services business — a potential monetization channel for that technology — carries a hefty 76.1 percent gross margin.
The bear case is equally concrete. The 26.5 percent drop in handset shipments wasn't a one-off; it follows a 19.2 percent decline in the first quarter. The smartphone and IoT segment, which still generates the bulk of group revenue, saw its gross margin fall to 10.1 percent in Q1. If phone sales keep sliding while the EV division remains in the red, the earnings miss could become a pattern rather than an exception.
Technically, the stock is under pressure from multiple angles. At 2.73 euros, it sits about 5.3 percent below its 50-day moving average of 2.88 euros, and roughly 21 percent beneath its 200-day average. The 30-day volatility reading of 55 percent suggests investors are braced for further swings. On a 12-month basis, the shares are down 34 percent, and they remain more than 50 percent below the 52-week high set on September 25, 2025.
The relative strength index of 43.1 indicates the stock is neither overbought nor oversold — a reflection of a market that hasn't yet decided how to weigh Xiaomi's shrinking legacy business against its ambitious future one. The next visible catalyst is the 2027 international rollout of the SU7, which will test whether the company's automotive ambitions can travel beyond China. Until then, the tension between the two engines of Xiaomi's growth story remains unresolved.
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