Xiaomi shipped 31 million smartphones last quarter and still managed to make the whole thing look like a rough draft. Margins got squeezed, profit missed estimates, and shipments dropped 26% year on year. And yet, somehow, this might actually be the most interesting Xiaomi has looked in a while.
According to Reuters, Xiaomi posted a 42.6% drop in second-quarter adjusted net profit, landing at 6.2 billion yuan (around $919 million). Analysts had pencilled in 6.6 billion. Revenue also came in short at 108.9 billion yuan against a consensus forecast of 112.2 billion. The culprit? Memory prices, which have been running at historically high levels and hitting Xiaomi harder than almost anyone else in the top five smartphone vendors.
That last part is key. More than half of Xiaomi’s smartphone shipments are priced under $200, which means there’s almost no margin buffer when components get expensive. The company’s smartphone gross margin dropped to 8.5% this quarter, down from 11.5% a year ago. That’s a brutal compression. Smartphone revenue fell 7.5% year on year to 42.1 billion yuan. Xiaomi is the world’s third-largest smartphone maker, and right now it’s wearing that title like a weighted vest.
But here’s the thing. Xiaomi President William Lu said on a post-earnings call that the pace of memory price increases is slowing and should continue to slow through the second half of 2026. The company has also reportedly adjusted its product mix and launch schedule to better absorb the pressure. Lu’s message was direct: the hardest part is over. That’s either genuinely reassuring or exactly what a company says when it needs to calm investors. Time will tell which one this is.
What’s more interesting, and honestly more telling about where Xiaomi is headed, is the EV side of the business. Electric vehicles, AI, and newer initiatives now account for 23% of total revenue, up from 18.3% a year ago. EV revenue alone climbed 15.9% to 23.9 billion yuan. Xiaomi delivered 104,199 vehicles in Q2, a 28.2% increase year on year. Those are real numbers.
The EV segment is still losing money, with operating losses of 2.6 billion yuan as Xiaomi pours cash into building out the business. But that’s expected for a company this early in its car journey. In July, Xiaomi launched its SkyNomad SUV series, moving beyond sedans and crossovers into one of the most competitive vehicle categories in China. And the company has its sights on Europe by 2027, which would be a significant expansion at a time when Chinese automakers are aggressively pushing into global markets.
The broader context here matters. The Chinese domestic car market has been in steady decline since late 2025. Xiaomi is betting it can grow its EV business internationally while its smartphone margins recover at home. That’s a lot of plates spinning at once. But Xiaomi has pulled off stranger things before, and the fact that EVs and AI already make up nearly a quarter of revenue shows this isn’t just a side project anymore.
So yes, this was a rough quarter by any measure. But the story Xiaomi is telling, that component costs are peaking and diversification is working, is at least plausible. Whether the numbers back it up next quarter is the real test.