Xiaomi's Chip Cost Crisis Deepens as Record Buyback Fails to Halt Slide

Xiaomi stock falls 4.57% to HK$28.40 after Q1 earnings show 43% profit drop, memory chip costs surge 151-360%, smartphone shipments down 19%, and EV unit posts HK$3.1B loss.

Xiaomi’s stock has slumped to a 12-month low in Hong Kong as a brutal cocktail of surging memory-chip prices, a deepening loss in its electric-vehicle unit, and falling smartphone sales triggered its worst quarterly earnings in years. The company’s HK$20 billion share repurchase programme, launched on 2 June, did little to steady the ship — the stock fell 4.57% to HK$28.40 on the day of its first buyback, while Frankfurt-listed shares hit €3.15, down almost 46% from a year ago.

The earnings report, released on 26 May, laid bare the scale of the damage. Revenue slid 10.9% year-on-year to 99.1 billion yuan, while adjusted net profit plunged 43.1% to 6.1 billion yuan, missing analyst forecasts by a wide margin. The culprit: an explosive rise in memory-chip costs that has crushed margins in Xiaomi’s core smartphone business. LPDDR5 DRAM prices surged 151% and NAND flash prices rocketed 360% compared with a year earlier, eating into margins that the company can barely protect given that roughly 60% of its handsets sell for under $200.

Smartphone revenue fell 12.5% to 44.3 billion yuan, with shipments dropping 19% to 33.8 million units — the steepest decline among the world’s top five handset makers, according to Omdia. Xiaomi is trying to offset the pressure with a push upmarket; the average selling price of its phones hit a record 1,310 yuan in the quarter. But the gross margin in its core “Smartphone × AIoT” segment still shrank to 22.5% as higher-input costs overwhelmed the pricing gains.

The EV business, which had surprised the market by turning a full-year profit in 2025, swung back into the red in the first quarter of 2026. The “Smart EV and AI” segment posted an operating loss of 3.1 billion yuan on revenue of 19.9 billion yuan. Xiaomi delivered 80,856 vehicles in the quarter, up 6.6% from a year earlier but a steep drop from the 145,000 units in the prior quarter, as model changes and weaker demand for the YU7 series took their toll.

Just days before the results, on 21 May, Xiaomi launched the updated YU7 SUV in two versions — a crucial move to revive EV sales. But analysts remain sceptical. Jefferies cut its 2026 delivery forecast to 495,000 units, well below the company’s own target of 550,000. The bank slapped an “Underperform” rating on the stock, slashing its price target to HK$25.49 — implying another 10% downside from the post-results level — and lowered its EV valuation multiple from 2.2x to 1.5x for fiscal 2026.

Xiaomi’s financial strain is compounded by soaring research and development costs, which jumped 33% to 9.0 billion yuan. The company now runs 490 sales and service centres across 143 cities in China, a network that the smartphone business must fund until the EV division reaches sustainable profitability. President William Lu Weibing argued that memory-chip prices should start easing from the third quarter, but Counterpoint Research warns the chip squeeze could persist into late 2027.

Meanwhile, Xiaomi’s long-term ambitions remain intact. The company plans to enter the European EV market in the second half of 2027, with right-hand-drive markets following in 2028. Until then, the disconnect between its growth narrative and financial reality is likely to keep investors on edge — especially after a buyback programme that, so far, has failed to inspire any confidence.