Soaring DRAM Costs and Smartphone Slump Trigger Xiaomi's Largest Ever Buyback – But Analysts Remain Skeptical

Xiaomi shares plunge 4.57% to HK$28.40 after Q1 revenue falls 10.9% and net profit drops 57%, pressured by soaring chip costs, shrinking phone margins, and EV losses.

Xiaomi’s stock tumbled to a multi-year low in Hong Kong on Wednesday, sliding 4.57% to HK$28.40, even as the company announced a record share buyback worth up to HK$20 billion. The Frankfurt-listed depositary receipts hit €3.14, marking a 47% decline over the past 12 months and a 30% drop year-to-date. The move was meant to signal confidence, but the market focused instead on the grim first-quarter numbers that preceded it.

Revenue for the three months ended March fell 10.9% year-on-year to 99.1 billion yuan, the first decline in nearly three years. Adjusted net profit plunged 43.1% to 6.1 billion yuan, well below the 6.4 billion yuan analysts had penciled in. On a reported basis, net income dropped 57% to 4.7 billion yuan from 10.9 billion a year earlier. A savage 70% collapse in operating profit laid bare the pressures squeezing the business.

The chief culprit is a surge in prices for DRAM and NAND flash memory chips, which have nearly doubled over recent quarters as supply bottlenecks collide with insatiable demand from AI data centers. Counterpoint Research warns the cost spike could persist until at least the end of 2027. Roughly 60% of Xiaomi’s smartphone volume sits below US$200 average selling price, where price hikes are all but impossible. The group’s handset margin contracted from 12.4% to 10.1%, while overall gross margin slipped 0.8 percentage points.

Smartphone shipments dropped 19% to 33.8 million units, the steepest decline among the top five global manufacturers, according to Omdia. Revenue from the segment fell 12.5% to 44.3 billion yuan, though Xiaomi held onto the number-three global position with a 12% share. Analysts note the gap to competitors is widening.

The electric vehicle business, a key growth bet, also lost money. Deliveries rose 6.6% to 80,856 units across just two models – the revamped SU7 and the YU7 launched in summer 2025. Yet the segment posted an operating loss of 3.1 billion yuan, with gross margin falling to 20.1% from 23.2% last year. Xiaomi blamed a lower mix of the high-priced SU7 Ultra, subsidies on China’s vehicle purchase tax, and rising component costs.

Analysts are losing patience. Jefferies downgraded the stock to “Underperform” on May 27, slashing its price target to exactly where the shares now trade – HK$28.40. The bank cited weaker EV momentum, shrinking phone margins, and rising input costs. It also cut its EV-related price-to-sales multiple for fiscal 2026 from 2.2x to 1.5x, signaling that the margin recovery will take longer than expected. Goldman Sachs trimmed its forecasts as well.

Xiaomi is fighting back with its biggest-ever buyback, starting June 2 and running for 12 months. The first tranche – 349,400 class B shares for HK$10 million – was conducted on May 27. Management insists it sees underlying value, but the program comes alongside soaring R&D spending, up 33.4% to 9.0 billion yuan, and an ambitious target of at least 550,000 EV deliveries for the full year 2026. The next quarterly report in August will show whether HyperOS 3.1 and a new generation of vehicles can offset the persistent headwind from memory chips.