Xiaomi's 1.1 Billion Connected Devices Can't Mask a 43% Profit Collapse

Xiaomi's Q1 profit slumped 43% as memory chip costs surged 90%, squeezing smartphone margins. IoT and internet services offered relief, while EV losses continued. Stock fell 27% YTD.

A brutal surge in memory chip costs tore through Xiaomi’s first-quarter earnings, sending adjusted net profit tumbling 43.1% to 6.1 billion yuan — shy of the 6.4 billion yuan analysts had penciled in. Revenue slid 10.9% to 99.1 billion yuan, dragged lower by a smartphone business that shipped 19.2% fewer units, or 33.8 million handsets. The damage was most visible in the gross margin for phones, which narrowed to 10.1% from 12.4% a year earlier as chip prices spiked as much as 90% in the quarter. Xiaomi’s heavy reliance on the budget-to-midrange segment left little room to pass on those costs.

Yet the company is not retreating. Average selling prices for smartphones hit a record high, as Xiaomi pushes deeper into premium territory to defend margins. And while core hardware bleeds, its sprawling ecosystem of connected devices — 1.1187 billion IoT units, excluding phones, tablets and laptops — grew 18.5% year-on-year. The number of users with five or more linked gadgets reached 23.6 million, up 22.3%, reinforcing what Xiaomi calls the "Human × Car × Home" strategy. The Xiaomi Home app clocked 117 million monthly active users in March, and its AI assistant miclaw hit 169.3 million MAUs. To lock in developers, Xiaomi released its MiMo-V2.5 large language model series as open source under MIT license in April.

Internet services provided a rare bright spot. Segment revenue rose 4.3% to 9.5 billion yuan, with gross margin swelling to 76.1%. Advertising generated 7.1 billion yuan, up 7.8%, and on the Chinese mainland, internet services revenue hit a record, fueled by performance advertising. Overseas operations contributed 3.0 billion yuan, or 31.4% of the segment. This high-margin stream helps offset the volatility in hardware, but it remains a fraction of total revenue.

Xiaomi’s electric vehicle business, now the second-largest revenue contributor, delivered 80,856 cars in the quarter, a 6.6% gain from a year earlier. The segment brought in 19.9 billion yuan — 20% of group sales — but operationally it bled 3.1 billion yuan, with gross margin at 20.1%. Management held firm on its full-year target of 550,000 deliveries, while plotting a European entry in 2027 centered on Germany and France. The EV ramp-up, combined with a 33.4% jump in R&D spending to 9.0 billion yuan and 26,048 employees in that area, underscores a deliberate strategy of investing through the downturn.

Immediately after the earnings release, Xiaomi unveiled a share buyback of up to 20 billion Hong Kong dollars — a signal that the board considers the stock deeply undervalued. So far, the gesture has failed to prop up the price. The stock closed at €3.27 on Tuesday, down about 27% year-to-date and roughly 51% below its 52-week high of €6.69. The relative strength index sits at 72.1, suggesting the shares are not oversold, and the quote is just 3.25% above the 52-week trough. Management has pointed to a potential easing in chip prices from the third quarter, which could provide some relief — but until then, every recovery in Xiaomi’s stock will be measured against the concrete progress of its platform bet.