Xiaomi’s Buyback Gamble Can’t Mask a Halved Sales Target and Memory-Chip Squeeze

Xiaomi announces HK$20B buyback after slashing 2026 smartphone forecast by 44%, as 'Memflation' from AI memory demand drives DRAM prices up 125%.

Xiaomi has launched a HK$20 billion share repurchase programme, its second in two years, in an attempt to shore up confidence after the stock tumbled to a multi-year low. The buyback, valid for twelve months until the 2027 annual general meeting, announced alongside a brutal revision to the company’s smartphone shipment forecast — slashed from 170 million to around 95 million units for 2026. Some reports put the cut closer to 30 percent.

The market gave the buyback a tentative thumbs-up on Thursday, with shares climbing 4.44 percent in Hong Kong to close at €2.58. Over the past seven days, the stock has gained 4.92 percent. Yet the broader picture remains deeply troubled. The shares have lost 42.54 percent since the start of the year and 58.94 percent over the past twelve months. At Thursday’s close, they traded 60.36 percent below their 52-week high of €6.51, reached in September 2025.

The catalyst for the demand downgrade is a phenomenon the company calls “Memflation.” Exploding demand for memory chips from AI data centres is sucking up global production capacity. According to a Commercial Times industry report, AI alone could consume nearly 20 percent of worldwide DRAM capacity in 2026. Gartner analyst Rajeev Rajput expects DRAM prices to rise 125 percent by the end of 2026, with NAND flash surging 234 percent. He sees no meaningful relief before late 2027.

The cost spike is already reshaping the smartphone market. Gartner forecasts average handset prices will increase 13 percent, with the sub-$500 entry-level segment potentially disappearing entirely by 2028. For Xiaomi, which relies heavily on volume in that price bracket, the implications are severe. The company’s margins are being crushed before it can pass on higher costs to consumers.

Against this bleak fundamental backdrop, Xiaomi is pinning its hopes on a major software overhaul. HyperOS 4, described as the most significant architectural shift in the company’s history, is a “zero-legacy” release that strips out every remaining line of code from the MIUI era. Core applications are being rebuilt from scratch in Rust and Flutter. The rollout is set to begin in China in July or August, with a global launch planned from October 2026, starting with the Xiaomi 17 and 15 series.

The software upgrade is part of a broader strategic vision: Xiaomi has reaffirmed its 2026 “grand convergence” goal of integrating its own chip, operating system, and large AI model into a single device. HyperOS 4 represents the software half of that equation. Success could bolster the investment case beyond hardware margins; failure — whether through delays or technical flaws — risks deepening the market’s perception of operational uncertainty.

Technically, the stock looks oversold. The relative strength index sits at 34.1, just above the 30 level that denotes deeply oversold conditions. That is close to the 32.9 reading in the primary article last month. The current price of €2.58 is only 10.21 percent above the 52-week low of €2.34 reached on June 26. Such setups have historically preceded short-term bounces. The buyback adds a mechanical floor.

Yet the fundamental headwinds remain formidable. A new operating system does not solve the structural cost problem in the hardware business. Memory chip inflation is a procurement issue that software cannot directly address. And while Xiaomi’s electric vehicle unit delivered more than 30,000 cars for the third consecutive month in June, reaching an estimated 180,000 units in the first half, the full-year target of 550,000 vehicles would require monthly deliveries of nearly 62,000 in the second half — a daunting ramp.

The immediate test for the stock is the upcoming quarterly earnings report. That will reveal whether smartphone margins are actually recovering or continuing to deteriorate. Until then, Xiaomi shares are likely to oscillate between technical stabilisation — supported by the buyback and oversold signals — and persistent fundamental pressure from memory costs and a shrinking addressable market. The buyback buys time, but it does not fix the underlying equation.