Xiaomi's Premium Push and AI Ambitions Collide With a 43% Profit Hit

Xiaomi lifts smartphone sales forecast to 110 million units despite a 43% profit plunge, as premium pricing and EV expansion offset margin pressure from chip costs.

Xiaomi is navigating one of its most complex strategic periods in years, simultaneously lifting its smartphone sales target for 2026 while absorbing a steep profit decline in its core business. The Chinese electronics giant now expects to ship 110 million handsets this year, up from a prior forecast of 90 million, after a period of stability in memory-chip pricing allowed it to reverse course. The revision marks a sharp turnaround from July, when Nikkei Asia reported that Xiaomi had slashed its original 135-million-unit production goal to as low as 95 million amid a shortage of components caused by semiconductor makers shifting capacity toward higher-margin AI chips.

The stock edged 1.72% higher in Hong Kong to HK$27.14 on the news, supported by an ongoing share buyback program. Yet the broader picture remains sobering. Xiaomi reported first-quarter revenue of 99.1 billion renminbi ($13.7 billion), down 10.9% year on year, while adjusted net profit tumbled 43.1% to 6.07 billion renminbi. On a GAAP basis, net income slumped 57% to 4.72 billion renminbi. The smartphone and AIoT division, the company's traditional earnings engine, generated 79.28 billion renminbi in revenue, a 14.5% decline, with handset shipments falling 19.2% and gross margins contracting to 10.1% from 12.4%.

The margin pressure is not unique to Xiaomi. Competitors OPPO and Vivo have also pushed back against component price increases, reportedly rejecting Samsung Electronics' third-quarter pricing proposals. That collective resistance from Chinese manufacturers could further ease the cost burden on memory chips and help underpin Xiaomi's more ambitious sales target.

Premium Pricing Offers a Silver Lining

Despite the volume decline, Xiaomi's average selling price for smartphones rose to a record 1,310 renminbi per unit. In China, the company captured a 23.5% share of the market for devices priced above 3,000 renminbi, signaling that its push into higher-end territory is gaining traction even as the low-end volume business struggles. The newly unveiled Xiaomi 17 series, starting at €999 for the base model with a 6.3-inch OLED display and Snapdragon 8 Elite Gen 5 processor, and rising to €1,999 for the Leica Edition of the 17 Ultra with a 200-megapixel telephoto lens, underscores that premium strategy.

Auto and AI: The Loss-Making Growth Engines

Xiaomi's electric-vehicle business continues to expand but remains firmly in the red. The unit generated nearly 19.9 billion renminbi in first-quarter revenue, up 6.9%, as deliveries reached 80,856 vehicles, a 6.6% increase. The average selling price per car slipped 1.3% to 235,100 renminbi, and the division posted an operating loss of 3.1 billion renminbi. The company is pressing ahead with its EV ambitions, recently unveiling a large SUV codenamed "Sky Nomad" that stretches more than 5.3 meters in length.

On the technology front, Xiaomi is pouring resources into artificial intelligence. Research spending jumped 33.4% to roughly 9 billion renminbi in the quarter, with the company now employing over 26,000 R&D staff. It plans to invest at least 16 billion renminbi in AI this year and more than 60 billion renminbi over three years. Its in-house language model, MiMo-V2.5-Pro, tied for first place among open models on the Artificial Analysis leaderboard, and the AI segment contributed directly to revenue for the first time. The company's cash reserves stood at over 220 billion renminbi at quarter-end.

Buybacks and a European Push

To shore up investor confidence, Xiaomi's board authorized a share buyback program of up to HK$20 billion ($2.55 billion) in late June, to be funded from existing cash reserves over the next 12 months. The company is also stepping up its international presence, with a planned debut at Berlin's IFA trade show in September 2026 and a commitment to invest €7.4 billion in AI research and development across Europe between 2026 and 2028.

Market Performance and the Road Ahead

The stock has shown signs of a short-term recovery. In Hong Kong, the shares closed at HK$27.14 after the phone-target news, while the German-listed equivalent ended Thursday at €2.99. The stock has gained 16.96% over the past 30 days but remains 30.72% lower year to date and 54.13% below its 52-week high of €6.51 from September 2025. The current price sits above the 50-day moving average of €2.92, suggesting a near-term upward bias.

Investors will get a clearer picture on August 18, when Xiaomi releases its half-year results. The numbers will offer the first concrete evidence of whether the company can translate its higher smartphone target into profitable growth, or whether the margin squeeze in its core business will continue to offset gains from its ambitious forays into electric vehicles and artificial intelligence.