Xiaomi's Record Buyback Fails to Offset a 43% Profit Slide and a Gutted Smartphone Forecast

Despite a historic HK$20 billion share repurchase, Xiaomi faces 43% profit plunge, 44% shipment cut, and soaring memory costs threatening its budget smartphone model.

The world's largest smartphone maker by volume is spending more than ever to defend its stock, but the fundamentals are deteriorating at a pace that even a HK$20 billion buyback may struggle to remedy. Xiaomi started its biggest-ever share repurchase program on 2 June 2026, buying back Class-B shares with an authorization running until the 2027 annual general meeting. Yet the timing underscores the depth of the company's troubles: the move came right after a quarter in which revenue dropped 11% to 99.1 billion yuan and adjusted net income cratered 43% to 6.1 billion yuan.

The buyback, at up to HK$20 billion over 12 months, is meant to signal management's confidence after the stock hit a multi-year low on 1 July. A previous program had already scooped up roughly 399.6 million shares for about HK$14.6 billion. But this time, the scale is unprecedented, and the market took notice—the stock jumped 4.44% on the announcement day and gained 4.92% over the following week.

Still, the rally looks fragile when set against the operational backdrop. Xiaomi has slashed its 2026 smartphone shipment target from 170 million units to around 95 million, a cut of roughly 44%. Other reports put the reduction at about 30%, but the message is the same: demand is flagging and costs are soaring. The culprit is what analysts call "memflation"—the AI-boom-driven explosion in memory-chip prices. According to the Commercial Times, global DRAM capacity could be nearly 20% consumed by AI data centers in 2026 alone.

Gartner analyst Rajeev Rajput forecasts DRAM prices will climb 125% by the end of the year, with NAND flash surging 234%. Relief, he says, is unlikely before late 2027. The knock-on effect is already visible: Gartner expects average smartphone prices to rise 13%, and the entry-level segment—phones under $500—could vanish entirely by 2028. For Xiaomi, which has built its brand on affordable devices, that threatens the very foundation of its volume strategy.

The chip cost crisis is squeezing margins on its core smartphone business. The segment's gross margin slipped to 22.5% in the first quarter, dragged by a 151% to 360% spike in LPDDR5 DRAM and NAND costs. Yet the company's premiumization push is gaining traction: the average selling price hit a record 1,310 yuan, driven by models such as the Xiaomi 17 Ultra and Xiaomi 17 Max. The idea is to offset volume declines with higher per-unit revenue, but the math is brutal when unit shipments could halve.

Analyst-level disagreement mirrors the uncertainty. Goldman Sachs trimmed its price target from HK$41 to HK$40 but kept a Buy rating, implying roughly 34% upside from the prevailing price at the time. Jefferies took the opposite view: Edison Lee cut his target from HK$26.98 to HK$25.49 and downgraded the stock from Hold to Underperform, suggesting about 14% downside. The overall broker range is wide—HK$25 to HK$42.16—with recent revisions clustering at the lower end.

Beyond smartphones, the electric vehicle division continues to burn cash. Xiaomi delivered nearly 81,000 cars in the first quarter, but the segment posted an operating loss of 3.1 billion yuan, equating to over $5,600 per vehicle. On the positive side, June marked the third consecutive month with deliveries above 30,000 units, bringing the first-half tally to an estimated 180,000 vehicles. The annual target of 550,000 implies a steep ramp-up to nearly 62,000 units per month in the second half—a level the company has yet to touch.

Meanwhile, the stock remains deep in the red. At Thursday's close of HK$2.58 (approximately €2.58), it has lost 42.54% since the start of 2026 and 58.94% over the past twelve months. The 52-week high of HK$6.51, set in September 2025, now seems a distant memory. The stock has recovered 10.21% from its 26 June low of HK$2.34, and the relative strength index of 34.1 hints that the shares are oversold—often a precursor to short-term bounces.

The buyback can provide a temporary floor, but it is not a cure. Xiaomi's management can reduce, delay, or halt the program at any time, and past repurchases have done little to arrest the long-term downtrend. What matters is whether the high-margin internet services segment—which grew revenue 4.3% to 9.5 billion yuan in Q1 with a gross margin of 76.1%—can compensate for the hardware shortfall. Xiaomi's global monthly active users hit a record 746.2 million in March, with China's base reaching 195.8 million, providing a growing advertising and services ecosystem.

The ultimate test will come with the second-quarter report, expected in the third quarter of 2026. That report will show whether premium pricing and resilient EV demand can offset the structural cost pressures that are squeezing margins across the board. For now, the buyback is a bandage on a deep wound, and the stock's recovery will depend on whether the chip-cost storm begins to pass before the share repurchase program runs its course.