Xiaomi's Two-Speed Strategy: Buybacks and a Nürburgring Test as Smartphone Margins Take a Hit

Xiaomi's smartphone margins shrink under surging memory costs, net profit drops 43%, yet it raises shipment target and ramps up HK$20 billion buyback program.

The Chinese electronics giant is sending mixed signals to the market. On one hand, Xiaomi is aggressively buying back its own stock and testing a high-performance electric vehicle on Germany's famed Nürburgring. On the other, its core smartphone business is bleeding margin under the weight of surging memory-chip costs, with first-quarter net profit falling by more than 40%.

The stock slipped 2.54 percent to €3.01 on Wednesday, a move that looks odd against the flurry of positive operational news. Since the start of the year, the equity has lost 30.57 percent of its value, a decline that management is trying to counter with a clear and deliberate capital-return strategy.

A Record Phone Target Set Against a Profit Slide

Xiaomi's first-quarter results painted a stark picture. Revenue came in at 99.14 billion yuan, down 10.9 percent year-on-year, while adjusted net profit tumbled 43.1 percent to 6.07 billion yuan. Smartphone shipments dropped 19.2 percent to 33.8 million units, and segment revenue fell 12.5 percent to 44.3 billion yuan. President Lu Weibing pointed to the memory-chip crisis as the culprit: a device with 12GB of RAM and 512GB of storage now costs 1,500 yuan more to build than it did in 2025, a cost the company cannot fully pass on to consumers. The average selling price did rise 8 percent to a record 1,310 yuan, but that was not enough to offset the margin squeeze.

Yet in a move that surprised many, Xiaomi raised its full-year smartphone shipment target from 90 million to 110 million units. The company is betting on entry-level devices and expects memory prices to stabilize later this year — a view shared by rivals OPPO and vivo, which have already pushed back against Samsung's pricing proposals for the third quarter. At Mobile World Congress in March, Xiaomi launched the Xiaomi 17 (from €999) and Xiaomi 17 Ultra (from €1,499), holding prices steady despite an 80-90 percent jump in memory costs during the first quarter. Globally, the company remains the third-largest smartphone maker, behind Samsung with 62.8 million shipments and Apple with 61.1 million in the first quarter.

Buybacks as a Confidence Signal

Xiaomi is leaning heavily on share repurchases to steady the ship. On Wednesday alone, it bought back 1.875 million Class B shares in Hong Kong for roughly HK$49.995 million, at prices between HK$26.60 and HK$26.76 per share. Since the start of June, the company has retired 0.31 percent of its total share capital.

This activity is part of a broader buyback program worth up to HK$20 billion, launched on June 2 and set to run for a year. As of the latest disclosure, Xiaomi had already spent around HK$14.6 billion to repurchase 399.6 million B-shares. The initiative aligns with a wave of Chinese corporate buybacks, as state-owned enterprises and private companies alike try to prop up domestic equity markets.

Technically, the stock is holding up better than the year-to-date loss might suggest. Wednesday's close of €3.01 sits 2.22 percent above its 50-day moving average of €2.94, indicating some short-term stability. Over the past 30 days, the shares have gained 16.42 percent from their yearly low. Still, they remain 52.60 percent below the 52-week high set in September 2025 — a reminder that investors have not yet priced out the structural headwinds from the memory-chip crunch.

From the Nürburgring to the Showroom

Beyond smartphones, Xiaomi is pushing hard on electric vehicles. On July 20, observers spotted a test car on the Nürburgring Nordschleife believed to be an unconfirmed "Extreme" version of the SU7 Ultra. The test underscores the company's ambition to compete not just on price but on technology, putting pressure on established luxury automakers.

The EV division posted a 6.9 percent revenue increase to 19.9 billion yuan in the first quarter, with deliveries exceeding 80,000 vehicles. The new generation of vehicles uses an 800-volt architecture and comes standard with LiDAR sensors for autonomous driving, boosting per-vehicle value.

Meanwhile, the global rollout of the Redmi Note 17 series is imminent. New regulatory certifications appeared on July 22, pointing to a launch in Vietnam, Thailand, and Europe. The Redmi Note 17 Pro Max 5G is positioned as the top-tier model in the budget lineup, a strategic weapon for gaining share in price-sensitive markets across Asia and Latin America while Xiaomi works to stabilize memory-chip procurement costs.

Heavy Investment in AI and R&D

Xiaomi is also spending big on the future. Research and development expenditure rose 33.4 percent to 9 billion yuan in the first quarter, and the company plans to invest at least 16 billion yuan in artificial intelligence this year alone, with a three-year commitment exceeding 60 billion yuan. Its proprietary language model, MiMo-V2.5-Pro, claims the top spot among open-source AI models on the Artificial Analysis leaderboard.

With cash reserves of more than 220 billion yuan, Xiaomi has the firepower to sustain this investment push even as smartphone margins remain under pressure.

A Potential Dividend — and Earnings on the Horizon

The board is scheduled to review half-year results on August 18. On the agenda is a possible interim dividend — which would be a first for Xiaomi. Such a payout could shift how value-oriented investors view the stock, adding another tool to the company's capital-allocation toolkit alongside the buyback program.

For now, Xiaomi is running a two-speed operation: one business fighting a brutal cost war in smartphones, the other racing electric cars around the Nürburgring and pouring billions into AI. The market is watching to see which speed wins out.