Xiaomi's Autumn Crucible: A Chip Ambition, a Foldable Launch, and the Memory-Cost Hangover

Xiaomi's Q2 profit fell 42.6% on memory costs, but shares rose on Xring O3 chip and SkyNomad EV launch hopes.

There is a peculiar tension at the heart of Xiaomi right now. The company's latest quarterly report painted a picture of a hardware giant squeezed by the very components it assembles, yet its share price has spent the days since quietly climbing. Investors, it seems, are choosing to look past the rear-view mirror and fix their gaze on a September that could redefine the company's trajectory.

The stock closed Friday at €3.07, up 2.4 percent on the day, extending a recovery that has now lifted the shares roughly 10 percent from the post-earnings trough. That bounce is all the more striking given the broader context: the equity remains about 53 percent below its 52-week high from September 25, having shed nearly half its value over the past twelve months. The 30-day annualized volatility of 58 percent is a reminder that this is still a stock that moves violently in both directions.

The Silicon Statement

The immediate catalyst for the renewed optimism is not the earnings report itself, but what Xiaomi unveiled on Monday. The company introduced a new iteration of its in-house smartphone processor, the Xring O3, which Reuters reports will be manufactured by TSMC using its 3-nanometer process node — the current frontier of semiconductor fabrication.

That choice of manufacturing partner and process is significant. A smartphone maker that commissions processors at this level is signaling an ambition to move beyond the role of mere device integrator, positioning itself closer to the handful of companies that treat chip design as a strategic core competency rather than a cost line.

The supply-chain logic extends further. On Saturday, Xiaomi confirmed that Chinese memory manufacturer CXMT will supply LPDDR6 DRAM for its upcoming foldable flagship — the device slated for a September release that will carry the Xring O3. Two components, one message: Xiaomi is pulling critical supply chains closer to home at precisely the moment when those dependencies inflicted the most damage.

The Memory Squeeze That Won't Let Go

That damage was laid bare in the second-quarter numbers. Adjusted net profit fell 42.6 percent to 6.2 billion yuan, while revenue declined 6.1 percent to 108.9 billion yuan. The company pointed to persistently elevated memory and component costs as the primary culprit.

The smartphone division bore the brunt: segment revenue dropped 7.5 percent to 42.1 billion yuan, while gross margin in the business collapsed from 11.5 percent to 8.5 percent. This is not a footnote in the company's narrative — it is the central problem. A hardware business whose profitability hangs on the spot price of its own bill of materials is structurally vulnerable, and the market knows it.

Management, however, has offered a more hopeful read. The worst of the pressure, they argue, is behind them, with the pace of memory-price increases expected to moderate in the second half of the year. That remains a forecast rather than a certainty — and the May downgrade from Jefferies to "Underperform" with a price target of HK$25.49, citing memory inflation and what the bank called "challenging" margin targets, shows that not all sell-side observers share the optimism.

A Second Bet on Wheels

While the smartphone division wrestles with its cost structure, Xiaomi is quietly scaling a parallel wager. The EV business delivered 104,199 vehicles in the second quarter, a 28.2 percent increase in deliveries, and Reuters has reported that the segment is expected to account for a growing share of overall revenue. In the context of the memory crisis, that diversification looks less like a growth story and more like a strategic hedge.

The next test arrives in September with the launch of the SkyNomad vehicle lineup. Chinese media reports indicate more than 100,000 reservations have already been placed for the N90 Max and N70 Max models. Reservations, of course, are not deliveries — the gap between the two will determine whether the EV momentum is real or merely a function of pre-launch enthusiasm.

The Buyback Backstop

Underpinning the share price is a quieter but persistent force. Xiaomi has repurchased approximately 377.5 million of its own shares worth HK$11.7 billion so far this year, within a program sized at HK$20 billion. By August 24, the buyback total had reached HK$11.766 billion. Such repurchases do not substitute for operational strength, but they do signal that management considers the current valuation — a market capitalization of roughly €80.22 billion — as too cheap to ignore.

The technical picture supports a cautious optimism. The stock has edged above its 50-day moving average of €2.92, and with an RSI of 52.5, it sits in neutral territory — neither overbought nor oversold.

What September Will Decide

The coming weeks will serve as a referendum on two narratives. Can the SkyNomad launch convert reservations into deliveries at a pace that sustains EV growth? And will the Xring O3, paired with the Xiaomi 18 Fold, demonstrate that the company's chip ambitions are more than a branding exercise?

There are also unresolved questions hovering in the background. Unconfirmed reports from March about potential talks with Stellantis regarding a European cooperation remain exactly that — unconfirmed — and should be treated accordingly by investors.

The bull case is straightforward: if SkyNomad delivers and the foldable sells, Xiaomi's vertical-integration story gains credibility, and the buyback provides technical support. The bear case is equally clear: if memory prices fail to moderate as management expects, or if delivery numbers trail reservation figures, the margin pressure in the core business will reassert itself with force.

For now, the shares have found a floor. Whether that floor holds through September depends on whether Xiaomi can turn announcements into shipments — and whether the market's renewed patience is rewarded with numbers that justify it.