Xiaomi's Buyback Blitz Meets a Harsh Reality: Q2 Profit Set to Slump 43.6%

Xiaomi's HK$100M buyback follows March dilution; CICC sees Q2 profit drop 43.6% as EV margins and price competition weigh on stock.

When a company spends roughly HK$100 million buying back nearly 80 million of its own shares across fourteen tranches between early June and mid-July, the message to the market is usually one of confidence. For Xiaomi, however, the timing of that capital return programme tells a more complicated story — one that will come into sharp focus when the board convenes on Tuesday, 18 August to approve the unaudited second-quarter and first-half results.

The buyback is particularly striking because it follows hard on the heels of a March 2025 capital raise, in which Xiaomi placed 800 million new shares to fund growth and research. Dilute first, then repurchase — a pattern typical of companies caught between expansion ambitions and share-price defence. The share-buyback moratorium for new equity issuance only lifts on 14 August, the very day CICC published a notably downbeat forecast.

The numbers that matter

CICC's projection for the April-to-June period is sobering: revenue expected to fall 7.6 percent to 107.14 billion yuan, with adjusted net profit plunging 43.6 percent to 6.114 billion yuan. The "Outperform" rating stands, but the underlying expectation paints a picture that dovetails with an already weak first quarter, when revenue slipped 10.9 percent to 99.142 billion yuan, adjusted net profit tumbled 43.1 percent, and GAAP earnings dropped a steeper 57 percent. Smartphone sales — historically the group's backbone — contracted 12.5 percent in that period.

Lay CICC's second-quarter estimate beside those figures and a pattern emerges: this is no one-off outlier quarter but a trajectory. Profit margins are eroding faster than revenue itself is shrinking — a dynamic that in consumer electronics typically signals intensifying price competition and rising costs in newer business lines.

The EV conundrum

Against that backdrop sits the paradox of Xiaomi's electric vehicle division. The SU7 electric sedan delivered more than 80,000 units in the first half — volume that, according to reports, has outpaced comparable models from established German premium manufacturers in the Chinese market. Yet the stock has failed to reflect that operational strength. Shares trade at €2.84, roughly 57 percent below the twelve-month high of €6.54 set last September, and down around 34 percent since the start of the year. The last seven trading sessions alone have shaved off 6.6 percent.

The central question for investors ahead of Tuesday's report is not delivery volume but the margin in the auto segment relative to rising economies of scale. Market commentary already points to softening momentum following the recent SUV launch, and CICC has flagged potential seasonal effects weighing on the quarterly performance. Both Daiwa and JPMorgan trimmed their price targets on Tuesday — Daiwa to HK$32.00 while maintaining a buy rating, JPMorgan to HK$31.00 with the explicit rationale that only "mediocre" results are expected for the second quarter.

A wider strategic pivot

Meanwhile, Xiaomi is reportedly in talks with Stellantis over potential investments in European production capacity, including possible stakes in brands such as Maserati, according to Handelsblatt and Bloomberg. No agreement is finalised, but the discussions signal a strategic direction that extends well beyond smartphones — toward a diversified technology group with an automotive arm and industrial partnerships.

That raises the larger question behind the current numbers: can a company whose core business shows shrinking margins simultaneously fund billion-dollar bets in the automobile industry?

What could steady the ship

There are countervailing signals. Founder Lei Jun has announced the new "Pengcheng" series, development of which began 3.5 years ago, underscoring a systematic expansion of the hardware ecosystem. The 50 percent increase in AI-related job postings in current campus recruitment suggests structural investment in future fields rather than mere cost management. Monthly active users grew 3.8 percent to 746.2 million, and the AIoT device base edged higher quarter on quarter — evidence that the ecosystem continues to expand even as profitability suffers.

The relative strength index at 42 indicates the stock is not yet oversold, offering no automatic tailwind for a rebound. Should the seasonal effect CICC warns about prove stronger than anticipated, the EV margin could deteriorate more sharply than analysts have already priced in.

The buyback may signal management's belief in the company's substance. Whether it answers the structural questions about profitability is another matter entirely. Tuesday's results and the accompanying analyst webcast will provide the first concrete test — and determine whether the AI recruitment drive and the "Pengcheng" series read as genuine strategic renewal or as footnotes to a margin story that increasingly dominates the narrative.