Xiaomi's Processor Push Arrives at a Pivotal Juncture for Its Share Price

Xiaomi unveils TSMC-made 3nm processor for foldable, but Q2 profit plunge and limited scale raise questions on near-term impact.

The timing of Xiaomi's semiconductor announcement could hardly be more consequential. Fresh off a quarterly report that laid bare the pressures squeezing its core handset business, the company unveiled its latest self-developed smartphone processor on Monday — a chip manufactured by TSMC using the advanced 3-nanometer process, according to two people familiar with the matter cited by Reuters. The new silicon, expected to carry the name Xring O3, is destined for the company's next flagship foldable device, a product for which Xiaomi has set a sales target of 200,000 to 300,000 units.

That volume figure is worth pausing over. It is a niche product by any measure, and it raises an immediate question for investors: can an in-house chip with such limited initial scale meaningfully offset the structural headwinds in Xiaomi's smartphone division, or is this a long-term strategic play with little near-term earnings impact?

The backdrop is a stock that has been on a rollercoaster. Xiaomi's adjusted net profit collapsed 42.6 percent year-on-year to 6.22 billion yuan in the second quarter, coming in well below the 6.6 billion yuan that analysts had penciled in. Revenue for the period reached 108.92 billion yuan. The profit slump was driven by historically elevated memory chip costs and persistent losses in the electric vehicle segment, which together compressed the gross margin from 22.5 percent to 19.8 percent.

The market's response to those numbers has been surprisingly resilient. Since the earnings release just over a week ago, the stock has climbed 9.6 percent, and Monday's chip announcement added another layer of narrative for bulls to work with. Yet the session itself told a more complicated story: the shares gave back 3.3 percent on the day, settling at 3.06 euros, even as the buyback machine continued to grind. A regulatory filing showed Xiaomi repurchased 1.8 million Class-B shares on Monday, adding to a program that has already seen the company buy back roughly 377.5 million shares worth 11.7 billion Hong Kong dollars as of August 13.

The longer-term chart remains sobering. Despite the recent bounce, the stock is down 5.6 percent over the past month and sits 29 percent below its level at the start of the year. It remains a long way from the 52-week high of 6.54 euros reached last September.

The Core Tension in the Handset Business

The central debate around Xiaomi's investment case hinges on a single dynamic: can pricing power compensate for shrinking volumes? The numbers from the latest quarter show the challenge clearly. Global smartphone shipments fell 26.5 percent to 31.2 million units, while handset revenue declined 7.5 percent to just under 42.119 billion yuan. Yet the average selling price jumped 26 percent, supported in part by higher IoT revenue — a trend that Nomura highlighted when it reaffirmed its "Neutral" rating on August 19.

The processor strategy is, in essence, a bet that Xiaomi can keep pushing that ASP higher by differentiating its premium devices. A flagship foldable powered by an in-house 3-nanometer chip gives the company a story to tell — and potentially a cost structure that reduces dependence on external suppliers for key components. The decision to commission TSMC with two additional Xring chips suggests this is not a one-off experiment but the beginning of a broader silicon roadmap.

Still, the arithmetic is unforgiving. A price increase of 26 percent cannot indefinitely offset a volume decline of more than a quarter if demand continues to soften. And the foldable that will carry the new processor is a low-volume product by design, limiting its immediate financial impact.

The EV Side of the Equation

While the chip news grabbed headlines, the electric vehicle business remains the bigger swing factor for the stock. Deliveries rose 28.2 percent in the quarter to 104,199 vehicles, and cumulative deliveries of the SU7 model line have now surpassed 500,000 units. Xiaomi has raised its 2026 delivery target to 550,000 vehicles — an ambitious goal that will be tested when the SkyNomad series launches in September.

The division, however, continues to burn cash. The new business segments encompassing EVs and AI posted an operating loss of 2.6 billion yuan in the quarter. That red ink is a key reason why some analysts remain cautious. Astrada Advisors downgraded the stock from "Buy" to "Hold" in mid-July, citing doubts about whether Xiaomi can hit its EV delivery targets — at that point, only 185,000 vehicles had been delivered in the first half, with the monthly run rate trailing what would be needed to meet the annual goal.

What Comes Next

The immediate catalyst calendar is clear. The SkyNomad launch in September will provide the first test of whether the EV narrative can sustain its momentum, and monthly delivery figures will show whether the 550,000-unit target remains credible. In the handset business, the question is whether the ASP gains hold up as the new processor rolls out across the premium lineup.

For now, the bull case rests on a combination of factors: continued pricing power in smartphones, the signaling effect of aggressive buybacks, and an EV business that is growing quickly even if it is not yet profitable. The bear case is equally straightforward — a fragile core business, a loss-making EV division, and a chip strategy that may take years to move the needle.

The stock's recent recovery suggests the market is willing to give management the benefit of the doubt. Whether that patience is rewarded will depend on execution in the months ahead, starting with September's EV numbers and the reception of the SkyNomad series.