Xiaomi's Two-Pronged Counterattack: A Homegrown Chip and a Foldable Launch Against a Memory-Cost Squeeze

Xiaomi's Q2 net income fell 42.6% as memory chip costs squeezed margins; EV losses persist, but self-developed chip and CXMT supply aim to ease pressure.

The numbers were never going to be pretty. When Xiaomi reported its second-quarter results on August 18, the Chinese electronics giant confirmed what investors had already begun to fear: adjusted net income tumbled 42.6 percent to 6.2 billion yuan (920 million US dollars), while revenue slipped 6.1 percent to 108.9 billion yuan (16.1 billion US dollars). Both headline figures came in shy of consensus estimates, and the market's response was swift — the stock has shed 15 percent over the past 30 days.

The culprit, by Xiaomi's own admission, was a sharp spike in memory chip and component prices that carved into smartphone margins. It's a familiar pain point for hardware makers, but one that cuts especially deep for a company whose core business remains handsets. Phone revenue fell 7.5 percent to 6.2 billion US dollars, while unit shipments collapsed 26 percent to 31.2 million devices. A 26 percent jump in average selling prices softened the blow, as did stronger IoT revenue, but the margin pressure was unmistakable: gross margin came in at 19.8 percent, below the 20.4 percent the market had penciled in.

The EV Counterweight — and Its Cost

Not everything is shrinking. Xiaomi's smart EV division posted a 17.1 percent revenue increase to 3.7 billion US dollars, with 3.5 billion of that coming directly from vehicle sales. The segment remains firmly in investment mode, however, booking an operating loss of 385 million US dollars. For now, the automotive business is a growth story that costs money — a dynamic that keeps the overall profitability picture murky.

Management, though, struck a confident tone about the second half. The worst of the memory-price pressure, they argue, is behind them, with the pace of chip price increases expected to moderate. That's a bet on external market forces. But Xiaomi is also building its own insurance policy.

Silicon Independence, Delivered

On August 24, the company unveiled the Xuanjie O3, a self-developed 3-nanometer processor designed to reduce reliance on third-party suppliers. It's a direct response to the cost shock of the past quarter — a statement that Xiaomi intends to control more of its own component destiny rather than remain exposed to the whims of the memory market.

That message was reinforced by news that CXMT, a domestic memory maker, will supply LPDDR6 DRAM for Xiaomi's upcoming "18 Fold" foldable smartphone. The device is slated for a September launch, confirmed via Xiaomi's official Weibo channels. Securing memory supply ahead of the launch is a strategic move in a segment where margins are notoriously thin — and where memory costs just became the single biggest drag on profitability.

A Market Waiting for Proof

Nomura, for its part, saw no reason to change its stance. The Japanese brokerage reaffirmed its "Neutral" rating on the stock in mid-August, crediting the surprisingly resilient revenue to higher smartphone ASPs and IoT growth. No target price adjustment accompanied the confirmation — a holding pattern rather than a conviction call.

The share price has been whipsawing accordingly. Friday brought a 2.4 percent gain to 3.07 euros, though no specific catalyst was apparent. That followed a 3.42 percent advance, then a 3.07 percent pullback, then further gains — a choppy pattern that suggests investors are struggling to find a firm footing.

The September launch of the "18 Fold" will be the first concrete test of whether Xiaomi's supply-chain strategy actually works in practice. If memory prices ease as expected and the EV business delivers on its promise, the company — currently valued at roughly 77.97 billion euros — could begin to rebuild the profitability narrative that has been so badly dented. Until then, the market's skepticism is likely to persist, with investors demanding evidence rather than assurances.