Xiaomi’s Share Buyback Strategy Confronts Smartphone Margin Squeeze

Xiaomi KYG9830T1067

Xiaomi shares are caught between two powerful forces: a substantial share repurchase program and mounting pressures on its core smartphone business. The stock, trading between HK$35.20 and HK$36.00, has declined more than 5% since the start of the year. This dynamic raises a critical question for investors: can aggressive buybacks provide sufficient support against fundamental headwinds in the hardware sector?

Recent industry reports indicate Xiaomi is internally revising its 2026 smartphone shipment targets downward, a move reportedly mirrored by competitors OPPO and Vivo. Analysts suggest the reduction could be as high as 20%.

A primary driver of this pressure is a global shortage in memory chips. Soaring prices for key components like DRAM and NAND flash memory are squeezing margins for mass-market smartphone manufacturers. These increased costs are difficult to pass on to consumers without risking a drop in demand, creating a significant profitability challenge. For Xiaomi, this is particularly consequential, as smartphones remain the central cash engine funding its broader ambitions.

Buybacks Deployed as a Countermeasure

In a clear response to market weakness, Xiaomi continues to execute a large-scale share repurchase plan. The company confirmed a mandatory filing today showing it bought back 7 million Class B shares on January 21. This tranche, valued at approximately HK$248 million, was executed at prices ranging from HK$35.22 to HK$35.48 per share.

This follows purchases of 5.5 million and 4.0 million shares on preceding days. Cumulatively, the company has repurchased around 201 million shares since the program's authorization. The move, championed by founder Lei Jun and management, signals their belief that the market is undervaluing the company. From a technical perspective, these buybacks aim to absorb selling pressure and defend key support levels, though they have yet to reverse the stock's negative year-to-date trend.

Diverging Narratives: EV Promise vs. Hardware Reality

A contrasting narrative is emerging from Xiaomi's electric vehicle division, Xiaomi EV. Pre-orders for the next-generation SU7 model, scheduled for an April market launch, are reported to be steady. This provides a longer-term growth narrative for the conglomerate.

In the near term, however, concerns over hardware margins are dominating investor sentiment. The stock has underperformed the Hang Seng Tech Index recently, with rising semiconductor costs acting as a direct headwind for Xiaomi while benefiting chip producers. The share repurchases are thus functioning as a deliberate counterbalance, intended to stabilize the equity price while the smartphone segment navigates a tougher environment.

Key Catalysts on the Horizon

Market attention is now turning to two imminent events that will provide clearer direction:

1. Q4 2023 Earnings Release (March 23)
   The financial results expected in March are likely to bring clarity to Xiaomi's 2026 guidance. Investors will scrutinize management's commentary for confirmation or context regarding the reported shipment target cuts and seek detailed evidence of the margin pressure within the smartphone division.

2. Next-Gen SU7 Launch (April)
   The April debut of the new SU7 electric car model represents a potential operational catalyst. A successful launch could shift market focus toward the growth potential of the EV business, potentially offsetting some of the current negative sentiment surrounding the smartphone segment.

The short-term outlook remains bifurcated. Xiaomi is contending with the dual challenges of rising memory chip prices and potential volume adjustments in smartphones, while simultaneously deploying capital for buybacks and preparing a major new product offensive in the electric vehicle space.