Xiaomi Q2 2026: Memory Costs Crush Profit as EV Growth Faces a Delivery Test

The headline is therefore not simply that Xiaomi’s sales declined. Profit fell much faster than revenue, indicating that cost inflation and business mix were more damaging than the top-line contraction alone suggests.

Memory costs hit margins harder than pricing could offset

DRAM and NAND memory inflation was the central pressure point for Xiaomi’s smartphone business. The company raised prices and shifted its product mix toward more premium devices, helping smartphone average selling price reach a record high. That strategy supported revenue per handset, but it did not fully absorb the jump in memory and other component costs.

The result was a smartphone gross margin of 8.5%, down from 11.5% in the same period a year earlier according to the supplied earnings coverage. Overall gross margin also declined to 19.8% from 22.5%.

This combination matters because it shows the limits of relying on premiumization during a weak demand cycle. Higher prices can protect average revenue per device, but they may also reduce unit demand and leave the company carrying a more expensive bill of materials on fewer shipments. Xiaomi’s smartphone shipments declined year over year, while smartphone revenue fell 7.5% according to Bloomberg-sourced coverage.

How Xiaomi compared with analyst expectations

The consensus comparison is less straightforward than the headline numbers suggest because the supplied sources report different forecast sets.

Reuters, citing LSEG data, said analysts had expected adjusted net profit of about RMB 6.6 billion. Xiaomi’s RMB 6.2 billion result therefore represented a miss of roughly RMB 0.4 billion against that estimate. The same report put the revenue consensus at RMB 112.2 billion, above Xiaomi’s RMB 108.9 billion result.

A separate pre-results institutional estimate expected revenue of RMB 108.823 billion, or a year-over-year decline of about 6.15%, which would have put the reported revenue broadly in line with that forecast. Another published preview forecast adjusted net profit of RMB 6.16 billion, close to the reported figure, but it was a single forecast rather than proof of the full analyst consensus.

The defensible conclusion is that Xiaomi missed at least one widely cited adjusted-profit consensus, while revenue was either broadly in line with one pre-results estimate or below the higher Reuters/LSEG estimate. The sources do not establish a reliable analyst consensus for GAAP net income, so a definitive GAAP beat or miss cannot be stated.

Margin assumptions were also mixed

Forecasts for margins varied by source and definition. One preview expected Xiaomi’s overall gross margin to be about 19.9% and said that was approximately 1.1 percentage points below the Bloomberg consensus estimate, implying a materially higher consensus assumption.

For the smartphone business specifically, Goldman Sachs was reported as expecting a gross margin of 8.2%, compared with Xiaomi’s actual 8.5%. That suggests the smartphone result was somewhat better than that particular forecast even as group profitability deteriorated.

Because the available estimates are not fully consistent, it is safer to treat 19.8% as the key reported margin outcome rather than claim a single definitive consensus margin. The important point is that group margin remained under pressure and was well below the 22.5% achieved a year earlier.

GAAP and adjusted profit tell different parts of the story

Xiaomi reported GAAP net profit of RMB 9.46 billion, down about 20% year over year, versus adjusted net profit of approximately RMB 6.2 billion, down 42.6%.

The larger decline in adjusted profit highlights the deterioration in underlying operating profitability as memory costs, competition and weaker consumer demand weighed on the business. The GAAP figure was higher in absolute terms, but the supplied evidence does not provide a comparable analyst GAAP-profit estimate. It would therefore be misleading to label the GAAP result a beat or miss based on the available data.

EV growth is real, but profitability and target execution remain unresolved

Xiaomi’s EV operation supplied an important growth counterpoint. Deliveries reached 104,199 vehicles in Q2, up 28.2% year over year, even as China’s passenger-vehicle market faced a difficult period.

However, the EV and related innovative-business operation remained unprofitable, leaving uncertainty about when vehicle growth will translate into sustainable earnings.

Xiaomi’s full-year 2026 delivery target is 550,000 vehicles, up 34% from the prior year’s target base of approximately 410,000 vehicles. The company delivered 185,055 vehicles in the first half, according to one market report, meaning it would need a substantially faster run rate in the second half to reach the goal.

Analysts described the target as increasingly challenging and said it would require strong execution and a rapid ramp of the new SkyNomad model. The target is not necessarily impossible, but the required acceleration makes delivery volume—and the cost of achieving it—an important test for Xiaomi’s next results.

Premium EV pricing adds another margin trade-off

Xiaomi’s premium strategy is not limited to smartphones. Investors also questioned whether the refreshed SU7 could maintain profitability after the company implemented only a modest price increase in a highly competitive Chinese EV market.

That creates a familiar trade-off: competitive pricing may support deliveries and market share, but it can limit the margin contribution of each vehicle. For Xiaomi, the EV opportunity will therefore need to be judged on more than delivery growth. Investors will also be watching vehicle pricing, unit economics and whether scale can move the operation toward sustainable profitability.

Why Xiaomi shares rose despite the weak profit print

The immediate market reaction was more constructive than the income statement. Hong Kong-listed Xiaomi shares rose 6.8% to HK$27.96 in early trading after the company said the worst period of smartphone pressure may have passed and memory-price increases could ease in the second half.

The setup had been volatile before the results. Options implied a possible 3.6% move in either direction after earnings, above the average fluctuation following Xiaomi’s previous eight quarterly reports. Short interest had also risen to around 9% of free float in May from less than 2% a year earlier, reflecting concerns about memory inflation and EV competition.

The positive share reaction appears to have reflected expectations for improving component-cost pressure and the long-term EV opportunity rather than a strong quarter on current profitability. That interpretation remains conditional: Xiaomi still has to demonstrate that memory inflation is easing, smartphone demand can stabilize and EV growth can become profitable without excessive price concessions.

The investor takeaway

Xiaomi’s Q2 results showed a company in transition. Its smartphone business defended average selling prices through premiumization, but the benefit was not enough to offset memory inflation and weaker shipments. Adjusted profit fell far more sharply than revenue, and group gross margin dropped to 19.8%.

The EV business is growing quickly and gives Xiaomi a potential second engine, but it remained unprofitable and faces a demanding 550,000-vehicle target for 2026. The stock’s rally suggests investors are looking beyond the current margin trough toward easing memory costs and future EV scale. The next proof point will be whether those expectations begin to appear in margins and cash-generating profitability—not just deliveries.