#XiaomiQ2Earnings

Xiaomi delivered a "better than expected" performance under pressure in Q2. The financial report released on Tuesday showed that Xiaomi's total revenue in Q2 was ¥108.92 billion, down 6.1% year-on-year but up 9.9% quarter-on-quarter; net profit was ¥9.46 billion, down 20.3% year-on-year but better than the market consensus. However, after excluding non-recurring items such as changes in investment fair value, the adjusted net profit for Q2 was only ¥6.22 billion, a sharp year-on-year decline of 42.6%, which truly reflects Xiaomi's core operating quality for the quarter. The global shortage of memory chips causing soaring component costs runs throughout the entire report—smartphone gross margin dropped sharply from 11.5% in the same period last year to 8.5%, and overall gross margin fell from 22.5% to 19.8%, hitting a recent low. From a full-year perspective, Xiaomi's total revenue for the first half of 2026 was ¥208.06 billion, down 8.4% year-on-year; adjusted net profit was ¥12.29 billion, halved year-on-year by 42.8%. The impact of the memory crisis has not yet subsided, and Xiaomi is also bearing ongoing losses from its electric vehicle expansion. The combined pressure means this tech company, once known for high growth, is undergoing a rare period of pain. Since the beginning of the year, Xiaomi has repurchased about HKD 11.7 billion worth of shares, buying back approximately 377.5 million shares, exceeding the total amount for the entire previous year, showing management's continued confidence in the current stock price. Smartphone Business: Shipments Plummet, Price-for-Quality Strategy Shows Initial Results Smartphone shipments in Q2 were only 31.2 million units, a sharp 26.5% year-on-year decline. Xiaomi's deliberate reduction of mid-to-low-end shipments was one main reason, but weak global demand cannot be ignored—according to Omdia data, global smartphone shipments declined 6% year-on-year in Q2. However, Xiaomi's premium strategy delivered convincing numbers this quarter: average selling price (ASP) rose 25.9% year-on-year to a record high of ¥1,351 per unit. In the mainland China market, models priced at ¥3,000 and above accounted for 32.1% for the first time, with the ¥3,000–4,000 price segment market share rising to 16.2%, both historic highs. The Xiaomi 17T series, released in May, also effectively boosted the proportion of high-end shipments overseas. Yet, the erosion from rising component costs far exceeded the gains from ASP increases. Smartphone gross margin fell from 11.5% last year to 8.5%, further deteriorating from 10.1% in Q1, indicating the actual profitability of the smartphone business is at a relatively fragile level. IoT and Internet: Domestic Subsidy Decline, Internet Services Remain the Most Stable Cash Cow IoT and lifestyle product revenue was ¥31.3 billion, down 19.2% year-on-year, mainly dragged down by the reduction of domestic subsidy policies, with mainland China revenue shrinking significantly. Gross margin also dropped from 22.5% to 20.1%, similarly impacted by rising core component prices. However, overseas IoT business showed bright spots—tablets, smart TVs, and wearables drove rapid growth in overseas revenue, with overseas tablet shipments and revenue both hitting record highs. In contrast, the internet services business demonstrated resilience through the cycle. Internet revenue in Q2 was ¥9.04 billion, basically flat year-on-year, but gross margin rose counter-cyclically to 76.8%, up 1.4 percentage points year-on-year, mainly due to a 4.8% increase in advertising revenue to ¥7.2 billion and improved profit quality. As of June, global monthly active users reached 766.5 million, a record high, with overseas internet service revenue accounting for 32.1%, showing Xiaomi's ecosystem monetization internationalization trend. The AIoT platform connected devices (excluding phones and tablets) reached 1.1608 billion units, up 17.4% year-on-year; users with five or more connected devices reached 24.6 million, up 20.2%, indicating continuously strengthening ecosystem stickiness. Electric Vehicles: Deliveries Surpass 100,000, Margin Under Pressure, Losses Still Expanding The smart electric vehicle business was the biggest revenue highlight this quarter but also the largest profit drag. Q2 automotive and AI innovation business revenue was ¥24.9 billion, up 17.1% year-on-year; vehicle deliveries reached 104,199 units, up 28.2%, maintaining growth for multiple consecutive quarters—notably, this growth was achieved against a 22% year-on-year decline in the mainland China passenger car market. As of August 17, cumulative deliveries of the SU7 series exceeded 500,000 units. But financial pressure is significant. Automotive business ASP dropped from ¥254,000 last year to ¥229,000, mainly due to a lower proportion of high-priced SU7 Ultra models delivered, with the YU7 series gradually becoming the main delivery model. Rising core component costs and increased AI business expenses caused automotive and AI innovation business gross margin to plunge from 26.4% last year to 19.2%. Coupled with increasing R&D and sales expenses, this segment posted an operating loss of ¥2.6 billion in Q2, with operating expenses up 25.7% year-on-year to ¥7.4 billion. The "Pengcheng" extended-range SUV series (N90 Max pre-sale price ¥299,900, N70 Max pre-sale price ¥259,900) launched in July and will be available in September. This is Xiaomi's first extended-range model, expected to further enrich the product lineup but will inevitably bring more R&D amortization and channel investment pressure in the short term. R&D and AI: Heavy Investment in Core Technology, Breakthroughs in Robotics and Large Models R&D investment continues to grow strongly. Q2 R&D expenses were ¥9.23 billion, up 18.9% year-on-year, with AI infrastructure investment as the main growth driver. As of the end of June, R&D personnel accounted for 47.2% of total employees, and global patent holdings exceeded 47,000. In AI, Xiaomi's layout extends beyond smartphones. The MiMo-V2.5 large model ranks first globally in weekly calls on the OpenRouter platform, reaching 10.5 trillion tokens; the Miloco 2.0 whole-home intelligent AI open-source solution released in June aims to achieve "memory, recognition, and execution" for proactive home intelligence. Important progress was also made in robotics: the Xiaomi-Robotics-U0 (38 billion parameter multimodal embodied model) released in July ranked first among 126 global models in the WorldArena benchmark; Xiaomi-Robotics-1 also took first place in the RoboCasa365 simulation evaluation. More tangibly, Xiaomi robots have been applied in automobile factories, with dual-side operation success rates improving from 90.2% to 98%, preliminarily validating commercial feasibility in industrial scenarios. Costs and Cash Flow: Subsidy Income Surge Supports Profit, Cash Reserves Ample Operating expenses in Q2 for R&D and sales promotion totaled nearly ¥18 billion, both up more than 10% year-on-year. Notably, other income surged from ¥300 million last year to ¥2.2 billion, mainly due to a significant increase in subsidy income, which partially supported operating profit performance for the quarter. In terms of cash flow, Q2 net cash generated from operating activities was ¥3.84 billion, reversing the negative cash flow in Q1; ending cash and cash equivalents were ¥37.3 billion, with total cash reserves reaching ¥219.3 billion, providing ample strategic flexibility to face current challenges. In financing activities, stock repurchases continue, backed by a HKD 20 billion repurchase plan, clearly reflecting management's confidence in long-term value.