Xiaomi's Q2 Revenue Reached 100 Billion Yuan, But Net Profit Was Nearly Halved. What's The Reason?

Revenue barely stabilized, but profits were significantly eroded. The core reason is that memory chips are rising too quickly. Xiaomi President Lu Weibing bluntly stated at the earnings call that he had predicted last year that memory would enter a long-term price increase, but the sharp rise in Q4 last year, especially in Q1 this year, "still exceeded expectations" and "rose dramatically."

In the second quarter, Xiaomi's smartphone business revenue was 42.1 billion yuan, down 7.5% year-on-year; Shipments were 31.2 million units, down 26.5% year-on-year; But ASP surged to 1,351 yuan, up 25.9% year-on-year, setting a new all-time high. Shipments dropped by a quarter, and revenue fell by only 7.5%, thanks to product mix upgrades and price increases. But the premium brought by price increases is being absorbed by rising storage costs.

Based on an 11.5% gross margin for the same period in 2025, the 42.1 billion yuan mobile phone revenue in Q2 should have contributed about 4.84 billion yuan in gross profit; actual gross profit was only 3.58 billion yuan. Gross profit for the quarter was about 1.26 billion yuan eaten up by storage and other costs. In the first half of the year, the combined gross profit of the mobile phone business was eaten up by storage by about 2.4 billion yuan. If all businesses such as IoT and automotive are included, Xiaomi Group lost about 3.75 billion yuan in gross profit loss in the first half of the year due to declining gross margin.

How Fiercely Has Storage Surged?

Counterpoint data shows that in the second quarter of 2026, mobile memory prices rose by more than 80% quarter-on-quarter. From the end of 2025 to the end of the first half of 2026, the average contract price of smartphone storage chips has risen by more than 200%. TrendForce data shows that in Q2, general-purpose DRAM contract prices rose 58% to 63% quarter-on-quarter, while NAND flash contract prices increased 70% to 75% quarter-on-quarter.

Omdia's chief analyst pointed out that some manufacturers' memory costs have reached four to five times what they were a year ago, with memory and storage alone accounting for over 60% of the bill of materials cost for entry-level smartphones, and over 30% for high-end models. DRAM has, for the first time in history, surpassed the SoC main control chip, becoming the most expensive component in the entire machine.

Apple CEO Tim Cook described the current memory cost pressure as a "once-in-a-century flood" during the earnings call and announced a comprehensive price increase. This is not a management issue of any one company, but the same pitfall the entire smartphone industry has fallen through.

How Xiaomi Managed To Handle It

Facing cost pressures, Xiaomi's choice is: not to push volume with low prices, but to proactively adjust its product structure, reduce low-end shipments, and raise unit prices.

Lu Weibing did the math at the earnings call: taking the 8GB+128GB version as an example, based on Q2 costs, the memory cost alone exceeded 1,500 yuan when converted to the phone's retail price. Low-end phones were hit hardest, forcing entry-level products to shrink. The result: shipments fell by 26.5%, but ASP rose by 25.9%, and the gross margin of the mobile phone business held at 8.5%. Previously, the market had worried that gross margin might fall below 8%, but the actual result "exceeded expectations."

IoT business revenue was 31.3 billion yuan, up 26.7% quarter-on-quarter; Internet service revenue reached 9 billion yuan, with a gross margin as high as 76.8%. These two businesses act as an "operational safety cushion," offsetting hardware cost pressures. The automotive business is also ramping up, delivering 104,200 vehicles in the second quarter, marking the sixth consecutive quarter of year-on-year growth, but this segment is still operating at a loss, with an operating loss of 2.6 billion yuan in the second quarter.

The market is asking: When will the storage price hikes end?

At the earnings call, Lu Weibing gave his assessment: the increase in memory costs will slow down in the third quarter, and it is highly likely that the fourth quarter will continue to rise slowly. The second half of the year remains at a historical high overall but has entered a "slowdown rally" phase.

He believes storage is unlikely to maintain its current high of about five times last year's Q2 for long, but it also cannot return to previous lows, and a new equilibrium will form somewhere in the middle. The industry's most difficult period has passed, and the storage sector as a whole has entered a "relatively visible and controllable stage."

Xiaomi has paid so much "memory tax," essentially a systematic redistribution of profits from the global memory chip supercycle to downstream terminal manufacturers. Storage factories earned over a trillion yuan in profits in half a year, while downstream phone manufacturers

were forced to pass the increased costs onto consumers. Xiaomi has maintained its gross margin bottom line by upgrading its product structure and improving ASP, but the fact that profits have been eroded is unavoidable. Storage is a typical cyclical industry, and cycles eventually pass.