Xiaomi has reported a sharp drop in profit for the second quarter of 2026 as rising memory prices and other component costs put pressure on its smartphone business. The company’s adjusted net profit fell 42.6% year over year to about 6.2 billion yuan, or roughly $920 million. The result also came below market expectations.
The weaker earnings show how rising hardware costs are becoming a serious challenge for smartphone makers, especially companies that sell large numbers of affordable devices. Xiaomi said significant increases in the cost of important components, including memory, combined with stronger competition across the industry, continued to hurt its business.
Xiaomi generated about 108.9 billion yuan in total revenue during the quarter. Its smartphone division remained under particular pressure, with smartphone revenue falling 7.5% from a year earlier to 42.1 billion yuan. The gross margin for the smartphone business also dropped to 8.5%, compared with 11.5% during the same period last year.
Higher memory prices are especially difficult for Xiaomi because a significant part of its smartphone business depends on lower-priced models. Budget devices generally have less room for manufacturers to absorb increases in component costs without either reducing profit margins or raising prices for customers. Memory shortages and growing demand from AI infrastructure have contributed to higher costs across the consumer electronics market.
Xiaomi’s smartphone shipments also weakened during the quarter. The company shipped about 31.2 million smartphones, representing a decline of around 26% compared with the same period a year earlier. It was the second consecutive quarter in which Xiaomi experienced a year-over-year decline in smartphone shipments.
The company is now relying more heavily on businesses outside traditional smartphones to support future growth. Xiaomi has been spending heavily on electric vehicles and artificial intelligence as it tries to build additional sources of revenue.
Its electric vehicle business delivered stronger growth during the quarter. EV revenue reached about 23.9 billion yuan, up 15.9% year over year, while Xiaomi delivered 104,199 vehicles, an increase of 28.2%. However, the company’s EV, AI and other newer initiatives still produced an operating loss of around 2.6 billion yuan as Xiaomi continued investing in expansion.
The latest results highlight a difficult balance for Xiaomi. The company needs to protect its position in the competitive smartphone market while dealing with expensive components, weaker shipments and pressure on margins. At the same time, it is investing large amounts of money in electric vehicles, AI and other technologies that could become important growth areas in the coming years.
For smartphone buyers, continued increases in memory and component prices could also affect future device pricing. Companies focused heavily on affordable phones have fewer options for absorbing higher manufacturing costs, meaning price adjustments or changes in device specifications could become more common if component prices remain elevated.
Xiaomi’s performance in the coming quarters will therefore depend not only on smartphone demand, but also on whether the company can control hardware costs and turn its expanding EV and AI businesses into stronger contributors to overall profitability.
