Xiaomi’s profit fell again in the second quarter. A global memory shortage kept pushing up the cost of its phones. The Chinese company posted its third straight quarterly profit decline, Bloomberg reported. Adjusted net income dropped about 43 percent to 6.22bn yuan ($922mn).

The reported figure was less severe. Net profit fell 20.5 percent, The Wall Street Journal said. Overall gross margin slipped to 19.8 percent. Both measures missed forecasts. Reuters reported a 42.6 percent fall in adjusted profit. Analysts had expected 6.6bn yuan on average, according to LSEG data.

Revenue fell 6.1 percent from a year earlier to 108.9bn yuan, about $16.2bn. That also came in short. Analysts had forecast 112.2bn yuan, Reuters said. Xiaomi blamed the result on component costs and competition. “Significant increases in key component costs, including memory, along with intensified industry competition, continued to create headwinds for our business,” the company said in its earnings statement.

The strategy that built Xiaomi’s scale now works against it. The company ranks as the world’s third-largest phone maker, Reuters said. It sells across the whole market, from foldables to sub-$100 handsets. That reach left it more exposed than rivals when memory prices climbed, Bloomberg reported.

The memory crunch did the damage

Xiaomi has been one of the biggest casualties of the memory shortage. Leading suppliers such as Samsung and SK Hynix have shifted production toward advanced chips. Those chips go into the data centres that run AI work, Bloomberg reported. The switch has squeezed the supply of conventional memory. It has also driven up prices.

The smartphone business took the hit. Handset revenue fell 7.5 percent to 42.1bn yuan. The smartphone gross margin narrowed to 8.5 percent, down from 11.5 percent a year earlier, according to Reuters. Xiaomi shipped 31.2mn phones in the quarter. That was down 26 percent, the research firm Omdia said.

The low end left it exposed. More than half of those units sold for under $200. That mix made Xiaomi more vulnerable to rising memory costs than any other top-five brand, Omdia said. Xiaomi also posted the steepest shipment drop among the world’s five largest phone makers, the research firm Counterpoint reported.

The pain has already reached buyers. The same shortage pushed up phone prices in the United States this summer. Apple has started testing Chinese memory chips to secure its own supply.

Executives said the worst may have passed. Memory prices stayed at historically high levels in the quarter, President William Lu told reporters. The pace of increases had started to slow, he added, and should keep slowing in the second half. Lu said the hardest stretch for the phone business was over. Xiaomi had adjusted its product mix and launch schedule, he said.

Investors are still betting on a recovery

The market has looked past the drop. Xiaomi shares have climbed nearly 20 percent in Hong Kong since the end of June, Bloomberg reported. The rally suggests some investors expect the company to get its material costs under control. Others are still questioning whether it can, Bloomberg noted, given how high component prices remain.

Analysts at Bloomberg Intelligence read the mix as a partial cushion. Higher average selling prices softened the blow from the shipment plunge, they wrote. They also estimated that the electric-vehicle segment grew around 20 percent, as deliveries of the SU7 picked up after a model transition.

Not every business held up. The connected-devices division stayed soft, Bloomberg Intelligence added. Fewer subsidies and subdued consumer demand weighed on that revenue. The Wall Street Journal made the same point about China’s wider consumer-electronics market. Reduced state subsidies have added to already weak demand, it said.

Electric vehicles carry more of the load

Xiaomi is leaning harder on cars and AI as its phone business matures. Its EV, AI and other new initiatives brought in about 23 percent of total revenue. That was up from 18.3 percent a year earlier, Reuters reported. EV revenue alone rose 15.9 percent to 23.9bn yuan.

That growth carries its own strain. Founder Lei Jun’s push into electric vehicles has weighed on the bottom line, Bloomberg reported. The market is in a fierce price war. Investors have grown wary about two new hybrid models that launched below expected prices, the report added.

The company is banking on its Sky Nomad SUVs to keep buyers interested. Its first EV passed half a million deliveries this month. China’s car market has been in decline since late 2025. Rivals are expanding abroad to find growth.

‘In no rush’ on AI

Xiaomi framed its AI spending as a long-term bet, not a near-term earner. “Our investment in AI is currently still in a phase of large-scale input,” chief financial officer Alain Lam said on the earnings call, the South China Morning Post reported. “However, as a large corporation, Xiaomi is in no rush to pursue immediate monetisation.”

The comment lands as Chinese and US tech firms pour money into AI. Investors have started to question when the spending will pay off. Xiaomi’s message was that it can afford to wait.

The next test is abroad. Xiaomi plans to start selling electric vehicles overseas next year. Reuters put the European push in 2027. That expansion could turn the car unit into a stronger growth engine, Nikkei Asia reported. It also brings fresh hurdles. Those include tariffs, regulatory scrutiny and stricter safety rules. For now, Xiaomi is asking investors to look past the phones, toward the cars, and the rivals it has beaten before on delivery numbers are watching the same shift.

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