Xiaomi Corp shares declined sharply on Wednesday after the company reported weaker-than-expected first-quarter earnings driven largely by higher component costs in its smartphone business.
The stock fell nearly 3% to HK$28.88, registering its lowest level in almost a month. The drop made Xiaomi one of the largest negative contributors to the Hang Seng index, which fell 0.9% on the day.
At the center of the earnings shortfall was a 43% year-on-year fall in quarterly profit, which came in at 6.1 billion yuan ($899 million). Company executives attributed the decline primarily to rising memory chip costs within its core smartphone unit.
That smartphone division also faced mounting competitive pressure at home from rivals including Apple Inc and Huawei, intensifying margin challenges. Management pointed to a constrained outlook for memory costs, noting that demand from the AI sector has kept price relief limited.
Separately, Xiaomi’s electric vehicle operations delivered strong sales, but the unit’s results were offset by substantial investment and slim margins, which together weighed on consolidated earnings. The company has been channeling more capital into EV development and artificial intelligence initiatives as part of a diversification strategy away from its traditional electronics base.
To counter rising domestic costs and the crowded competitive landscape, Xiaomi said it plans to further expand into overseas markets. The company flagged that, given current dynamics, memory-chip costs were unlikely to ease materially in the near term due to outsized demand from AI applications.
Context and implications
- Higher memory prices materially reduced profitability in Xiaomi’s smartphone business, contributing to a 43% drop in quarterly profit to 6.1 billion yuan.
- While the EV division recorded robust sales, its heavy spending and narrow margins diluted overall results.
- Management expects limited near-term relief from memory costs because of strong AI-driven demand, and is pursuing overseas expansion to offset domestic headwinds.
The company’s comments and results underline how component-cost inflation and shifting demand patterns in semiconductors can quickly ripple through consumer electronics margins, while large strategic bets such as EVs can support growth but pressure near-term profitability.