Xiaomi Group-W (SEHK: 01810) has delivered a second-quarter scorecard that beat expectations despite considerable headwinds.

The company reported total revenue of 108.92 billion yuan for the quarter, a year-on-year decline of 6.1%, though this represented a 9.9% increase from the first quarter. Net profit came in at 9.46 billion yuan, down 20.3% from the same period last year but exceeding the average market forecast.

However, stripping out non-recurring items such as fair value changes on investments, adjusted net profit for the quarter stood at just 6.22 billion yuan, a steep 42.6% decline year-on-year, painting a more accurate picture of the company's core operational quality. A global shortage of memory chips triggered a surge in component costs that reverberated throughout the entire financial report, with smartphone gross margins tumbling from 11.5% to 8.5% and overall gross margins falling to 19.8% from 22.5%, hitting multi-year lows.

On a full-year basis, Xiaomi Group-W generated total revenue of 208.06 billion yuan in the first half of 2026, down 8.4% year-on-year, with adjusted net profit of 12.29 billion yuan, slashed by 42.8%. The impact of the memory supply crisis is far from over, and the company is simultaneously shouldering sustained losses from its electric vehicle expansion. This dual pressure means the once high-growth tech giant is now navigating a rare period of intense strain.

Since the start of the year, share buybacks by Xiaomi Group-W have reached approximately 11.7 billion Hong Kong dollars, covering about 377.5 million shares, surpassing the total for all of last year, signaling management's robust confidence in the current stock price.

Smartphone Business: Shipments Plummet, Quality-Over-Volume Strategy Yields Initial Results

Second-quarter smartphone shipments reached only 31.2 million units, a dramatic 26.5% year-on-year drop. The proactive reduction of low-to-mid-range device shipments was a primary factor, but weak global demand also played a significant role, with Omdia data showing the global smartphone industry's total shipments declining 6% year-on-year in the quarter.

Nevertheless, Xiaomi Group-W's premiumization strategy produced convincing figures this quarter: the average selling price (ASP) of smartphones surged 25.9% year-on-year to a record 1,351 yuan per unit. In mainland China, devices priced at 3,000 yuan or above accounted for 32.1% of the mix for the first time, with market share in the 3,000 to 4,000 yuan price band climbing to 16.2%, both hitting historical peaks. The launch of the Xiaomi 17T series in May also effectively boosted the proportion of high-end device shipments overseas.

However, the erosion from component price hikes has outweighed the gains from ASP improvements. Gross margin for the smartphone segment fell from 11.5% to 8.5% year-on-year, worsening from the 10.1% recorded in the first quarter, leaving the business's actual profitability at a fragile level.

IoT and Internet Services: Domestic Subsidies Fade, Internet Services Emerge as the Most Stable Cash Cow

Revenue from IoT and lifestyle products reached 31.3 billion yuan, down 19.2% year-on-year, primarily dragged down by the withdrawal of domestic subsidy policies, which significantly shrank mainland China revenue.

Gross margin for this segment also declined from 22.5% to 20.1%, similarly impacted by rising core component costs. However, there were bright spots overseas, where tablets, smart TVs, and wearable products drove rapid growth in international revenue, with overseas tablet shipments and revenue both reaching record highs.

In contrast, the internet services business demonstrated resilience that cuts through economic cycles.

Second-quarter internet revenue was 9.04 billion yuan, roughly flat year-on-year, yet gross margin rose against the trend to 76.8%, up 1.4 percentage points from the previous year, largely thanks to advertising revenue growing 4.8% to 7.2 billion yuan alongside improved profitability. As of June, global monthly active users reached 766.5 million, a historic high, with overseas internet services revenue now accounting for 32.1% of the total, highlighting the internationalization trend of Xiaomi Group-W's ecosystem monetization.

The AIoT platform's connected devices (excluding smartphones and tablets) reached 1.1608 billion units, up 17.4% year-on-year, while users with five or more connected devices grew 20.2% to 24.6 million, indicating deepening ecosystem stickiness.

Electric Vehicles: Deliveries Surpass 100,000, Margins Under Pressure, Losses Continue to Widen

The smart EV business was the biggest highlight on the revenue side for the quarter, yet also the biggest drag on profits.

Revenue from the EV and AI innovation segment reached 24.9 billion yuan, up 17.1% year-on-year. Vehicle deliveries totaled 104,199 units, a 28.2% increase year-on-year, maintaining growth momentum for multiple consecutive quarters. Notably, this growth was achieved against a backdrop where the overall mainland China passenger car market declined 22% year-on-year. As of August 17, cumulative deliveries of the SU7 series had surpassed 500,000 units.

But financial pressure cannot be ignored. The ASP for the automotive segment fell to 229,000 yuan from 254,000 yuan in the same period last year, mainly due to a lower proportion of high-priced SU7 Ultra deliveries, while the YU7 series gradually became the delivery mainstay. Rising core component costs and increased AI-related expenses caused the segment's gross margin to drop sharply from 26.4% to 19.2% year-on-year. Combined with escalating R&D and sales investments, the division posted an operating loss of 2.6 billion yuan for the quarter, with operating expenses expanding 25.7% year-on-year to 7.4 billion yuan.

The "Pengcheng" extended-range SUV series, unveiled in July with the N90 Max pre-sale price set at 299,900 yuan and the N70 Max at 259,900 yuan, is slated for a September launch. As Xiaomi Group-W's first extended-range model, it is expected to enrich the product portfolio, but in the short term, it will inevitably add more R&D amortization and channel expansion pressure.

R&D and AI: Heavy Investment in Core Technologies, Dual Breakthroughs in Robotics and Large Models

R&D investment has continued to grow at a robust pace. Second-quarter R&D expenses totaled 9.23 billion yuan, up 18.9% year-on-year, with AI infrastructure investment serving as the primary incremental driver. As of the end of June, R&D personnel accounted for 47.2% of the total workforce, and the company held over 47,000 global patents.

In the AI arena, Xiaomi Group-W's efforts extend well beyond smartphones. The MiMo-V2.5 large model ranked first globally in weekly calls on the OpenRouter platform, reaching 10.5 trillion tokens. The Miloco 2.0 whole-home AI open-source solution, released in June, aims to deliver proactive home intelligence capable of remembering, recognizing individuals, and executing tasks.

The robotics sector also saw significant progress: the Xiaomi-Robotics-U0, a 38-billion-parameter multimodal embodied model released in July, ranked first among 126 global models in the WorldArena benchmark. The Xiaomi-Robotics-1 also took top honors in the RoboCasa365 simulation evaluation. More tangibly, Xiaomi Group-W's robots have been deployed in its automobile factories, with the success rate for two-sided operations improving from 90.2% to 98%, preliminarily validating their commercial viability in industrial settings.

Costs and Cash Flow: Subsidy Income Bolsters Profit, Cash Reserves Remain Ample

In terms of operating expenses, combined R&D and sales & marketing spending for the quarter reached nearly 18 billion yuan, with both categories growing over 10% year-on-year. Notably, other income surged to 2.2 billion yuan from 300 million yuan a year earlier, primarily driven by a substantial increase in subsidy income, which provided some support to quarterly operating profit.

On the cash flow front, net operating cash flow turned positive at 3.84 billion yuan in the second quarter, reversing the negative flow seen in the first quarter. Cash and cash equivalents at period-end stood at 37.3 billion yuan, with total cash reserves reaching a substantial 219.3 billion yuan, offering ample strategic flexibility in navigating current challenges. Regarding financing activities, the continued share buybacks, backed by the 20 billion Hong Kong dollar repurchase program, clearly underscore management's confidence in long-term value.