Xiaomi Group delivered a challenging first-quarter report. On May 26, Xiaomi Group released its unaudited consolidated results for the three months ended March 31, 2026. In the first quarter, Xiaomi Group's revenue was RMB 99.142 billion, a year-on-year decrease of 10.9%. Profit for the period was RMB 4.735 billion, down 56.5% year-on-year. Adjusted net profit was RMB 6.072 billion, a decrease of 43.1% compared to the same period last year. By segment, revenue from "Smartphone x AIoT" was RMB 79.3 billion, while revenue from "Smart Electric Vehicles, AI, and Other Innovative Businesses" was RMB 19.9 billion. Placed within the context of Xiaomi's development path over the past few years, this set of data is not particularly strong. Smartphones remain the largest revenue source, but shipment volume has seen a noticeable decline. The IoT and lifestyle consumer products business, which previously benefited from trade-in and government subsidy policies, is now also under pressure. While the automotive business has introduced a new growth pole for revenue, it has also drawn Xiaomi's manufacturing investments into a heavier structure. Therefore, this quarterly report is not merely a short-term profit fluctuation; it more so illustrates that the growth model Xiaomi previously relied on is receding. The original businesses have not lost value but are no longer as easily scalable as before, while the new business has reached a certain scale but has not yet entered a stage of stable, profitable operations.

The financials are weak but not out of control. Looking solely at the financial data, Xiaomi's performance in the first quarter was relatively weak. Both revenue and net profit declined simultaneously, with a sharper drop in profit. This indicates that Xiaomi's pressure lies not only on the revenue side but also, more significantly, on the cost side. Xiaomi mentioned in its announcement that the global economy in Q1 was affected by geopolitical uncertainties, with rising prices of key components like memory and commodities, alongside intensifying industry competition.

The changes in the smartphone business are the most direct. In Q1, Xiaomi's global smartphone shipments were 33.8 million units. Smartphone business revenue was RMB 44.3 billion, with a gross margin of 10.1%. Although shipment volume declined, the average selling price (ASP) of smartphones increased by 8.2% year-on-year to RMB 1,310, reaching a historical high. However, a year-on-year increase in ASP does not signify an overall upward shift in Xiaomi's smartphone price bands. A more realistic scenario is that mid-to-low-end models are under pressure, leading to a change in the shipment mix, with a relatively higher proportion of high-end models, thereby pulling up the overall average price. This means progress continues in Xiaomi's smartphone premiumization, but the scale pressure on mid-to-low-end models has already emerged. In the past, Xiaomi could rapidly expand its market share by relying on high cost-performance. Now, cost-performance models are impacted by rising memory costs, leaving less room to maneuver between price and profit. More critically, as user smartphone replacement cycles continue to lengthen, the potential for volume growth from replacements for mid-to-low-end models is also narrowing. In this situation, it is difficult for Xiaomi to directly pass on costs to users or to continue sacrificing gross margin for scale.

The pressure on the IoT and lifestyle consumer products business is also quite evident. In Q1, revenue from this business was RMB 24.7 billion. Xiaomi noted in its announcement that overseas IoT and lifestyle consumer product revenue reached a record high, but some product categories were affected by rising component prices. The gross margin for this business was 25.2%, showing a sequential improvement. This suggests that Xiaomi's overseas markets still offer growth, and profitability has not significantly deteriorated. The issue is that domestic hardware consumption has cooled down from the stimulus of subsidies. Previously, subsidies and promotions released some replacement demand in advance but also borrowed from future purchasing potential. As the stimulus weakens, users' willingness to replace products naturally recedes.

The automotive business is under a different kind of pressure. In Q1, revenue from Xiaomi's Smart Electric Vehicles, AI, and Other Innovative Businesses was RMB 19.9 billion, of which automotive revenue accounted for RMB 19.0 billion. During the same period, Xiaomi delivered 80,856 new vehicles, a year-on-year increase of 6.6%. However, the automotive business is still in a loss-making phase and has not yet contributed positively to the group's profit. In Q1, the operating loss for the Smart Electric Vehicles, AI, and Other Innovative Businesses segment was RMB 3.1 billion, with a gross margin of 20.1%. Xiaomi explained that vehicle purchase tax subsidies and rising prices of core components affected the gross margin performance of this division. In terms of revenue scale, automotive revenue nearing RMB 20 billion in a single quarter has already made the automotive business a significant part of Xiaomi Group's revenue structure. But for Xiaomi, the automotive business is not just new revenue; it is also a heavier manufacturing and service system. Behind this lie new model R&D, capacity expansion, and the supporting dealership and after-sales service networks. In other words, while the automotive business has opened new growth space for Xiaomi, before achieving stable profitability, Xiaomi first faces multiple large-scale expenditures.

Therefore, Xiaomi's Q1 report is indeed not strong, especially with evident pressure on the profit side. But it is not a report signaling a loss of control. Xiaomi still maintains a stable user base, its core internet services continue to contribute profits, and the automotive business has already reached a certain revenue scale. The real question lies in whether Xiaomi's traditional revenue structure can remain stable and when the new business pillar will transition from pure investment to stable profit contribution.

Old businesses slow down, new business becomes heavier. What Xiaomi truly faces is that its old growth paths are all encountering slowing growth rates. Taking the smartphone business as an example, Xiaomi's past advantages stemmed from extreme cost-performance and supply chain efficiency. This allowed it to offer decent feature configurations while maintaining cost-performance. Then, leveraging channel efficiency, it could rapidly achieve volume for mid-to-low-end models. This approach was very effective for a period and enabled Xiaomi to maintain a strong position in the global smartphone market for a long time. However, as the smartphone industry matures, the market conditions Xiaomi faces have drastically changed. Most crucially, the continuous lengthening of user replacement cycles makes it difficult for low-priced models to create strong appeal based solely on configuration differences. In this context, the impact of rising costs is amplified. Once key components like memory see price increases, low-priced models must either compress profits or weaken their cost-performance advantage. Premiumization is not a simple path either. High-end models offer larger profit margins, which can partially buffer the impact of cost increases. But in the high-end smartphone market, the iPhone remains the strongest price anchor. Once Xiaomi's model prices approach or even exceed those of the iPhone, it must provide more compelling product, brand, and service reasons to convince users to choose it. This means smartphones remain Xiaomi's foundation, but this business is losing its growth elasticity.

Looking at the IoT and lifestyle consumer products business, over the past few years, Xiaomi has been expanding its smart home ecosystem. Beyond smartphones, products like TVs, tablets, wearables, major appliances, and various small appliances have become important touchpoints for connecting with users. The more Xiaomi devices a user has, the higher the likelihood they will continue purchasing Xiaomi products. However, this does not mean hardware consumption can grow indefinitely. After users already have a TV, washing machine, and air purifier at home, they will not replace them prematurely just because the devices can connect to the internet. Durable consumer goods have their own usage cycles. Subsidies and promotions can release some demand in advance but can hardly permanently change users' genuine willingness to replace products. This is an issue facing Xiaomi and the entire home appliance and smart hardware industry. Smart features still hold value, but if products do not significantly improve the user experience, users will ultimately make purchasing decisions based on price, durability, and the necessity of replacement.

New energy vehicles follow a different logic. The market attention garnered by Xiaomi's automotive venture shows that Xiaomi is not confined to smartphones and smart hardware. After the SU7 made a successful entry, Xiaomi has a new growth lever beyond smartphones and smart hardware. But a car is not a smartphone or an ordinary smart hardware product. It requires longer R&D cycles, a more complex supply chain, and a more complete delivery and after-sales system. A model becoming a hit is just the first step. For Xiaomi, the harder tasks ahead are ensuring stable deliveries, controlling quality, perfecting the dealership and after-sales network, and continuously launching new models. The rhythm of the automotive business cannot operate entirely like an internet product. This is also a key reason for the change in Xiaomi's profitability. In the past, Xiaomi was more adept at using supply chain and channel efficiency to improve hardware turnover. Upon entering the automotive business, Xiaomi must contend with a heavier manufacturing system. R&D, production, delivery, and after-sales all require continuous investment, making it difficult to release profits quickly in the short term like the smartphone business could.

From this Q1 report, it is evident that Xiaomi's growth model has changed. Smartphones and IoT remain the foundation, but the low-price volume expansion and subsidy-driven growth are not as smooth as before. Automotive and AI have opened new space but require higher investment and a longer time to stably contribute profits. Therefore, the profit decline is just a surface-level outcome. The deeper change is that Xiaomi is transitioning from an efficiency-driven hardware company to a technology manufacturing company with heavier investments, longer cycles, and higher management complexity. It still has room for growth, but what it needs to prove next is not just the ability to create hit products, but the ability to maintain efficiency within a more complex business structure.