Xiaomi's (HKG:1810) attributable profit fell about 20.5% year over year in the second quarter as rising costs for memory and other key components pressured margins across its smartphone and electric vehicle segments.

Profit attributable to shareholders slumped to 9.46 billion yuan from 11.90 billion yuan a year earlier, with earnings per share shrinking to 0.36 yuan from 0.45 yuan, according to a Tuesday Hong Kong bourse filing after market hours.

Revenue also declined 6.1% to 108.9 billion yuan, although it rose 9.9% on a quarter-over-quarter basis, suggesting seasonal demand.

"In the second quarter of 2026, geopolitical uncertainties persisted, while significant increases in key component costs, including memory, along with intensified industry competition, continued to create headwinds for our business," Xiaomi said.

During an earnings call, Xiaomi President William Lu described memory costs as running five times from year-ago levels. "I think we will see a global equilibrium. But in the short run, it is difficult to give a very precise estimate because this involves different tug of war."

Xiaomi CFO Alain Lam said the company raised smartphone prices and upgraded its production mix to offset cost pressures, allowing its smartphone unit to achieve a gross margin of 8.5%. This was down from 11.5% a year earlier.

Lu said the company can't fully pass on memory costs to customers and has instead adjusted its product lines and product mix.

Elsewhere, Xiaomi's EV business continued to grow, with revenue across its wider smart EV, AI and other new initiatives segment rising 17% to 24.9 billion yuan. Gross margin for the segment also fell to 19.2% from 26.4% last year, which Lam attributed to a smaller contribution from the SU7 Ultra model versus a year ago.

R&D spending increased 18.9% to 9.2 billion yuan, which Lam said reflected continued AI investment.

Looking ahead to the third quarter, Lu said memory costs would likely stay elevated, but described the smartphone business as being in a "controllable" position.

On shareholder returns, Xiaomi said it has so far repurchased HK$11.7 billion worth of shares this year, exceeding the full-year total for 2025.