Xiaomi's adjusted net profit for the first quarter of 2026 stands at 6.1 billion yuan, a figure many listed companies might not achieve in an entire year. However, the financial report is not entirely positive. The company's revenue for the period was 99.1 billion yuan, a year-on-year decrease of 10.9%. The adjusted net profit of 6.1 billion yuan represents a 43.1% drop, approximately 4.6 billion yuan less than the same period last year. A closer look reveals that the profit decline stems from falling smartphone shipments, a return to losses in the automotive business, and rising prices for core components.
Despite holding 6.1 billion yuan in profit, the pressure on CEO Lei Jun has not eased.
**Three Major Challenges**
The first challenge is the smartphone and AIoT (Artificial Intelligence of Things) segment. Revenue from this business was 79.3 billion yuan, down 14.5% year-on-year. Smartphone revenue specifically was 44.3 billion yuan, a 12.5% decrease, with shipments falling 19% to 33.8 million units. Simply put, amid surging AI demand and continuously rising memory chip prices, Xiaomi has proactively reduced shipments of mid-to-low-end models, prioritizing profit preservation over sales volume. Revenue from IoT and lifestyle consumer products was 24.7 billion yuan, a significant 23.7% decline, primarily due to cooling domestic appliance subsidies leading to weaker domestic demand.
The second challenge is the intelligent electric vehicle and AI business. Revenue here was 19.9 billion yuan, up 6.9% year-on-year. Within this, intelligent electric vehicle revenue was 19 billion yuan, with 80,856 vehicles delivered, representing 6.6% growth. Despite the overall revenue increase, the segment reported an operating loss of 3.1 billion yuan. According to multiple media estimates, Xiaomi incurs a book loss of nearly 40,000 yuan for each car sold, mainly covering product R&D, factory depreciation, and sales management expenses. The automotive business, which had just achieved profitability in the second half of last year, returned to losses after one quarter. The financial report attributes this to factors including the expiration of purchase tax subsidies for cross-year orders, a lower proportion of high-end SU7 Ultra model deliveries, and rising core component costs.
This leads to the third challenge: rising component prices. It's not just automotive parts; core components like memory chips and batteries, commonly used in general electronics, are seeing across-the-board price increases. Lu Weibing, Xiaomi Group Partner and President, stated frankly during the earnings call: "We cannot simply pass on the rising memory costs to consumers; we need to reposition our products." Interestingly, Xiaomi's smartphone ASP (Average Selling Price) rose from 1,210.6 yuan to a record high of 1,310.1 yuan. The cost was direct: gross margin fell from 12.4% in the same period last year to 10.1%. Lu Weibing admitted, "The pressure from rising memory costs is not unique to Xiaomi; the entire consumer electronics industry is under pressure. No company is immune."
**Lei Jun's Three Strategic Moves**
Facing these three challenges, Xiaomi outlined three strategic responses in its financial report.
The first move is user retention. In January 2026, the first "Human-Vehicle-Home Full Ecosystem" flagship store opened in Jingzhou. The store showcases the full range of smartphones, home appliances, and Xiaomi cars, supporting test drive bookings and trade-in programs. Lu Weibing explicitly stated that the future direction is to make users naturally want to buy watches, headphones, and TVs after purchasing a phone. The subtext is that once you're accustomed to this ecosystem, switching away becomes difficult. Simply put, it's about increasing user stickiness.
The second move is focusing on higher-value transactions. In response to the "cost assassin" of memory chips, Xiaomi's strategy is not to cut prices to preserve sales volume but to prioritize allocating limited chips to high-end models. Raising prices doesn't guarantee sales, but in an era of persistently rising costs, engaging solely in price wars is a dead end. As one industry observer noted, continuing price wars consumes not just profits but the future. Daring to sell at a "premium" is essentially an affirmation and reconstruction of one's own value. It forces deep reflection: who do I serve? What irreplaceable value do I provide?
The third move is leveraging partnerships for overseas expansion. Earlier this year, Xiaomi joined AliExpress's "Super Brand Overseas Program." This collaboration has shown significant results. During Black Friday, the POCO F8 series achieved single-product sales of $2 million (approximately 13.56 million yuan), becoming the top new product on AliExpress. Xiaomi TVs also secured the number one spot in the TV category in Europe. Zeng Xuezhong, President of Xiaomi's International Department, stated that AliExpress has become Xiaomi's primary platform for overseas expansion, with plans to increase investment further in 2026. The logic is simple: the brand remains your own, but you choose the platform that opens doors the fastest.
**The Retail Industry's "Same Test Paper"**
The three hurdles Xiaomi faces are, in fact, the same test paper the entire retail industry is grappling with.
The first question: What to do when traffic disappears? Xiaomi's struggle to sell phones due to component price hikes can be viewed as a symptom of peak traffic. In reality, the organic traffic for brands and platforms specializing in retail is also declining. The days of riding on market红利 are over. The solution to this problem is shifting focus from "acquiring new customers" to "retaining existing ones." Apple's service revenue for fiscal year 2025 is projected to exceed $100 billion, with a service gross margin of 75%, more than double that of hardware. Eighty percent of iPhone users own at least one other Apple product; each additional product raises the cost of leaving. Similarly, Yatsen E-commerce, which grew rapidly early on through traffic investment and reached a market cap of 16 billion yuan, saw performance decline明显 due to traffic contraction. Their solution is also "customer retention." After acquiring brands like DR.WU, EVE LOM, and GALENIC, the group's skincare revenue proportion exceeded makeup for the first time in 2025, reaching 50%, and net losses narrowed from over 710 million yuan to 92 million yuan. Xiaomi's "full ecosystem" of phones, watches, TVs, and cars follows the same path.
The second question: What to do when raw material prices rise? Material price increases are a nightmare for all retailers. Raising prices risks losing orders; not raising them risks losses. Xiaomi chose to increase average transaction value and move upmarket. Anker Innovations took a similar path in the charger market. Facing chip price increases, it continuously promoted its gallium nitride high-end series to boost average order value, achieving a 24.4% year-on-year increase in non-GAAP net profit for Q1 2026. However, there are other solutions. IFBH, the parent company of coconut water brand if, employs an OEM model, with 46 employees managing billions in revenue and a gross margin of 36.7%. The trade-off is weak supply chain control; a raw material断供 at an OEM factory in 2024 directly led to断供 in the Chinese market. Companies like Huanlejia and Yeshu Group chose to build their own production bases, requiring significant fixed asset investment but granting control over production capacity. There are many solutions, with no single standard answer. But doing nothing is definitely wrong.
The third question: Where to start with overseas expansion? With the domestic market saturated, going global is a preferred option for businesses. Xiaomi chose AliExpress, using its lower-cost platform model to quickly enter the European market. After Pop Mart入驻 Lazada's brand商城 LazMall in 2023, its sales in Southeast Asia grew over fivefold, making it one of the platform's fastest-growing brands. In summary, in unfamiliar markets, leveraging partnerships is more important than brute force.
Slowing smartphone fundamentals, renewed automotive losses, rising core component prices... Lei Jun faces more than one麻烦. But with 6.1 billion yuan in net profit in hand, he still has the底气 to initiate a new 20 billion Hong Kong dollar share buyback program. He understands the principles, has deployed strategies, but transformation takes time. With 6.1 billion yuan as a foundation, Lei Jun can still strategize从容. How will you answer your own "test"?