Xiaomi's profits decrease once more as the memory shortage affects its smartphones.

      Xiaomi's profits experienced another decline in the second quarter due to a continuing global memory shortage that raised the cost of its smartphones. The Chinese company reported its third consecutive quarterly profit decrease, according to Bloomberg. Adjusted net income fell by approximately 43 percent to 6.22 billion yuan ($922 million).

      The actual figures were less drastic than projected, with net profit decreasing by 20.5 percent, as stated by The Wall Street Journal. Overall gross margin decreased to 19.8 percent, missing forecasts. Reuters noted a 42.6 percent drop in adjusted profit, while analysts had expected an average of 6.6 billion yuan based on data from LSEG.

      Revenue declined by 6.1 percent year-over-year to 108.9 billion yuan, roughly $16.2 billion, also falling short of expectations. Analysts anticipated 112.2 billion yuan, according to Reuters. Xiaomi attributed these results to rising component costs and competition, stating, “Significant increases in key component costs, including memory, along with intensified industry competition, continued to create headwinds for our business,” in its earnings statement.

      The strategy that propelled Xiaomi's growth is now working against it. It is the world's third-largest phone manufacturer, selling a wide range of devices from foldables to inexpensive handsets. This broad market presence has made it more vulnerable than its competitors when memory prices surged, as reported by Bloomberg.

      The memory shortfall has significantly impacted Xiaomi. Major suppliers like Samsung and SK Hynix have shifted their focus to advanced chips, used in AI-driven data centers, which has restricted the supply of conventional memory and increased prices.

      Xiaomi's smartphone division faced difficulties, with handset revenue dropping 7.5 percent to 42.1 billion yuan. The gross margin for smartphones narrowed to 8.5 percent, down from 11.5 percent the previous year, according to Reuters. In this quarter, Xiaomi shipped 31.2 million phones, a decline of 26 percent, as reported by research firm Omdia.

      The lower-end product segment has left Xiaomi exposed, as more than half of its units sold for under $200, making it more susceptible to rising memory costs compared to other top brands, according to Omdia. Moreover, Counterpoint reported that Xiaomi experienced the most significant shipment decrease among the top five global phone manufacturers.

      Consumers have already felt the impact, as the memory shortage has driven up phone prices in the United States this summer. Apple is reportedly testing Chinese memory chips to ensure its supply.

      Company executives suggested that the worst might be behind them. President William Lu told reporters that while memory prices remained at historically high levels during the quarter, the rate of increases had begun to decelerate and was expected to continue doing so in the latter half of the year. He indicated that the toughest period for the phone business had passed, and Xiaomi had adjusted its product mix and launch schedule accordingly.

      Investors are still optimistic about a recovery. Since late June, Xiaomi shares have risen by nearly 20 percent in Hong Kong, according to Bloomberg. This uptick signals that some investors expect the company to gain control over its material costs. However, others remain skeptical due to persistently high component prices, as noted by Bloomberg.

      Analysts from Bloomberg Intelligence perceive the pricing strategy as a partial buffer. Increased average selling prices have somewhat mitigated the negative impact of the shipment decline; they also estimated that revenue from the electric vehicle segment had grown by about 20 percent, with deliveries of the SU7 increasing after a model transition.

      Not all sectors showed resilience. The connected-devices division remained weak, according to Bloomberg Intelligence. Reduced subsidies and low consumer demand negatively affected this segment's revenue. The Wall Street Journal echoed this sentiment about the broader consumer electronics market in China, citing diminished state subsidies contributing to already weak demand.

      Electric vehicles are taking on a larger role in Xiaomi’s strategy as its phone business matures. Revenue from EVs, AI, and other new initiatives accounted for about 23 percent of total revenue, up from 18.3 percent the previous year, Reuters reported. EV revenue alone rose by 15.9 percent to 23.9 billion yuan.

      However, this growth presents its challenges. Founder Lei Jun's ventures into electric vehicles have placed pressure on the company's bottom line, and the market is currently embroiled in a brutal price war. Investors have expressed concerns over two newly launched hybrid models that debuted at higher prices than anticipated.

      Xiaomi hopes its Sky Nomad SUVs will attract buyer interest, with its first EV surpassing half a million deliveries this month. China’s automotive market has been declining since late 2025, prompting competitors to seek growth opportunities abroad.

      On the topic of AI, Xiaomi emphasized its investment as a long-term strategy rather than a quick revenue source. Chief Financial Officer Alain Lam stated during the earnings call that the company's investment in AI is still in a phase of substantial input and that Xiaomi is