Xiaomi Faces Profit Decline Amid Rising Costs and Competition

Xiaomi Corp reported a significant decline in its quarterly profit for the first time in three years, as the company grapples with rising costs and intensified competition in the smartphone and electric vehicle markets. For the fourth quarter ending December 31, 2025, Xiaomi's adjusted net profit fell to 6.3 billion yuan ($914.5 million), surpassing analyst expectations of 5.7 billion yuan. This decline contrasts with a 43.8% increase in annual profit, which reached 39.2 billion yuan, driven by a 25% rise in revenue.

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Xiaomi's president, Lu Weibing, indicated that the company is facing substantial pressure from increasing memory costs, which have risen more than anticipated. He warned that if these costs continue to escalate, price hikes may become necessary. The broader smartphone market in China has also been affected, with a reported 4% year-on-year decline in sales from January to early March 2026, despite government subsidies aimed at stimulating consumer demand.

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Despite challenges in the smartphone sector, Xiaomi's electric vehicle (EV) division has shown promising growth. The company launched an upgraded model of its SU7 electric sedan last week, building on the success of the original model, which sold over 258,000 units last year. Xiaomi exceeded its EV delivery target of 350,000 units, delivering 145,115 EVs in the fourth quarter alone, marking a 33.4% increase from the previous quarter. The EV segment generated 106.1 billion yuan in revenue and achieved its first annual operating profit of 900 million yuan.

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Xiaomi CEO Lei Jun announced plans to invest at least 60 billion yuan in artificial intelligence over the next three years, signaling a commitment to innovation amid rising operational costs. The company aims to navigate the ongoing challenges in the smartphone market while capitalizing on the growth potential of its EV and AI initiatives.

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Critics argue that Xiaomi's reliance on the EV market may not be sufficient to offset the declining smartphone sales. The company's struggle to meet its global smartphone shipment target of 180 million units further underscores the challenges it faces in a competitive landscape where other Android brands are also increasing prices to cope with rising memory chip costs.

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While Xiaomi's annual profit showed a robust increase, the decline in quarterly profit raises concerns about the sustainability of its growth strategy. The ongoing memory cost crunch is expected to persist throughout 2026, creating a challenging environment for handset manufacturers as they balance cost management, margin protection, and shipment targets.

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“Some companies may have extreme difficulties in operating in such a long cycle of rising costs, face big losses or even go bust,” — Lu Weibing, President of Xiaomi Corp

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“1 billion yuan in revenue for its EV, AI and other new initiatives in 2025, and the segment posted its first annual operating profit of 900 million yuan, the company said.” — Company Statement

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