Xiaomi reported revenue of 99.1 billion RMB in Q1 2026, representing a year-over-year decline of 10.9% from 111.3 billion RMB. Gross profit fell to 21.8 billion RMB from 25.4 billion RMB, and operating profit plummeted to 5.3 billion RMB from 13.1 billion RMB. Pre-tax profit reached 5.7 billion RMB, and net profit for the period was 4.7 billion RMB, compared to 10.9 billion RMB a year ago. Adjusted net profit, which the company uses as a key unofficial indicator of operating performance, fell to 6.1 billion RMB from 10.7 billion RMB. Diluted earnings per share fell to 0.18 RMB from 0.42 RMB. The overall gross margin decreased from 22.8% to 22.0%, indicating that the weaker quarter was not just a matter of lower revenue but also of weaker profitability.[1]

From a quarter-over-quarter perspective, this also represents a decline. Compared to Q4 2025, revenue fell by 15.2%, net profit by 27.6%, and adjusted net profit by 4.4%. On the other hand, the company maintained relatively stable adjusted profitability and even increased its overall gross margin quarter-over-quarter from 20.8% to 22.0%. This suggests that Xiaomi is attempting to offset weaker volume with a better product mix and discipline in its cost structure, although the year-over-year comparison remains clearly negative.1

Smartphones remain the core, but sales volume has dropped significantly

The company’s largest segment, Smartphone × AIoT, generated revenue of 79.3 billion RMB and accounted for 80.0% of Xiaomi’s total revenue. Just a year ago, this segment brought in 92.7 billion RMB, meaning it declined by 14.5% year-over-year. Smartphones alone generated revenue of 44.3 billion RMB, a 12.5% decline from 50.6 billion RMB. The main reason was a drop in smartphone shipments from 41.8 million units to 33.8 million units, a 19.2% decrease. The company itself states that this is due to the optimization of its product portfolio and a reduction in shipments in the mid-range and lower-end segments. In other words, Xiaomi sold fewer phones but consciously shifted toward more expensive models.1

IoT and internet services show where the company is more resilient

The IoT and lifestyle products segment generated revenue of 24.7 billion RMB in Q1 2026, a year-over-year decline of 23.7% from 32.3 billion RMB. The company attributes this decline primarily to weaker revenue in mainland China following a reduction in government subsidies, with some of the weakness offset by growth overseas, particularly in the smart TV and tablet categories. Despite lower revenue, however, the segment maintained a gross margin of 25.2%, the same as a year ago. Compared to Q4 2025, the margin even improved significantly from 20.1% to 25.2%, indicating that Xiaomi has improved its product mix and sales discipline in this area.1

Internet services were one of the few segments to grow year-over-year. Revenue increased by 4.3% to 9.5 billion RMB from 9.1 billion RMB, while the gross margin remained very high at 76.1%. The advertising business generated 7.1 billion RMB, representing 7.8% growth. Overseas internet services contributed 3.0 billion RMB, and their share of total internet revenue rose to 31.4%. This segment is particularly important too because it helps stabilize the company’s overall profitability at a time when the hardware segments are facing stronger pressure.1

Electric vehicles are growing, but they are putting pressure on costs and profitability

The Smart EV, AI, and other new initiatives segment generated revenue of 19.9 billion RMB in the first quarter, representing a year-over-year increase of 6.9% from 18.6 billion RMB. Of this, the smart EV business alone accounted for 19.0 billion RMB, and other related activities for 0.9 billion RMB. Xiaomi delivered 80,856 vehicles in the quarter, up 6.6% from a year ago. However, the average selling price of smart EVs fell by 1.3% to 235,116 RMB from 238,301 RMB, primarily due to vehicle purchase tax subsidies and a higher proportion of lower-priced inventory vehicles. The segment’s gross margin fell from 23.2% to 20.1%, with the company openly stating that it was impacted by subsidies, rising prices of key components, and the lower contribution from the Xiaomi SU7 Ultra model.1

Results show a more costly transformation phase for the company

The most important takeaway from this quarter is that Xiaomi is in a phase where it is paying a higher price for its transformation. Research and development expenses rose by 33.4% to 9.0 billion RMB, sales and marketing costs increased by 15.0% to 8.3 billion RMB, and administrative expenses rose by 6.6% to 1.6 billion RMB. Total operating expenses thus rose by 22.1% to 18.9 billion RMB. As of the end of March, the company had 26,048 employees in research and development, a record high, and continues to invest in AI models, smart assistants, robotics, and the interconnected Human × Car × Home ecosystem. These figures show that Xiaomi is no longer just a hardware manufacturer, but a company striving to build a technology platform with a much broader scope.1

However, this means that investors must increasingly evaluate the balance between current earnings pressure and long-term potential when it comes to Xiaomi. The company still has a strong balance sheet position, holding cash and cash equivalents of 26.3 billion RMB and total cash resources of 220.6 billion RMB as of the end of March. At the same time, it continues its share buyback program, having repurchased approximately 250.5 million shares from the start of the year through May 22. On the one hand, Xiaomi is demonstrating the ability to finance expansion and support shareholders; on the other hand, the first quarter clearly showed that traditional segments are no longer growing as the market once expected from this company.1

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[1] https://ir.mi.com/static-files/098acc43-1b58-4d1b-b375-9ea25f35477b