Xiaomi reported its June quarter after the Hong Kong close on August 18. Revenue was RMB108.9 billion, down 6.1% year over year. Gross profit was RMB21.6 billion, down 17.2%. Adjusted net profit — the company's own non-IFRS measure — was RMB6.2 billion, down 42.6%.
Two numbers explain most of the quarter. The first is 8.5%: the gross margin on smartphones, a business that still turned over RMB42.1 billion in three months. The second is RMB1,351: the average selling price of those phones, an all-time high, up 25.9% year over year.
Both are true at once, and that is the whole story. Xiaomi raised prices by a quarter and still could not hold its margin.
The quarter
| RMB M | Q2 2025 | Q2 2026 | YoY |
|---|---|---|---|
| Revenue | 115,956 | 108,922 | −6.1% |
| Gross profit | 26,101 | 21,609 | −17.2% |
| Gross margin | 22.51% | 19.84% | −2.7 pts |
| Operating profit | 13,437 | 10,870 | −19.1% |
| Profit for the period | 11,873 | 9,463 | −20.3% |
| Diluted EPS (RMB/share) | 0.45 | 0.36 | −20% |
| Adjusted net profit | 10,831 | 6,219 | −42.6% |
The gap between the last two rows is worth a paragraph. Reported profit fell 20%; adjusted profit fell 43%. The difference is a RMB6.5 billion fair-value gain on financial instruments, against RMB3.4 billion a year earlier — Xiaomi holds stakes in roughly 410 companies, and this quarter they marked up. That gain is in the reported number and stripped out of the adjusted one. The adjusted figure is the better read of the operating business, and it nearly halved.
At 19.84%, group gross margin is the weakest in the twelve quarters we track, below even the 20.4% of September 2024.
Where the margin went
Memory. Xiaomi says so in the first paragraph of its own results announcement: "significant increases in key component costs, including memory, along with intensified industry competition, continued to create headwinds for our business."
On the call, president Lu Weibing put it more plainly:
Memory costs increased. There is no way for us to just pass on the whole cost increase to our consumers.
The response was to push price and pull back on volume. Shipments were 31.2 million units, and the company describes "actively adjusting shipment cadence" — a deliberate retreat from units. In the Chinese mainland, phones retailing at RMB3,000 or more reached 32.1% of units sold, a record, up 4.5 points. In the RMB3,000–4,000 band Xiaomi's share hit 16.2%, up 3.3 points.
That is a premiumisation strategy working exactly as designed, and delivering an 8.5% gross margin anyway.
The rest of the phone-adjacent business is healthier. IoT and lifestyle products turned over RMB31.3 billion at 20.1%, and internet services — advertising, mostly — turned over RMB9.0 billion at 76.8%, up 1.4 points. Internet services is 8% of revenue and, on a gross-profit basis, roughly 40% of the Smartphone × AIoT segment's contribution. Global monthly active users reached a record 766.5 million.
The car business grew into a falling market
The Chinese passenger-vehicle market shrank 22% by retail volume in the quarter. Xiaomi delivered 104,199 vehicles, up 28.2%. Cumulative SU7 deliveries passed 500,000 units as of August 17 — about 29 months after the first car reached a customer.
The segment — smart EV, AI and other new initiatives — turned over RMB24.9 billion, up 17.1%, at a 19.2% gross margin. Note that the gross margin on cars is now more than double the gross margin on phones.
And it still lost money: a RMB2.6 billion loss from operations. Revenue grew 17% and the loss did not close, because the same quarter carried the run-up to a new product line. In July Xiaomi unveiled the Kunlun architecture and the SkyNomad extended-range SUV series, pre-priced at RMB299,900 and RMB259,900 and launching in September. Lu on the call: "Xiaomi SkyNomad will be officially launched in September, and we hope to receive everyone's continued support."
Two other EV data points that cost nothing and say something. The YU7 ranked first among one-year-old major pure electric vehicles for value retention, at 82.8%. And a YU7 GT set the first autonomous-driving lap record at the Nürburgring Nordschleife, at 10:29.483.
Cash has stopped
This is the line that gets least attention and deserves more.
Net cash from operations for the quarter was RMB3.8 billion — RMB6.5 billion generated from operations less RMB2.7 billion of income tax paid. Capital expenditure was RMB3.6 billion, two-thirds of it in EV, AI and new initiatives. Free cash flow, which is our subtraction rather than a figure Xiaomi reports, is therefore about RMB0.2 billion.
That is the fourth consecutive quarter under RMB1 billion of free cash flow. Over those four quarters Xiaomi generated RMB8.1 billion from operations and spent RMB17.5 billion on capex. R&D ran at RMB9.2 billion in the quarter alone, up 18.9%, with 47.2% of employees in research roles.
The company is funding a car business, a large-appliance business and a foundation-model programme out of a phone business whose margin just went to 8.5%. It has the balance sheet for it — RMB37.3 billion of cash and equivalents against RMB39.3 billion of borrowings, plus a RMB92.0 billion investment portfolio — but the operating engine is not currently paying for the build.
The board declined an interim dividend. It is also buying stock: a new HKD20 billion repurchase programme adopted in May, with roughly 377.5 million shares repurchased since the start of the year.
The AI line is deliberately free
Xiaomi's MiMo-V2.5 model ranked No. 1 by weekly token usage on OpenRouter, at 10.5 trillion tokens. The revenue attached to it sits inside "other related businesses" — RMB1.0 billion of the RMB24.9 billion segment, alongside everything else that is not a car.
Asked about it, Lu was direct: "We are not treating monetization as our primary goal. We are now iterating on our model capabilities."
That is a defensible position for a company whose model exists to make phones, cars and home appliances work together. It is also RMB9.2 billion a quarter of R&D looking for somewhere to land.
What to watch
Lu's framing for the pressure was: "Short-term pressure will not change our long-term strategy." Fair enough — but the strategy now has three specific tests in the next two quarters.
- Does the memory squeeze ease, or does 8.5% become the new normal? Xiaomi has already taken the price increase. There is not much left to take.
- Does SkyNomad close the EV operating loss? An extended-range SUV at RMB260,000–300,000 is a higher-margin product than an SU7, in a segment where Chinese demand has held up better than it has for sedans. September launch, so the December quarter is the first real read.
- Does free cash flow turn? Four quarters near zero while capex compounds is a fundable position, not a sustainable one.
Xiaomi next reports third-quarter results in mid-November. That date is our estimate from the company's pattern of the last three years, not a date Xiaomi has announced.
What we learned
- Xiaomi raised phone prices 25.9% and the margin still fell to 8.5%. Average selling price reached an all-time high of RMB1,351 on a smartphone business that turned over RMB42.1 billion in the quarter. Premiumisation worked exactly as designed and did not hold the line.
- Reported profit fell 20% and adjusted profit fell 43%. The gap is a RMB6.5 billion fair-value gain on financial instruments — Xiaomi holds stakes in roughly 410 companies and they marked up. The adjusted figure is the better read of the operating business, and it nearly halved.
- Group gross margin of 19.84% is the weakest in the twelve quarters we track, below even the 20.4% of September 2024.
- The company names memory in its own first paragraph. Lu Weibing on the call: "Memory costs increased. There is no way for us to just pass on the whole cost increase to our consumers." The response was to push price and actively adjust shipment cadence — a deliberate retreat from units, to 31.2 million.
- The phone-adjacent business is where the profit actually is. Internet services turned over RMB9.0 billion at a 76.8% margin — 8% of revenue but roughly 40% of the Smartphone × AIoT segment's gross-profit contribution — with global monthly active users at a record 766.5 million.
Figures are for the three months ended 30 June 2026 as filed by Xiaomi Corporation with the Hong Kong stock exchange on 18 August 2026, where the company is primarily listed under stock code 1810. Xiaomi reports in renminbi and publishes no US dollar translation, so figures here are quoted in renminbi as filed; the dollar series on the Xiaomi stock page converts them at the Federal Reserve H.10 average rate for each quarter, which is our conversion and not the company's. Free cash flow and gross margin are derived by us from filed figures. Quotes attributed to the earnings call are from a third-party transcript of the 18 August 2026 call. XIACY is an unsponsored American depositary receipt; one ADR represents five ordinary shares, and per-ADR figures are scaled accordingly. Price as of 19 August 2026.
