Xiaomi Profit Hit by Memory Crunch

Xiaomi (1810.HK) reported a steep deterioration in profitability in the June quarter as higher component costs and softer smartphone demand weighed on results. Adjusted net income plunged about 43% to 6.22 billion yuan, or roughly $922 million, underscoring the pressure on margins. It was the company’s third consecutive quarterly profit decline, highlighting a sustained erosion in earnings rather than a one-off setback.

Group revenue also weakened, falling 6.1% year-on-year in the period. The combination of lower sales and rising input costs left Xiaomi with less room to absorb external shocks, making the cost structure of its core hardware business a central concern for the quarter.

Xiaomi’s smartphone business, a key driver of its overall performance, experienced a notable downturn. Smartphone revenue declined 7.5% in the June quarter after the company scaled back shipments of mid- to low-tier devices. This pullback reduced unit volumes, particularly in the lower-priced segment that has traditionally contributed a large share of shipments.

To counter weaker volumes, Xiaomi implemented price increases on certain models, which helped partially offset the decline in shipments. However, these measures were not enough to prevent an overall revenue drop in the smartphone division, indicating that higher prices could not fully compensate for reduced demand and tighter supply conditions.

A persistent global memory shortage played a central role in Xiaomi’s weaker quarter. Rising memory-chip prices increased the cost of key components, feeding directly into higher material costs for smartphones. These cost increases squeezed margins, particularly in lower-end models where pricing is more sensitive and room to pass on higher costs is limited.

The memory crunch also weighed on overall device demand. Higher material costs contributed to price adjustments and constrained supply, especially in mid- to low-tier devices, which in turn dampened consumer appetite. This combination of cost inflation and softer demand formed the backdrop to Xiaomi’s profit decline and reinforced material-cost pressure as a central issue for the period.

With three straight quarters of profit declines, the June results underscore how dependent Xiaomi’s earnings remain on the cost and availability of key components such as memory chips. The latest quarter’s figures show that even targeted price increases and adjustments in shipment mix have not fully offset the impact of higher input costs and weaker demand at the lower end of the market.

The company’s performance in the June quarter therefore reflects both external supply constraints and internal strategy choices around product mix and pricing. How these factors evolve, particularly in relation to the global memory market, will be critical for the trajectory of Xiaomi’s profitability after this latest reported decline.