Xiaomi Absorbs a 5x Memory Cost Shock While AI Model MiMo Tops Global Usage Charts
Q2 2026 earnings call, August 18, 2026
Xiaomi Corporation navigated one of the sharpest component cost spikes in recent memory during the second quarter, with memory chip costs rising roughly fivefold versus a year earlier, forcing the company to raise smartphone prices to record levels even as shipments declined. Total revenue for the quarter came in at RMB 108.9 billion, with adjusted net profit of RMB 6.2 billion, and the read-through for investors is a company managing a genuine supply-cost crisis while still expanding its AI and automotive ambitions.
Memory Costs Are the Story, and Xiaomi Says It Has the Situation Under Control
President Weibing Lu did not sugarcoat the severity of the memory cost increase. "Last year and Q4 and also Q1, Q2 this year, we believe that the increase exceeded our expectation. The cost increase was indeed alarming," he told analysts. The company's response was to raise average selling prices to a record high, up nearly RMB 300 year-over-year, while shipments fell — Xiaomi nonetheless held its position as the third-largest smartphone maker globally for a 24th consecutive quarter. Smartphone gross margin came in at 8.5% for the quarter, a level Lu suggested had exceeded some analysts' bearish expectations. Looking ahead, Lu offered a more constructive framework for cost trends: memory pricing is currently running at roughly five times year-ago levels, a level he does not believe is sustainable. "Is it true that the price will stay high over a long period of time, I have doubts... but how many times eventually, it's difficult to say, perhaps in the middle," he said, adding that the whole industry — including Apple, which he noted has already signaled willingness to raise prices on upcoming flagships — will need to find a new pricing equilibrium.
Notably, CFO Alain Lam disclosed that Xiaomi has been strategically building raw material inventory in anticipation of further cost pressure, with raw material inventory rising from roughly RMB 30 billion to over RMB 40 billion quarter-on-quarter, a combination of unit volume build and rising memory unit prices. That stockpiling, alongside product mix shifts and operational discipline, is what management is leaning on to keep margins in a controllable band into the second half.
MiMo Model Is Winning on Usage, But Xiaomi Is Deliberately Not Chasing Monetization Yet
The most eye-catching AI data point of the call: Xiaomi's MiMo-V2.5 foundational model topped OpenRouter's global call volume ranking, with call volume increasing more than sixfold, from RMB 1.5 trillion to RMB 10.5 trillion, in just two months, according to CCTV reporting cited by Lu. Developers are reportedly gravitating to MiMo for its multimodal perception, agentic and coding capabilities, aggressive pricing, and fully open-source licensing. Xiaomi has since layered a coding assistant (MiMo Code), a cloud office integration with Kingsoft, and a smart-home AI layer called Miloco 2.0 on top of the base model. Despite the traction, CFO Lam was explicit that monetization is not the near-term priority. "We are now in a large-scale investment phase. So we are not too anxious to pursue monetization," he said, noting that API and token-plan revenue has just begun contributing but remains folded into the roughly RMB 1 billion "other" line within the Smart EV, AI and other new initiatives segment. Management indicated it may break out AI revenue separately once it becomes more material, but for now the strategic emphasis is on embedding MiMo across Xiaomi's phone operating system (HyperOS 4 and the upgraded Hyper XiaoAi 2.0 assistant), smart home, EV, and robotics stack — what Lu repeatedly referred to as the "human times car times home" ecosystem moat.
EV Business: SkyNomad Launch and a Margin Bridge That Needs Watching
Xiaomi delivered 104,199 vehicles in the quarter, its sixth consecutive quarter of year-on-year delivery growth, and cumulative SU7 series deliveries surpassed 500,000 units as of August 17. The bigger news was the July unveiling of the Kunlun extended-range architecture and the SkyNomad SUV series (N90 Max and N70 Max), presale-priced at RMB 299,900 and RMB 259,900 respectively, targeting an older, family-oriented buyer distinct from the SU7 sedan customer base. Lu described early demand as strong, though final pricing — and therefore the margin contribution — won't be locked in until the September launch. On margins, Lam walked through why the Smart EV, AI and other new initiatives segment gross margin of 19.2% moved both year-on-year and quarter-on-quarter: last year's Q2 benefited from a heavier mix of the higher-margin SU7 Ultra, this year's Q2 saw a higher mix of the standard SU7 (which carries higher input costs than U7), and the ramp of AI large-model spending is now a structural drag on segment profitability. The segment posted an operating loss of RMB 2.6 billion for the quarter as R&D spending rose 18.9% year-on-year to RMB 9.2 billion, with AI-related investment accounting for nearly 30% of first-half R&D of RMB 18.2 billion.
Overseas Expansion in IoT and EV Is a Multi-Year Buildout, Not a Near-Term Catalyst
IoT revenue was RMB 31.3 billion, down year-on-year against a tough national-subsidy comparison in China, but overseas IoT revenue rose significantly as Xiaomi expanded its retail footprint to more than 640 stores outside China. Management confirmed plans to keep expanding Xiaomi Home stores overseas and to push large home appliances into Europe, starting with an IFA Berlin showcase in September, while acknowledging that market-access compliance work in individual countries is slow-moving. On EVs, Lu said international dealer interest is real and inbound — "at least 7 to 8" of the top dealers in markets visited approached Xiaomi directly — but the actual overseas EV rollout is not slated until the second half of 2027, meaning this remains a 2027-and-beyond story rather than a near-term revenue driver.
Capital Returns and Balance Sheet Signals
Xiaomi has already repurchased approximately HKD 11.7 billion in shares in 2026, surpassing the total buyback for all of the prior year, a signal management is willing to lean on capital returns even as it funds heavy AI and EV investment. Internet services remained the profitability anchor, with 76.8% gross margin and global monthly active users reaching 770 million, up 4.8% year-on-year, with mainland China MAUs hitting a record 198 million. Management attributed Internet segment resilience to a growing mix of premium-phone users, who generate higher ARPU, plus a boost from advertising tied to intensified competition in China's food delivery sector.