The Memory Shortage Just Showed Up in Xiaomi's Phone Margin

BEIJING, 19 AUG 2026 — Xiaomi's smartphone gross margin fell to 8.5 per cent from 11.5 a year earlier, and the company named the cause: memory costs sitting at historically high levels. Its adjusted net profit dropped 42.6 per cent in a quarter when it delivered a record number of cars.

This is the memory shortage arriving somewhere a reader can see it. Not as a contract price in an analyst note, but as the margin on a phone.

The quarter

Net profit fell 20.3 per cent to RMB 9.5 billion and adjusted net profit fell 42.6 per cent to RMB 6.2 billion, on a group gross margin of 19.8 per cent. Smartphone revenue declined 7.5 per cent to RMB 42.1 billion while shipments fell 26 per cent, which means the average selling price rose — the company took price to protect volume-adjusted revenue, and still lost three points of margin.

Xiaomi remains the world's third largest handset maker. This was its second consecutive quarter of shipment decline.

Three points of margin is the whole story

A handset maker at the value end of the market operates on thin gross margin by design, and 8.5 per cent leaves very little room.

Memory is one of the largest line items in a phone's bill of materials, and it is the one a manufacturer can least easily engineer around. You can choose a cheaper display, a smaller battery or a different chipset. Reducing memory on a device sold partly on specification is a product decision customers notice immediately.

A manufacturer facing that cost has to choose between absorbing it and passing it on. Xiaomi appears to have done both: prices rose, but margin fell anyway. That is what happens when a cost increase is too large for the market to bear in one step.

We said this would show up here

We wrote yesterday about SK hynix committing 54 trillion won to two memory fabs whose first cleanroom opens in December 2028, and made the point that the third-quarter moderation in contract prices was consumer buyers being priced out rather than the shortage easing. We pointed to the most exposed party: a handset assembler working to a fixed bill of materials.

This is that, quantified, at the world's third largest handset maker. It is also the second consumer instance we have reported, after the Pixel 11 arriving more expensive on the same pressure, and the same squeeze visible from the other side in Samsung's record memory quarter alongside its first mobile loss.

Samsung is the instructive comparison, because it sits on both sides. A company that makes memory and phones can watch one division fund the other. Xiaomi buys memory and cannot.

What this means for phone buyers in this region

Xiaomi's position in Southeast Asia is stronger than its global ranking suggests, and the affected devices are the affordable ones.

Over the next several quarters, that cost will likely translate to higher prices for the same phone, the same price for a phone with lower specs, or fewer cheap configurations. All three are ways of passing the same cost along, and the third is the one buyers notice least and should watch most, because a quietly discontinued base variant is a price rise that never appears as one.

This compounds a point we made about budget Android handsets and firmware support. The affordable end of the market is where the region buys most of its phones, where firmware support is already weakest, and now where component costs are forcing cuts. Buyers pressed on price tend to get less of everything, including the things that are invisible at purchase.

Why the shipment number matters more than the revenue number

A 26 per cent fall in units against a 7.5 per cent fall in revenue looks, at first glance, like a company successfully trading volume for value.

In this market it is closer to the opposite. Handset scale is what buys component pricing, retail shelf space and carrier attention. A manufacturer shipping a quarter fewer devices has weakened its position with the very suppliers whose prices just rose.

There is also a second-order effect. Xiaomi's business model depends on services and ecosystem revenue that follows a device into a household, not on the margin from the initial sale. Fewer devices shipped this year is a smaller installed base earning later, which is a cost that does not appear in this quarter's accounts at all.

The cars are not a hedge yet

Delivering 104,199 vehicles — up 28.2 per cent — is an achievement for a company that only started making cars three years ago.

It is not yet insulation. Reporting of the same quarter puts electric vehicle revenue growth at roughly 16 per cent against delivery growth of 28.2, which implies average selling prices fell — more cars, less revenue per car. A business scaling on volume while price declines is a business buying market share, and it is not a source of margin to offset a squeezed handset line.

The strategic logic still holds, in that a company with two hardware businesses can survive a bad cycle in one. The arithmetic this quarter, however, shows neither business is carrying the other.

One more thing follows from that. A manufacturer squeezed on component cost has an incentive to shorten the support it funds after the sale, because software updates are a cost carried against a device already sold. Nothing suggests Xiaomi has done so, and it is the pressure worth watching in a market where update commitments are already thin.

What we could not establish

How much of the margin decline is memory specifically. The company attributes pressure to component costs and names memory as remaining at historically high levels; it does not publish a bill-of-materials breakdown, so the split between memory, other components and competitive pricing is not separable from outside.

We also could not establish the regional split of the shipment decline — whether the 26 per cent fall was concentrated in China or spread across export markets. Other open questions include whether Xiaomi has long-term memory supply agreements, how much of the price increase is from product mix versus list price, and the exact EV revenue figure, which seems at odds with the delivery number.

What to watch

Smartphone gross margin in the next quarter is the single number. If it falls below 8 per cent the pass-through is not keeping pace, and something visible has to give in the product line.

Then watch whether other handset makers report the same compression. Xiaomi reporting early is one data point. If two more manufacturers report the same compression, it is a market condition that would put a floor under device prices across the region.

Finally, watch the entry-level line-up. Discontinued base configurations and quietly reduced memory options are how this cost gets passed to the most price-sensitive buyers, and it happens without an announcement.