Xiaomi reported Tuesday that its adjusted net profit fell 43.1% year-on-year in the first quarter of 2026 to 6.07 billion yuan (about $906 million), missing the average analyst estimate of roughly 6.4 billion yuan, as soaring memory chip costs — driven by AI data center demand — gutted margins across its smartphone, TV, and home-appliance businesses. Revenue fell 10.9% to 99.1 billion yuan ($14.8 billion), the company's first year-on-year revenue decline in nearly three years, against a punishing comparison base: Xiaomi's Q1 2025 was a record quarter, with revenue of 111.3 billion yuan and adjusted net profit topping 10 billion yuan for the first time.
For ordinary consumers, the earnings miss is a signal about prices, not just a financial headline. The same AI infrastructure build-out that is enriching Samsung and SK Hynix is steadily raising the cost of every phone, television, and smart appliance made by companies like Xiaomi that buy memory chips rather than manufacture them. IDC estimates that the average selling price for a smartphone globally will rise 14% in 2026 to a record $523, while smartphones priced below $100 are no longer economically viable to produce.
AI Data Centers Beat Phone Makers for Memory Chips
The mechanism is straightforward and structural. Samsung Electronics, SK Hynix, and Micron — three companies that together supply more than 90% of the world's DRAM — have systematically shifted production capacity toward high-bandwidth memory, or HBM, the specialized chips that power AI accelerators built by Nvidia and others. HBM production consumes roughly three times the wafer capacity of standard DRAM per gigabyte, meaning every AI chip produced effectively destroys the capacity to make roughly three conventional chips for phones and TVs.
SK Hynix reported in late 2025 that its entire 2026 HBM, DRAM, and NAND production capacity was already sold out. Samsung memory chief Kim Jaejune warned in April 2026 that significant shortages across memory products were expected to continue through at least 2027. What remains for consumer electronics manufacturers is whatever wafer capacity the three chipmakers chose not to convert — and that amount has been shrinking.
The result, for Xiaomi, was a cost shock its revenue growth could not absorb. Xiaomi President Lu Weibing told investors on a post-earnings call that memory contract prices had risen roughly fivefold since the third quarter of 2025. For televisions, he said, the spike was closer to tenfold, as acute shortages in display-panel memory compounded the broader DRAM crunch. Xiaomi shipped 33.8 million smartphones globally in Q1 2026, down 19.2% from a year earlier — the steepest decline among the top five global brands, according to research firm Omdia.
Xiaomi's Premium Pivot: Strategy or Survival
Unable to absorb rising costs without passing them on, Xiaomi deliberately pulled back on its budget handset lineup. Smartphone revenue fell 12.5% year-on-year to 44.3 billion yuan, and the gross margin for the segment dropped from 12.4% to 10.1% as memory costs overran the savings from selling fewer cheap phones. The company raised its average selling price 8.2% year-on-year to a record 1,310 yuan, and premium smartphones — those priced at or above the equivalent of roughly 3,000 yuan — accounted for 23.5% of units sold in mainland China.
The strategy mirrors moves Samsung and Apple have made over the past decade: anchor revenue on high-margin devices rather than volume. But it carries a specific risk for Xiaomi. The company built its global brand on competitive pricing in markets where a $150 handset represents a meaningful purchase. Analysts have trimmed Xiaomi's fair value estimate sharply in recent weeks, citing lower assumed revenue growth and softened margin assumptions. Citi analysts estimated in early 2026 that Xiaomi's smartphone shipments could decline 13% across the full year.
Smart Appliances Hit Even Harder Than Phones
The IoT and lifestyle products segment — Xiaomi's business encompassing televisions, robotic vacuums, and connected home appliances — bore the sharpest blow. Revenue fell roughly 24% year-on-year to 24.7 billion yuan as government trade-in subsidy programs that had buoyed demand in 2025 faded and memory-cost inflation bit into margins for large appliances. The tenfold spike in TV memory contract prices that Lu Weibing described on the earnings call is consistent with broader supply data: Micron exited the consumer memory market entirely to focus on enterprise and AI customers, reducing available supply for appliance manufacturers.
Electric Vehicle Unit Swings Back to Loss
After turning its first annual profit in 2025, Xiaomi's electric vehicle, AI, and new-initiatives segment swung back to an operating loss of 3.1 billion yuan in the first quarter of 2026, even as EV deliveries rose 6.6% year-on-year to 80,856 vehicles. Revenue from the segment grew 6.9% to 19.9 billion yuan. The loss reflects the cost structure of a business that is still scaling — Xiaomi operates 490 smart EV sales centers across 143 cities in mainland China — rather than a reversal of the unit's underlying trajectory. Alongside the results, Xiaomi announced a HK$20 billion share buyback program, scheduled to begin June 2, 2026.
How Long Will AI-Driven Memory Chip Costs Keep Rising?
Xiaomi Chairman Lei Jun told investors that memory-related cost pressure would persist for the next two years. Counterpoint Research had already projected that the crunch could last into late 2027. IDC is more bearish still: the firm projects global smartphone shipments to fall 12.9% in 2026 to 1.12 billion units — the steepest annual decline on record — and Francisco Jeronimo, who leads mobile device research at IDC, described the dynamic as a "tsunami-like shock originating in the memory supply chain," with ripple effects spreading across the entire consumer electronics industry.
The structural cause is unlikely to self-correct quickly. The fabs that would meaningfully expand DRAM and NAND supply are not scheduled to come online until 2027 at the earliest, and each new generation of HBM requires even more concentrated wafer capacity than the last — meaning each generational step produces a new supply shock for conventional consumer memory rather than relief. Xiaomi's own guidance, Counterpoint's forecast, and Samsung's disclosure all point to the same horizon: consumers and the brands that serve them are paying an AI tax on memory, and it will not lift before 2027 at the earliest.
Frequently Asked Questions
Why did Xiaomi's profit fall so sharply in the first quarter of 2026?
Xiaomi's adjusted net profit fell 43.1% year-on-year because memory chip costs — driven by AI data center demand outstripping supply — surged sharply for both smartphones and connected appliances. The company's smartphone gross margin dropped from 12.4% to 10.1%, and TV memory contract prices rose by what Xiaomi's president described as roughly tenfold since Q3 2025.
Why are AI data centers making smartphone prices higher?
AI data centers require vast amounts of high-bandwidth memory (HBM), a specialized chip that consumes roughly three times the manufacturing capacity of standard DRAM per gigabyte. As Samsung, SK Hynix, and Micron reallocate production toward HBM, less conventional DRAM is available for smartphones, TVs, and home appliances — driving prices higher across all consumer electronics.
Will memory chip prices for smartphones go down in 2027?
Analysts and chipmakers disagree on timing but agree the crunch is not a short-term event. Counterpoint Research projects relief no earlier than late 2027. Xiaomi Chairman Lei Jun warned investors cost pressure would persist for two years. Samsung's memory chief warned in April 2026 that significant shortages are expected to continue through at least 2027.
What is DRAM and how does it affect the price of my phone?
DRAM, or dynamic random-access memory, is the chip that allows a smartphone, TV, or appliance to run multiple tasks simultaneously. It is manufactured by three companies — Samsung, SK Hynix, and Micron — that control more than 90% of global supply. When those manufacturers shift production to higher-margin AI chips, the DRAM available for consumer devices falls, and prices rise for every manufacturer that buys rather than makes its own chips.
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