Profit Hit Shows the Real Cost of Pricier Memory Chips
Xiaomi’s latest quarterly results offer a clear view of how rising memory chip costs are biting into smartphone makers’ profits. The company reported a 57% year-on-year drop in net income to 4.72 billion yuan in the first quarter, while adjusted net profit slid 43.1% and revenue fell 11% to 99.14 billion yuan. Its core smartphone segment was hit hardest: smartphone revenue declined 12.5% to 44.3 billion yuan as shipments plunged 19% to 33.8 million units. Gross margin in smartphones narrowed from 12.4% to 10.1%, underlining how higher component costs are eroding profitability despite only modest increases in average selling prices. Much of this pressure stems from global memory prices being driven up by booming demand from AI infrastructure, forcing Xiaomi to absorb higher input costs while still competing aggressively on price in a crowded Android market.
Why Memory Chip Costs Are Surging—and Why Xiaomi Feels It First
Memory chip costs have been climbing steadily, and Xiaomi is among the first major smartphone brands to openly warn about the impact. At the launch of the Xiaomi 17 Max, CEO Lei Jun emphasized that storage and memory prices are already lifting production costs for smartphones and other consumer electronics. Global demand for memory is being reshaped by AI data centers and high-performance computing, which consume massive amounts of DRAM and NAND, tightening supply for handset makers. Xiaomi’s latest results show this pressure in its thinner smartphone margins, even as the company tries to offset costs through supply chain efficiencies and technological optimization. President Lu Weibing has warned that the current round of memory price increases could last until at least the end of 2027, suggesting smartphone makers are unlikely to see relief on component pricing in the near term.
Smartphone Prices Rising as Brands Struggle to Protect Margins
With memory chip costs surging and demand weakening, smartphone prices are starting to rise as brands seek to protect margins. Lei Jun has cautioned that keeping retail prices stable will become increasingly difficult if memory costs continue to climb at the current pace. Lu Weibing has gone further, predicting that several premium flagship models could cross the 10,000 yuan (about USD 1,470; approx. RM6,780) mark by the end of this year. In some markets, many smartphone models have already seen price increases of 200–400 yuan since March, which manufacturers attribute to higher component costs. Xiaomi says it is still trying to absorb part of the increase rather than passing it fully to consumers, but its shrinking smartphone gross margin suggests there is limited room left. As pricing pressure builds, more brands are likely to follow with upward adjustments.
Weak Demand Compounds the Squeeze on Xiaomi and Its Peers
Rising input costs might be manageable in a booming market, but Xiaomi faces them alongside weakening smartphone demand. The company’s shipments dropped 19% year-on-year to 33.8 million units, the sharpest fall among the world’s top five smartphone brands. That volume decline magnifies the effect of higher memory chip costs: fewer devices to spread fixed expenses over, and less flexibility to discount aggressively without destroying margins. Xiaomi’s broader consumer electronics segment also contracted, with revenue from Internet-of-Things and lifestyle products falling 24% to 24.7 billion yuan amid softer domestic demand and reduced subsidies for appliances. At the same time, Xiaomi is pouring investment into electric vehicles and AI, where its EV unit generated 19.86 billion yuan in revenue but still posted a 3.1 billion yuan operating loss. The combination limits Xiaomi’s ability to subsidize smartphone pricing for long.
Early Upgrade Advice Signals Industry-Wide Price Hikes Ahead
Xiaomi’s top executives are now effectively telling frequent upgraders to buy sooner rather than later—an unusual stance that reveals expectations of further smartphone prices rising. Lei Jun advised users who change phones annually to consider upgrading early because component costs, especially memory, are on an upward trajectory that may last for years. This advice acts as an early indicator that manufacturers expect sustained cost inflation and plan to pass more of it on to consumers. Lu Weibing’s forecast that memory price increases could continue until at least 2027 reinforces that view, as do recent across-the-board price bumps of 200–400 yuan on many models. While Xiaomi is working on supply chain efficiencies and internal optimizations to soften the blow, its latest profit slump suggests such measures only go so far. Other manufacturers facing the same chip shortage impact and cost pressures are likely to follow a similar path, making a new cycle of higher smartphone pricing increasingly probable.