What Xiaomi’s Profit Slump Reveals About Memory Chip Costs
Xiaomi’s sharp profit decline shows how rising memory chip costs and weak smartphone demand are squeezing manufacturers’ margins and reshaping the economics of modern phones. In the first quarter, Xiaomi’s net income fell 57% year-on-year to 4.72 billion yuan as memory prices climbed and shipments dropped. According to The Tech Portal, the company’s smartphone revenue declined 12.5% to 44.3 billion yuan, with global shipments sliding 19% to 33.8 million units. Gross margin in smartphones slipped from 12.4% to 10.1%, underscoring how higher component costs are eating into earnings even as competition forces brands to keep prices in check. At the same time, Xiaomi is investing in electric vehicles and AI, which adds further strain on short-term profitability while it tries to diversify beyond handsets in a difficult market.
Why Memory Chip Costs Are Pushing Smartphone Prices Rising
Memory chip costs are rising due to strong demand from AI infrastructure and data centers, driving up prices for storage and RAM used in smartphones. Xiaomi has warned that this trend could last for years, with CEO Lei Jun saying memory prices are expected to increase for at least the next two years. Higher memory prices raise the bill of materials for every phone, especially models with large storage and high-capacity RAM, making it harder to keep retail prices low. Xiaomi says it is working to absorb some of these costs through supply chain efficiencies and internal optimizations rather than passing them straight to buyers. However, as gross margins narrow, there is less room to protect customers from price increases, particularly in mid-range and flagship segments where memory configurations are more generous.
A Tough Mix: Weak Demand and Chip Shortage Impact on Margins
The chip shortage impact and higher component costs are colliding with weak smartphone demand, creating a harsh environment for manufacturers. Xiaomi’s shipments fell 19% year-on-year, the steepest drop among the top five smartphone brands, while revenue declined 11% to 99.14 billion yuan. Lower volumes mean fixed costs are spread across fewer devices, amplifying the effect of rising memory chip costs on per-unit profitability. At the same time, intense competition in Android phones is forcing companies to offer aggressive pricing and promotions. That combination drove Xiaomi’s smartphone gross margin down to 10.1%, even though average selling prices edged up. The pressure extends into other consumer electronics such as televisions and smart home devices, where Xiaomi reported a 24% revenue decline, showing that broader electronics demand is also softening.
How Rising Costs Could Change Smartphone Pricing and Upgrades
Smartphone prices rising is becoming more likely if memory costs stay elevated. Lei Jun has advised users who upgrade yearly to “consider buying sooner rather than later,” warning that future phones could cost more as component prices climb. Xiaomi executives also expect that premium flagships from several brands could cross the 10,000 yuan (around USD 1,470, approx. RM6,760) mark, signalling an era of more expensive top-tier devices. Since March, many models have already seen price increases between 200 and 400 yuan, reflecting the immediate pass-through of higher component costs. For consumers, this may lengthen upgrade cycles as buyers hold onto devices longer to offset higher upfront prices. If memory chip costs do not stabilize, brands will either raise prices more broadly or trim hardware specifications, forcing a trade-off between affordability and performance.