How Xiaomi’s Rising Prices Collide with Falling Profits
Xiaomi’s latest results show a paradox where the company’s average selling price of smartphones rises meaningfully even as its net profit plunges, revealing how cost inflation and weak demand can overpower pricing gains and squeeze the smartphone profit margin across a single quarter. In the first quarter, Xiaomi reported total revenue of RMB99.1 billion, yet net income fell 57% year-on-year to 4.72 billion yuan (around USD 695 million, approx. RM3,206 million). At the same time, its core smartphone business stayed under pressure as shipments dropped 19% to 33.8 million units and smartphone revenue slid to RMB44.3 billion. While the Xiaomi average selling price increased by 8.2% year-over-year to a record level, rising memory chip costs and softer demand meant these higher prices did not translate into higher profitability, but instead into narrower margins.
Premium Push: Why Xiaomi Is Lifting the Average Selling Price
Behind the higher Xiaomi average selling price is a deliberate premiumization strategy. Xiaomi reports that global smartphone ASP rose by 8.2% year-over-year to a record RMB1,310, helped by a richer mix of higher-end devices. According to Omdia, Xiaomi’s global smartphone shipments still ranked in the top three for the 23rd consecutive quarter, and premium smartphones with a retail price at or above RMB3,000 made up 23.5% of total smartphone units sold in its home market. New flagship releases, such as the Xiaomi 17 Max and a more complete standard and Pro lineup, are designed to push buyers toward higher price tiers. This strategic move aims to lift revenue per device and reduce reliance on low-margin volume, positioning Xiaomi closer to established premium rivals even as total shipments fall.
Memory Chip Costs and Margin Compression in Smartphones
The sharp profit drop is closely tied to rising memory chip costs and a weaker smartphone market. Global memory prices have surged on the back of booming AI infrastructure demand, lifting Xiaomi’s component bill at the very moment consumers are more cautious. As a result, smartphone gross margin fell from 12.4% a year ago to 10.1%, even though ASPs climbed. Revenue from smartphones declined 12.5% to RMB44.3 billion, and shipments dropped 19%, showing that higher prices could not offset lower volumes and more expensive components. Xiaomi’s experience illustrates a key industry risk: when input costs spike faster than selling prices, the smartphone profit margin can compress quickly, leaving manufacturers with higher ASPs but weaker overall earnings, especially in a crowded Android market with intense price competition.
Beyond Phones: Structural Shifts and Long-Term Strategy
Despite the short-term hit to profits, Xiaomi’s Q1 report points to structural changes that may support its long-term repositioning. The company highlights that adjusted net profit of RMB6.1 billion exceeded market expectations and that operating profit from its core smartphone × AIoT business grew by nearly 200% quarter-on-quarter. Revenue from the IoT and lifestyle products segment reached RMB24.7 billion, with overseas IoT sales hitting a record high and gross profit margin at 25.2%. Meanwhile, the smart EV, AI and new initiatives segment generated RMB19.9 billion in revenue, up 6.9% year-on-year, with new vehicles such as the Xiaomi SU7 and Xiaomi YU7 gaining market recognition. These trends suggest Xiaomi is using its premium smartphone strategy as part of a broader “Human × Car × Home” ecosystem play, trading near-term earnings pressure for higher structural quality.
What Xiaomi’s Q1 Earnings Mean for Its Market Position
Taken together, Xiaomi Q1 earnings show a company in transition. Net income has dropped sharply under the weight of memory chip costs and weaker phone demand, yet the firm is still growing its average selling price and enlarging its premium footprint. “Global smartphone ASP increased by 8.2% year-over-year to a record high of RMB1,310,” the company notes, even as overall smartphone revenue and units declined. That trade-off is painful in the short run, but it aligns with a shift away from low-end volume toward higher-value devices and ecosystem revenue. If memory chip costs stabilize and demand improves, the current combination of premium pricing, higher-margin IoT products and expanding EV initiatives could lift the smartphone profit margin and turn today’s paradox into tomorrow’s earnings recovery.