Xiaomi’s paradox: higher prices, weaker profit
Xiaomi’s latest earnings highlight a key smartphone pricing trend in which average selling prices climb even as overall profitability falls, driven by rising memory chip costs and a shift toward higher-end devices. The company reported net income of 4.72 billion yuan (around USD 695 million, approx. RM3,196 million), a 57% year-on-year Q1 profit decline, while revenue slipped 11% to 99.14 billion yuan. At the same time, Xiaomi’s global smartphone average selling price rose 8.2% year-on-year to a record level, even as shipments dropped 19% to 33.8 million units. This mix of softer demand and higher prices shows Xiaomi is no longer chasing sheer volume at any cost. Instead, it is leaning on a premiumization strategy to keep revenue near 99.1 billion yuan despite falling unit sales and weaker consumer appetite for new phones.
How memory chip costs squeeze margins
Xiaomi’s Q1 results make clear how surging memory chip costs are reshaping smartphone pricing models worldwide. Global demand for AI infrastructure has driven semiconductor prices higher, lifting bill-of-materials costs for devices that rely on large RAM and storage configurations. Xiaomi’s smartphone gross margin dropped from 12.4% to 10.1%, even with a higher Xiaomi average selling price, showing that component inflation is outpacing price hikes. According to The Tech Portal, “the company’s net income fell 57% year-on-year to 4.72 billion yuan as higher memory chip prices and slowing smartphone demand continued to hurt the business.” With consumers delaying upgrades, manufacturers have less room to push through big price increases, yet cannot absorb cost inflation indefinitely. The result is a fragile balance: slimmer margins, selective price rises, and a stronger focus on devices where customers will still pay more for perceived value.
Premiumization and the record ASP play
Behind Xiaomi’s higher smartphone pricing lies a deliberate pivot toward premium devices and higher-margin products. The company reported smartphone revenue of 44.3 billion yuan on 33.8 million shipments, confirming it is selling fewer phones but at richer price points. Xiaomi said its global smartphone ASP increased by 8.2% year-over-year to 1,310 yuan, a record high, driven by a larger share of premium models in its mix. TelecomTalk notes that phones priced at or above 3,000 yuan represented 23.5% of Xiaomi’s total smartphone units sold in its home market during the first quarter. Flagship launches such as the Xiaomi 17 Max expand the top end of its portfolio, suggesting the firm is building a layered line-up instead of relying on low-cost, high-volume products. This tilt toward premium phones is central to offsetting weaker demand in mass-market segments and recovering some of the margin lost to higher memory chip costs.
Broader business resilience and strategic trade-offs
Even as smartphone profit pressure mounts, Xiaomi’s broader operations show signs of structural improvement. Total revenue reached 99.1 billion yuan, and adjusted net profit of 6.1 billion yuan beat market expectations, helped by a nearly 200% quarter-on-quarter rise in operating profit for its core smartphone and AIoT businesses. At the same time, the IoT and lifestyle segment generated 24.7 billion yuan of revenue with a gross margin of 25.2%, while smart electric vehicles, AI and other new initiatives contributed 19.9 billion yuan, up 6.9% year-on-year. These businesses provide diversification away from the cyclical smartphone market. Still, the Q1 profit decline underlines the trade-off: Xiaomi is absorbing near-term earnings pain to keep investing in EVs, AI, and a premium smartphone line-up. Its pricing strategy signals a move away from undercutting rivals and toward defending brand positioning, even if that means living with lower volumes for now.