What Xiaomi’s Rising Average Selling Price Tells Us
Xiaomi’s latest results highlight a paradox in smartphone pricing trends, where the company’s average selling price is rising even as profitability falls because cost inflation and weaker demand are eroding margins. The Group reported that its global smartphone average selling price (ASP) climbed 8.2% year-over-year to a record RMB1,310, helped by a clear shift toward premium models. Premium phones priced at or above RMB3,000 made up 23.5% of Xiaomi’s smartphone units sold in its home market, showing that buyers are moving up the price ladder despite a soft market. This premiumization strategy reflects a broader industry pattern: with unit growth slowing, brands are trying to earn more per device. For Xiaomi, however, higher ASPs have not yet been strong enough to offset other financial pressures that are cutting into earnings.
Q1 2026 Earnings: When Higher Prices Don’t Mean Higher Profits
In Q1 2026, Xiaomi’s numbers show how fragile smartphone economics have become. Net income dropped 57% year-on-year to 4.72 billion yuan (around USD 695 million, approx. RM3,200 million), while adjusted net profit fell 43.1% to 6.07 billion yuan, even though total revenue stayed high at about 99.1 billion yuan. According to the company’s unaudited results, revenue from smartphones alone reached 44.3 billion yuan, but shipments slid to 33.8 million units, down 19% from a year earlier. That fall in volume, combined with thinner smartphone gross margins dropping from 12.4% to 10.1%, wiped out much of the benefit from higher prices. The result is a classic margin squeeze: Xiaomi is selling fewer devices, earning slightly more per phone, but keeping less profit on each one.
Chip Cost Impact and Weak Demand: The Margin Squeeze Explained
The main pressure behind Xiaomi’s shrinking profitability is the chip cost impact combined with soft consumer appetite for new phones. Global memory prices have surged because of booming demand from AI infrastructure, and Xiaomi reports that higher memory chip costs fed directly into its bill of materials. At the same time, smartphone demand weakened, especially in its core markets, leading to a 12.5% drop in smartphone revenue and the steepest shipment decline among the top five global brands. With competitors fighting for share, Xiaomi has limited room to pass the full cost increase to buyers, even as it pushes premium devices. The result is lower gross margin on smartphones and a harder path to profit growth. This dynamic shows how even a successful move upmarket can be overwhelmed by external cost and demand shocks.
From Volume to Value: Xiaomi’s Structural Shift
Despite the earnings hit, Xiaomi’s Q1 2026 earnings also show a deliberate shift from volume at all costs toward healthier operational quality. The company highlights that the operating profit of its core smartphone × AIoT business grew nearly 200% quarter-over-quarter, suggesting better cost discipline and mix improvements beneath the headline declines. Its premiumization strategy is expanding, with a fuller flagship lineup, while IoT and lifestyle products maintained a high gross profit margin of 25.2%. Newer segments such as smart EVs and AI contributed 19.9 billion yuan in revenue and kept growing. Together, these moves point to a long-term pivot: Xiaomi appears prepared to sacrifice some shipments today to build a more profitable blend of smartphones, connected devices, and vehicles tomorrow, even if that means navigating a painful adjustment period in the short run.