Xiaomi’s second-quarter results show that its transformation from smartphone maker into a broader technology and electric-vehicle group is advancing, but not yet fast enough to overcome weakness in its established businesses. Revenue for the three months ended June fell 6.1% from a year earlier to RMB108.9 billion, while adjusted net profit dropped to RMB6.2 billion from RMB10.8 billion. The adjusted net margin narrowed to 5.7% from 9.3%.
The split between Xiaomi’s two reporting segments explains the tension. Revenue from smartphones, internet services and connected consumer products declined to RMB84.0 billion from RMB94.7 billion. Revenue from smart electric vehicles, artificial intelligence and other new initiatives rose 17.1% to RMB24.9 billion. In absolute terms, the newer segment added RMB3.6 billion of revenue, while the established segment lost RMB10.7 billion. The growth engine is working, but its scale remains insufficient to carry the whole company.
Smartphones were the clearest source of pressure. Revenue fell to RMB42.1 billion from RMB45.5 billion as shipments dropped to 31.2 million units from 42.4 million. Xiaomi partly offset that volume decline by raising its average selling price 25.9% to a record RMB1,351, reflecting a shift toward more expensive devices. Yet smartphone gross margin fell to 8.5% from 11.5% a year earlier. The company attributed the latest margin pressure to substantially higher prices for key components.
Industry conditions were difficult, but Xiaomi’s contraction was sharper than the market’s. Omdia data included in the company’s presentation showed global smartphone shipments falling 5.9% in the quarter, while Xiaomi’s shipments declined 26.3%. Its global market share fell to 11.5% from 14.7%, although it remained the third-largest vendor and extended its run in the global top three to 24 consecutive quarters. That combination suggests premiumization protected revenue better than unit volume, but did not fully protect profitability or competitive position.
The EV business provided a more encouraging counterweight. Xiaomi delivered 104,199 vehicles in the quarter, up 28.2% year over year. Smart EV sales revenue rose 15.9% to RMB23.9 billion. Even so, the gross margin for the broader smart EV, AI and new-initiatives segment fell to 19.2% from 26.4%. Xiaomi cited a smaller contribution from its higher-priced SU7 Ultra, increased costs for key EV components and higher costs associated with its AI business.
That distinction matters for investors. Xiaomi is gaining meaningful vehicle scale, but delivery growth is not translating one-for-one into revenue growth, and the segment’s economics are becoming less generous. The company is also spending across several capital-intensive fronts at once. Research and development expense reached RMB9.2 billion in the quarter, up 18.9%, as Xiaomi continued investing in vehicles, AI models, robotics and its connected-device ecosystem.
Weakness was not confined to phones. IoT and lifestyle-products revenue fell to RMB31.3 billion from RMB38.7 billion. Internet-services revenue edged down to RMB9.0 billion from RMB9.1 billion, although advertising revenue increased 4.8% to RMB7.2 billion. Those figures leave Xiaomi with a diverse collection of businesses, but they also show that breadth does not automatically produce resilience when several hardware categories slow together.
Management has some financial room to keep investing. Capital expenditure was RMB3.6 billion in the quarter, and Xiaomi said it had repurchased about 377.5 million shares for approximately HK$11.7 billion in 2026 through August 13. But buybacks do not resolve the operating challenge. The company needs EV and AI revenue to keep expanding while component costs ease and its smartphone and connected-device businesses stabilize.
The quarter therefore changes the test for Xiaomi. The central question is no longer whether it can build a credible EV operation. More than 100,000 quarterly deliveries answer much of that. The harder question is whether EVs, AI and premium phones can generate enough profitable growth to offset shrinking mass-market hardware volumes. Until that balance improves, Xiaomi’s diversification will look strategically real but financially incomplete.