Xiaomi: Heaven crashes down, hell descends—what can hold up our faith?

Ask AI · How does Xiaomi balance the pressure from its car business and its traditional businesses?

Xiaomi Group (1810.HK) released its 2025 fourth-quarter financial report (for the period ended December 2025) after the close of trading on March 24, 2026, late Beijing time. The key points are as follows:

1. Overall performance: revenue of 116.9 billion, up 7% year over year. Of this, all revenue growth came from the auto business, while the company’s traditional business (phones x AIoT) revenue fell 13.7% year over year.

Gross margin fell to 20.8%, mainly due to a sharp decline in gross margin for phones and IoT products. Meanwhile, the auto business’s gross margin also began to decline this quarter.

2. Auto business: auto-related revenue of 37.2 billion this quarter, basically in line with expectations. The company’s auto shipments in the quarter were 145,000 units, and the average selling price per vehicle fell to 250,000 yuan, mainly due to a lower share of the relatively higher-priced SU7 Ultra in the quarter.

Auto business gross margin fell to 22.7% this quarter, slightly below market expectations (23%). On one hand, this was influenced by the SU7 Ultra lifting and then pulling down the average selling price per vehicle. On the other hand, the company sold some existing inventory vehicles and display cars this quarter. Dolphin Jun estimates that this quarter Xiaomi’s core operating profit from the auto business was 1.05 billion yuan, achieving profitability for the second consecutive quarter.

3. Phones: 44.3 billion, down 13.6% year over year, in line with market expectations of 44.3 billion. Xiaomi smartphone shipments in the quarter fell 11.7% year over year, while Xiaomi smartphone ASP fell 2.2% year over year. Under the impact of intensified market competition and tighter national subsidies, phone business gross margin fell sharply to 8.3% this quarter.

By market: Xiaomi smartphone shipments in the domestic market fell 18.2% year over year, while shipments in overseas markets fell 8.8%. The company’s performance in the domestic market was worse this quarter. With storage continuing to rise in price, gross margin for the phone business will also face further pressure.

4. IoT: 24.6 billion, down 20% year over year, in line with market expectations of 24.4 billion. Mainly due to the step-down in national subsidies and intensifying competition. In particular, the company’s large-appliance business was impacted even more by the national subsidy policy (some products’ subsidy levels may have reached 1–2 thousand yuan); IoT fell 40% quarter over quarter this quarter.

5. Internet services: 9.9 billion, up 6% year over year, slightly better than market expectations of 9.7 billion. Growth mainly came from the advertising business, while value-added services saw a slight decline. MIUI user numbers increased 7% year over year, while ARPU fell 1% year over year.

By region: this quarter, overseas internet revenue was 3.66 billion yuan, while domestic internet revenue was about 6.23 billion yuan. Both domestic and overseas MIUI user counts continued to grow this quarter.

6. Profit side: core profit of 3.2 billion yuan; adjusted net profit of 6.3 billion yuan. Of that, the core profit for Xiaomi Group-W (01810.HK)’s traditional business was about 2.14 billion yuan, and the auto business generated a profit of 1.05 billion yuan this quarter.

$Xiaomi Group (ADR) (XIACY.US) the decline in core profit this quarter is mainly because phone gross profit was eroded by rising memory prices, while IoT saw a sharp drop in revenue due to the step-down in national subsidies, leading to a significant year-over-year decline of 68% in traditional business profit.

Dolphin Jun’s overall view: traditional businesses remain under ongoing pressure, and the auto business still needs “strong support” from new products

This quarter’s Xiaomi financial report is basically consistent with what it communicated earlier in the Preview. The company’s revenue growth this quarter came entirely from the auto business, while the phone and IoT products in the traditional businesses are clearly under pressure.

Judging from this quarter’s data performance, Xiaomi is currently facing significant pressure: ① phone business gross margin has fallen to single digits; ② IoT business showed double-digit declines year over year; ③ while auto business gross margin fell, weekly order data also declined noticeably.

Under factors such as ongoing increases in storage prices and tighter national subsidy policies, Xiaomi’s stock price has fallen from 60 Hong Kong dollars all the way to around 30 Hong Kong dollars. This also reflects the market’s concerns about the company’s auto business and traditional businesses:

1）Auto business: annual target of 550,000 vehicles

Although Xiaomi delivered 145,000 units in the 2025 fourth quarter, but in the first two months since entering 2026, Xiaomi’s car sales saw a “cliff-like” decline. This indicates that the previously “backlogged” orders have essentially been worked through.

In the last financial report, Dolphin Jun already mentioned the risks of Xiaomi’s auto business: “At that time, Xiaomi’s weekly orders fell to 40,000–50,000 units, which roughly corresponds to fewer than 20,000 new orders per month.” In early March, before the launch of the next-generation SU7, Xiaomi’s weekly orders fell even further to around 4,000 units.**

From another angle, in Xiaomi’s official website reservation situation, the delivery cycle for the YU7 has dropped to around 10 weeks, close to a normal waiting period, which also reflects that the large amount of previously backlogged YU7 orders has basically been consumed. Xiaomi’s supply-demand relationship has shifted from “demand exceeding supply” to “supply exceeding demand.”

As for the recent next-generation SU7, it is actually a “mid-cycle refresh.” The exterior changes are not significant; it mainly involves hardware upgrades and a slight price increase. Based on the delivery time estimated on the current official website for around May to June, it is also not “a breakout hit product.”

For 2026, the company still set an annual auto sales target of 550,000 vehicles. With YU7 weekly orders falling back to a few thousand (equivalent to fewer than 20,000 units per month) and the next-generation SU7’s response being average, to achieve the above target the company will need to bring out more competitive models—perhaps the extended-range model that the market is expecting.

b) Traditional business (phones x AIoT): double pressure, from tighter national subsidies and rising storage prices.

① Phone business: This quarter both shipments and gross margin fell sharply, mainly due to factors such as intensifying market competition and rising storage prices.

Because Apple’s 17 series adopts a “more quantity, not higher price” strategy, it caused Apple’s iPhone shipments in the China market to grow 20% year over year (market YOY down 0.8%), while Xiaomi’s shipments in the China market fell sharply by 18% this quarter.

On the other hand, a sharp increase in storage prices directly creates cost pressure for Xiaomi smartphones. Based on conversations with Qualcomm management, “storage price increases” have already started upgrading into “storage shortages,” which will directly affect smartphone shipment conditions in the market.

② IoT business: tighter national subsidy policies directly affected IoT performance; IoT saw a substantial decline this quarter (-20%).

In the second half of 2025, local governments adjusted their national subsidy policies into a “coupon race or lottery” format, which is effectively a tightening of the national subsidy policies. Because subsidies for products such as large appliances can reach 1–2k, under tighter national subsidies, it directly impacts terminal-market purchase demand. IoT thus turns from a “growth driver” into a “drag item.”

Overall, Xiaomi is currently facing an industry “headwind” in its traditional segments (phones and IoT). This is hard to avoid, and rising storage prices will continue to suppress the gross margin performance of the traditional business. The company can only hope for “better-than-expected results from subsequent new cars” to support the company’s performance and stock price.

Under the current multiple pressures, Xiaomi’s stock price has continued to decline. At this stage, what is relatively more important is to estimate the bottom valuation of Xiaomi.

Under a relatively pessimistic scenario (Xiaomi smartphone shipments fall 15% year over year, and IoT also declines year over year), traditional business would experience a single-digit decline year over year. The auto business would complete the company’s 550,000-vehicle target, but the average selling price and gross margin would fall. It is estimated that Xiaomi’s after-tax core operating profit for the traditional business in 2026 will be about 12.9 billion yuan, down 46% year over year; while auto business revenue will be about 140 billion yuan, up 32% year over year.

Because in 2026, Xiaomi’s traditional business faces a clear industry “headwind.” If storage prices fall subsequently, the company’s traditional business performance may recover, but the 2026 outlook remains relatively low.

From a medium- to long-term perspective, with hardware gross margin recovering, Xiaomi’s after-tax core operating profit for its traditional business still has the potential to return to around 20 billion yuan. Some funds have some level of belief in Xiaomi, and it cannot be ruled out that capital may choose to enter early.

Overall, Xiaomi is currently facing multiple industry “headwinds,” including rising storage prices, tighter national subsidies, intensifying competition, and a decline in auto orders. But factors like rising storage prices and tighter national subsidies have already been Price in by the market, as the stock price has kept falling from 60 Hong Kong dollars to around 30 Hong Kong dollars.

Because the company still has “potential” focal points ahead, such as new cars and large models, from a medium- to long-term perspective, it will still depend on storage prices stabilizing and the performance of subsequent new cars.

Below is Dolphin Jun’s detailed analysis of Xiaomi’s financial report:

A. Overall performance: the auto business is the main driver

With the addition of the auto business, Xiaomi’s financial report now includes two categories: “auto and innovation business,” in addition to the previous “phones X AIoT.”

Xiaomi discloses “auto and innovation business” separately, which is enough to show how much importance the company attaches to the auto business. And the fact that the company’s market cap could previously break through the trillion-yuan ceiling was mainly due to expectations brought by the auto business.

1. Revenue side

Xiaomi Group’s total revenue in the 2025 fourth quarter was 116.9 billion yuan, up 7% year over year, matching market expectations of 116.6 billion yuan. Growth in this quarter mainly came from the auto business.

1) The original business—phones X AIoT business (traditional business)—achieved revenue of 79.7 billion yuan, down 13.7% year over year. Within this, the hardware segment performance was “very poor”: phone business fell 13.6% year over year, and the IoT business fell 20% year over year;

2) This quarter, Xiaomi’s new businesses such as smart automobiles achieved revenue of 37.2 billion yuan. Growth this quarter mainly came from an increase in YU7 shipments.

1.2 Gross margin

Xiaomi Group’s gross margin in the 2025 fourth quarter was 20.8%, basically in line with market expectations of 21%. In this quarter, gross margin for the phone and IoT businesses fell sharply, and the auto business’s gross margin also declined somewhat.

a) Xiaomi’s old business gross margin at 20%, down 2.1 percentage points quarter over quarter, mainly impacted by tighter national subsidies and rising storage prices. Among them, the phone business fell to 8.3% this quarter.

Other businesses within Xiaomi’s traditional business segment continued to make losses of 300 million yuan this quarter, which includes related services such as air-conditioner installation. If we include this portion of gross loss in the IoT business, IoT’s real gross margin should be about 18.9%.

2) Gross margin for auto and other new businesses at 22.7%, slightly below market expectations of 23%. Auto business gross margin fell quarter over quarter this quarter, affected by a reduced share of the relatively higher-priced SU7 Ultra models, sales of existing inventory vehicles and display cars, and other factors.

B. Auto business: annual target of 550,000 vehicles—can it be met?

Auto business revenue was 36.3 billion yuan; adding the auto-related peripheral businesses, the total is 37.2 billion yuan, in line with market expectations of 36.9 billion yuan.

Of this, the 145,000 units sold are essentially known. The average selling price per vehicle this quarter is 250,000 yuan, down 10,000 yuan quarter over quarter, due to a reduced share of the SU7 Ultra model and sales of inventory display cars and vehicles.

Gross margin this quarter was 22.7%, down 2.8 percentage points quarter over quarter. With the reduced share of SU7 Ultra shipments and the sales of existing inventory vehicles and display cars, the company’s average selling price per unit declined. The second-phase factory also drove an increase in depreciation and amortization. With these two effects, auto gross margin declined.

Combining Xiaomi’s auto sales volume performance with the delivery cycle on its official website, the large backlog of YU7 orders has basically been consumed. The company’s auto business has shifted from “demand exceeding supply” to “supply exceeding demand.” Relative to that, it should focus more on order conditions on the demand side.

Before the release of the next-generation SU7, Xiaomi’s weekly orders in early March had already fallen back to around 4k. That equates to fewer than 20,000 units per month. And based on this SU7 “mid-cycle refresh,” the delivery time shown on the current official website is basically May to June, and the market response has also been relatively muted.

Under the current situation, the company still provides guidance for an annual target of 550,000 vehicles for 2026. Based on the current order situation, this is clearly challenging. The company will need to deliver more outstanding performance with subsequent new cars—possibly an extended-range model that the market expects.

C. Phone business: a “collapse” in gross margin, and losing market share

In the 2025 fourth quarter, Xiaomi’s smart phone business revenue was 44.3 billion yuan, down 13.6% year over year, mainly affected by rising storage prices, tighter national subsidies, and intensifying competition.

Dolphin Jun breaks Xiaomi’s smart phone business into volume and price:

Volume: Xiaomi smart phone shipments this quarter were 37.7 million units, down 11.7% year over year.

By market: ① In the domestic market, with tighter national subsidies, Xiaomi’s smartphone market share fell to 13.2% (it lost 2.8% market share year over year). Impacted by intensifying market competition; ② in overseas markets, Xiaomi smartphones fell 8.8% year over year, and overseas market share fell 1.2% year over year.

Price: This quarter’s average selling price for phone shipments was 1176 yuan, down 2.2% year over year, mainly due to the decline in overseas market smartphone ASP.

This quarter, phone business gross margin was 8.3%, down 2.8 percentage points quarter over quarter. It was affected by factors such as the decline in overseas phone ASP, increased costs for key components such as storage, and intensifying market competition. With storage continuing to rise, the phone business gross margin will remain under sustained pressure.

D. IoT business: tighter national subsidies turning it into a “drag item”

In the 2025 fourth quarter, Xiaomi’s IoT business revenue was 24.6 billion yuan, down 20% year over year. Due to tighter national subsidies, the large-appliance category within IoT fell 40% quarter over quarter, bringing a significant “drag” to the IoT business.

This quarter, IoT business gross margin was 20.1%, down 2.8 percentage points quarter over quarter, mainly due to declining gross margin for products such as smart large appliances in the Chinese market.

E. Internet services: a relatively steady growth item

In the 2025 fourth quarter, Xiaomi’s internet services business achieved revenue of 9.9 billion yuan, up 6% year over year. The main growth driver this quarter was advertising:

a) Advertising services: single-quarter revenue of 7.8 billion yuan, up 10.5% year over year. Xiaomi’s core advertising scenarios—app distribution and APP pre-installation—are almost “distribution taxes” that major APP companies must pay, especially APP pre-installation, where advertising is basically “easy money.”

b) Value-added services: This includes mainly game distribution, Xiaomi e-commerce—Youpin, and Xiaomi Finance, among others. This portion of revenue was about 2.1 billion yuan, roughly flat year over year. These value-added services remain stable.

Overall, in the long run, this business still largely follows the revenue logic tied to hardware shipment volumes. In Xiaomi’s reclassified revenue categories, it broadly groups this into Legacy business. Only by combining hardware and software can the company, as a phone manufacturer, continue to explain the logic of monetizing internet services.

F. Overseas markets: software services keep growing, hardware stays weak

In the 2025 fourth quarter, Xiaomi’s overseas revenue was 36.1 billion yuan, down 3.1% year over year. With growth in the domestic auto business, the company’s overseas revenue share has already fallen to about 31%.

In specific breakdowns, the company’s overseas internet business grew 18% this quarter to 3.66 billion yuan; while the company’s overseas hardware revenue fell 5% year over year for three consecutive quarters, reflecting that overseas hardware market demand remains relatively weak.**

G. Profit: traditional business under pressure, auto continues to be profitable

In the 2025 fourth quarter, Xiaomi’s total of three expense categories was 21.2 billion yuan, with the expense ratio rising to 18%. Part of this was due to the auto business; operating expenses for the auto business increased to 7.4 billion yuan.

Excluding the auto business, the operating expenses for the traditional business segment were about 13.77 billion yuan, with both year-over-year and quarter-over-quarter increases. Among them, the operating expense ratio for the traditional business rose to 17.3%, and the company further increased R&D expenses.

Adjusted net profit in the 2025 fourth quarter was 6.3 billion yuan, but Dolphin Jun has never agreed with Xiaomi’s method of adjusting net profit—because it does not adjust out financial gains, while it also does not adjust out dividend income from the company’s invested companies. Even if these are sustainable, they are not the company’s core operating business, and they cannot reflect the company’s long-term sustainable profitability.

Overall, Dolphin Jun focuses more on the core operating profit mentioned above (revenue - costs - the three expenses). This is the metric that more truly reflects the company’s ability to sustain profitability in its core operating business.

This quarter, the company’s actual core operating profit was 3.2 billion yuan, and the core operating profit margin was 2.7%—mainly impacted by pressure on hardware gross margin and increases on the expense side. Specifically, this quarter the company’s core operating profit from the traditional business was about 2.14 billion yuan, while the auto business’s core operating profit was about 1.05 billion yuan.