Xiaomi’s Record Buyback Can’t Mask the Pain: Memory Costs Quintuple and EV Losses Widen

Xiaomi’s HK$20 billion share repurchase programme, launched on 2 June, was supposed to signal management’s confidence. Instead, the market brushed it aside. On 11 June alone the company bought back 7.8 million shares, yet the stock still closed at a 52-week low of HK$25.49 (€2.46). Short sellers have now built positions equal to roughly 9% of the free float, a clear vote of no confidence in a business caught between surging memory-chip costs and a still-bleeding electric-vehicle division.

The arithmetic explains the scepticism. In the first quarter, Xiaomi’s adjusted net profit slumped 43% to 6.1 billion yuan, missing analyst expectations of 6.4 billion yuan. Smartphone shipments — the company’s traditional cash cow — fell 19.2% year-on-year to 33.8 million units, the steepest decline among the world’s top five handset makers. The culprit is a structural shortage of standard DRAM and NAND flash memory, driven by the AI boom that has diverted production towards high-margin HBM and AI chips at Samsung, SK Hynix and Micron.

Xiaomi president Lu Weibing has pegged the memory price increase at fivefold since the third quarter of 2025, and for TV display memory the jump is tenfold. Counterpoint Research analysts expect the shortage to persist until at least the end of 2027. CEO Lei Jun has warned that margin pressure will last at least two more years. That timeline is a direct threat to the smartphone business, where Xiaomi responded on 25 June by launching the budget Redmi 17C, a model designed for cost efficiency rather than premium margins.

Should investors sell immediately? Or is it worth buying Xiaomi?

EV Division Adds to the Drag

The electric-vehicle unit, which generated 19.9 billion yuan in revenue in Q1, posted an operating loss of 3.1 billion yuan — roughly US$5,600 per car delivered. Cumulative deliveries reached 150,317 units through May, but CEO Lei has set a full-year target of 550,000 vehicles. To hit that, Xiaomi would need to average more than 57,000 deliveries per month for the rest of the year, nearly 15% above its previous monthly record of 50,000 units. The division does show technological ambition: the driverless Xiaomi YU7 GT lapped the Nürburgring Nordschleife in 10 minutes 29.483 seconds, a record that underscores its autonomous driving capabilities. But operational losses continue to weigh on group profitability.

Bull versus Bear Among Analysts

The Street is deeply divided. Goldman Sachs expects adjusted net profit of 5.4 billion yuan for the second quarter — half the year-ago level — and has cut its full-year profit estimate by 12% to 32.8 billion yuan. Yet the bank maintains a buy rating with a HK$40 target, betting on a turnaround from the third quarter. Jefferies, in sharp contrast, downgraded Xiaomi to underperform with a HK$25.49 target, arguing that rising memory costs will continue to squeeze gross margins and shipments.

Investing Through the Storm

Despite the earnings pressure, Xiaomi has not pulled back on spending. Research and development expenditure rose 33.4% in Q1 to 9.0 billion yuan. Over the next three years, the company plans to invest 60 billion renminbi in AI, with roughly 16 billion of that allocated for 2026 alone. The new HyperOS 4 operating system is scheduled for launch in China in July or August. On 24 June, Xiaomi also announced its first proprietary network storage product, Smart Storage, for the domestic market, a move to diversify away from smartphone dependency.

All eyes are now on 26 August, when Xiaomi reports second-quarter earnings. Goldman’s forecast of a 50% profit decline would confirm that the margin squeeze is deepening, not easing. With the stock already down 45% year-to-date and 63% over twelve months, and the relative strength index hovering near 20 — a level that often signals a technical bounce — the risk is that cheap today becomes cheaper tomorrow. For now, the buyback is doing little more than absorbing the sellers’ flow.

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