Xiaomi's revenue per phone rose about 25 percent. Its handset margin still fell a quarter.

Xiaomi posted its third consecutive quarterly profit decline in the second quarter, with adjusted net income down about 43 percent to 6.22bn yuan ($922mn) and revenue down 6.1 percent to 108.9bn yuan, and it named component costs including memory first among the causes ^[1][2][6][7]. The consequence for anyone shipping devices or buying fleets is narrower than the earnings headline: the memory shortage has moved out of supplier commentary and into device gross margins and retail prices, with US phone prices up this summer and Apple testing Chinese memory chips to secure its own supply ^[15][16].

The number to read is the smartphone gross margin, which narrowed to 8.5 percent from 11.5 percent a year earlier, according to Reuters ^[11]. That is three percentage points, or roughly a quarter of the margin the phone business had ^[1]. Overall gross margin was 19.8 percent, and the reported net profit fall of 20.5 percent was much shallower than the adjusted figure ^[3][4].

Now the volume side. Handset revenue fell 7.5 percent to 42.1bn yuan while shipments fell 26 percent to 31.2mn units, the research firm Omdia said ^[10][12]. Implied revenue per handset therefore rose to about 1,350 yuan from about 1,080 ^[3]. Xiaomi collected roughly a quarter more per phone and still surrendered roughly a quarter of its handset margin ^[1][3]. Bloomberg Intelligence treated higher average selling prices as a partial cushion for the shipment plunge ^[20]; the margin line suggests the cushion was thin.

The exposure is structural, not a bad quarter of execution. More than half of Xiaomi's units sold below $200, which Omdia said made it more vulnerable to rising memory costs than any other top-five brand, and Counterpoint recorded the steepest shipment drop among the five largest makers ^[13][14]. Xiaomi is the third-largest phone maker and sells the full range, from foldables to sub-$100 handsets ^[8]. Cheap devices have the least headroom to absorb a part that suppliers are rationing: Samsung and SK Hynix have shifted production toward advanced chips for AI data centres, squeezing conventional memory supply and lifting prices, Bloomberg reported ^[9].

Xiaomi president William Lu told reporters that memory prices stayed at historically high levels in the quarter, that the pace of increases had started to slow and should keep slowing in the second half, and that the hardest stretch for the phone business was over after changes to product mix and launch schedule ^[17][18]. Note what that is not. Decelerating increases are not falling prices; on the company's own account, the plateau is high.

The rest of the portfolio does not cover the gap. EV, AI and other new initiatives reached about 23 percent of revenue, up from 18.3 percent a year earlier, and EV revenue rose 15.9 percent to 23.9bn yuan ^[21], but Bloomberg reported that the car push has weighed on the bottom line in a fierce price war, with two new hybrid models launched below expected prices ^[22]. Connected devices stayed soft on reduced subsidies and subdued consumer demand ^[23]. Shares are nonetheless up nearly 20 percent in Hong Kong since the end of June ^[19].

Three things to watch. Whether smartphone gross margin moves back toward 11.5 percent next quarter, which is the direct test of Lu's guidance ^[11][17]. Whether the revenue miss, 108.9bn yuan against a 112.2bn forecast and about 2.9 percent short, hardens into a pattern of trading units for price ^[6][2]. And whether Apple's testing of Chinese memory chips turns into qualified second sourcing ^[16], since re-sourcing at that scale is what a buyer does when it has stopped treating a shortage as seasonal.