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

Xiaomi Group (1810.HK) released its 2025 fourth-quarter financial report (through December 2025) after the close of trading on the Hong Kong Stock Exchange on the evening of March 24, 2026, Beijing time. Key points are as follows:
1. Overall performance: Revenue RMB 116.9 billion, up 7% year over year. All of the revenue growth came from the auto business, while revenue from the company’s traditional business (phones x AIoT) fell 13.7% year over year.
Gross margin fell to 20.8%; this was mainly due to a sharp decline in gross margin for phones and IoT, while the auto business’s gross margin also began to decline this quarter.
2. Auto business: Auto-related revenue was RMB 37.2 billion this quarter, basically in line with expectations. Of which, the company sold 145,000 units of vehicles this quarter, and the average selling price per vehicle fell to RMB 250,000, mainly driven by a decline in the proportion 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 the one hand, it was affected by the SU7 Ultra pulling down the average selling price per vehicle. On the other hand, the company sold some existing inventory cars and exhibition cars this quarter.

Dolphin Jun estimates the core operating profit for Xiaomi’s auto business this quarter at RMB 1.05 billion, marking a second consecutive quarter of profitability.
3. Phones: RMB 44.3 billion, down 13.6% year over year, in line with market expectations (RMB 44.3 billion). Xiaomi phone shipments this quarter fell 11.7% year over year, while the average selling price for Xiaomi phones fell 2.2% year over year. Due to intensified market competition and tighter government subsidies (national subsidies), phone business gross margin fell sharply to 8.3% this quarter.
By market: Xiaomi phone shipments in the domestic market fell 18.2% year over year, while shipments in overseas markets fell 8.8% year over year; the company’s performance in the domestic market in this quarter was worse. Going forward, storage continues to rise in price, and phone business gross margin will face continued pressure.
4. IoT: RMB 24.6 billion, down 20% year over year, in line with market expectations (RMB 24.4 billion), mainly due to the tapering of government subsidies and intensifying competition. In particular, the company’s large home appliances business was more affected by the government subsidy policies (some products’ subsidy intensity may have reached RMB 1,000–2,000); this quarter saw a 40% quarter-over-quarter decline.
5. Internet services: RMB 9.9 billion, up 6% year over year, slightly better than market expectations of RMB 9.7 billion.

The increase was mainly driven by the advertising business, while value-added services saw a slight decline. MIUI monthly active users grew 7% year over year, while ARPU fell 1% year over year.
By region: Overseas internet revenue was RMB 3.66 billion this quarter, while domestic internet revenue was about RMB 6.23 billion. MIUI monthly active users in both domestic and overseas markets continued to grow in the quarter.
6. Profit side: core profit RMB 3.2 billion, adjusted net profit RMB 6.3 billion. Of this, the core profit from Xiaomi’s traditional business was about RMB 2.14 billion, and the auto business was profitable at RMB 1.05 billion this quarter. The decline in core profit this quarter was mainly due to: phone gross profit being eroded by rising memory prices, while IoT revenue fell sharply due to the withdrawal of government subsidies, leading to a 68% year-over-year decline in profit for the traditional business.
Dolphin Jun’s overall view: Traditional business remains under pressure; auto needs “stronger” new products
Xiaomi’s quarterly report this quarter is basically consistent with what it previously communicated during the Preview. This quarter’s revenue growth came entirely from the auto business, while the company’s phones and IoT products in the traditional business are clearly facing pressure

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**Based on the data performance this quarter, Xiaomi is currently facing significant pressure:**① phone business gross margin has fallen into single digits; ② IoT business saw a double-digit year-over-year decline; ③ while auto business gross margin fell, the weekly order data also showed a relatively clear decline.
Under factors such as continued increases in storage prices and tighter government subsidy policies, the company’s stock price has slid from around HKD 60 to around HKD 30, reflecting market concerns about the company’s auto business and traditional business:
1) Auto business: full-year target of 550,000 vehicles
Even though Xiaomi delivered 145,000 units in the fourth quarter of 2025, in the first two months since 2026 began, Xiaomi’s vehicle sales have shown a “cliff-like” drop, indicating that the “backlog” orders from earlier have basically already been digested.
In the prior quarterly report, Dolphin Jun already mentioned the risks of Xiaomi’s auto business: “At the time, Xiaomi’s weekly auto orders fell to 40,000–50,000 units, roughly corresponding to fewer than 20,000 new orders per month.” In early March, before the launch of the next-generation SU7, Xiaomi’s weekly orders even fell to around 4,000 units.

From another angle, in the reservation status shown on Xiaomi’s official auto website, the YU7 delivery cycle has fallen to about 10 weeks—close to a normal waiting period, which also reflects that the large backlog of YU7 orders from earlier has basically been consumed. Xiaomi’s auto supply-demand relationship has shifted from “demand exceeding supply” to “supply exceeding demand.”
As for the new-generation SU7 recently, in fact it is a “mid-cycle refresh.” There is not much change in appearance; it mainly involves hardware upgrades and a modest price increase, and based on the delivery time estimated on the current official website for around May–June, it is not really a “hit product.”
For 2026, the company still set a full-year target of 550,000 vehicles. With YU7 weekly orders falling to a few thousand (equivalent to under 20,000 units per month) and the response to the next-generation SU7 being average, in order to achieve the target above, the company will need to deliver more competitive vehicle models—possibly the range-extended models that the market is expecting.
b) Traditional business (phones x AIoT): dual pressure, from tighter government 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 iPhone 17 series follows a “more volume, not higher price” strategy, this has enabled Apple’s iPhone shipments in the China market to grow 20% year over year (market down 0.8% year over year), while Xiaomi’s China shipments in this quarter fell sharply by 18%.
On the other hand, the sharp increase in storage prices directly creates cost pressure for Xiaomi phones. Based on discussions with Qualcomm’s management, “‘rising storage prices’ have begun to upgrade into ‘storage shortages,’” which will directly affect phone market shipment volumes.
② IoT business: Tighter government subsidy policies directly affect IoT performance; this quarter IoT saw a sharp decline (-20%).
In the second half of 2025, local governments adjust government subsidy policies into forms such as “coupon campaigns or lotteries,” which is effectively tighter government subsidy policy. Since subsidy support for products such as major home appliances can reach RMB 1–2k, under tighter subsidies, it directly affects end-market purchase demand. IoT has shifted from a “growth driver” to a “drag.”
Overall, Xiaomi currently faces an industry “headwind” in traditional segments (phones and IoT); a rise in storage prices will also continue to suppress traditional business gross margin performance. The company can only hope that “subsequent new cars outperform expectations” to support the company’s performance and share-price performance

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Amid these multiple pressures, Xiaomi’s stock price has been falling continuously. At this stage, what matters more is to assess Xiaomi’s bottom.
Assuming a relatively pessimistic scenario (Xiaomi phone shipments down 15% year over year, and IoT also down year over year), traditional business would see a single-digit decline year over year, while the auto business completes the company’s 550,000-vehicle target, but the average selling price and gross margin decline. It is estimated that Xiaomi’s after-tax core operating profit from its traditional business in 2026 will be about RMB 12.9 billion, down 46% year over year; auto business revenue will be about RMB 140 billion, up 32% year over year.
Because in 2026, Xiaomi’s traditional business faces a clear industry “headwind.” If storage prices later fall back, the company’s traditional business performance will also improve; overall, 2026 performance will be relatively low.
Overall, Xiaomi is currently facing multiple industry “headwinds,” including rising storage prices, tighter government subsidies, intensifying competition, and a fall in auto orders. But factors such as rising storage prices and tighter government subsidies have already been “priced in,” as the company’s share price has continued to fall from around HKD 60 to around HKD 30.

Because the company has still “potential” focus points such as new vehicles and large models, from a medium- to long-term perspective, it will still depend on whether storage prices stabilize and how the subsequent new vehicles perform.
Below is the detailed analysis

I. Overall performance: Auto business is the main driver
With the addition of the auto business, Xiaomi’s financial reports now, in addition to the previous “Phones x AIoT,” also add two new categories: “Auto and innovation business.”
Xiaomi discloses “Auto and innovation business” as a separate line item, which shows how much the company values the auto business. In addition, the company’s market capitalization previously surpassed the trillion-yuan “ceiling” mainly due to expectations driven by the auto business.
1.1 Revenue side
Xiaomi Group’s total revenue in 2025 fourth quarter was RMB 116.9 billion, up 7% year over year and in line with market expectations of RMB 116.6 billion. This quarter’s growth mainly came from the auto business.
1) Original businesses—Phones x AIoT business (traditional business): revenue of RMB 79.7 billion, down 13.7% year over year. Among them, hardware performance was “very poor”: phone business revenue fell 13.6% year over year, and IoT revenue fell 20% year over year;

2) This quarter, revenue from new businesses such as smart cars was RMB 37.2 billion; this quarter’s growth mainly came from an increase in YU7 shipments.
1.2 Gross margin
In 2025 fourth quarter, Xiaomi Group’s gross margin was 20.8%, basically in line with market expectations of 21%. This quarter, gross margins for phone and IoT business fell sharply, and gross margin for the auto business also declined somewhat.
a) Xiaomi’s gross margin from its old business was 20%, down 2.1 percentage points quarter over quarter, mainly affected by tighter government subsidies and rising storage prices and such; of which phone gross margin fell to 8.3% this quarter.
In Xiaomi’s traditional business, other businesses continued to incur losses of RMB 0.3 billion this quarter, including related services such as air-conditioner installation. If you include these losses in IoT business, IoT’s “true” gross margin should be around 18.9%.
2) Gross margin for auto and other new businesses was 22.7%, slightly below market expectations of 23%. This quarter’s auto business gross margin fell quarter over quarter, affected by a lower proportion of the relatively higher-priced SU7 Ultra model, and sales of inventory/exhibition vehicles, among other factors

II. Auto business: 550,000 vehicles target for the full year—can it be achieved?
Auto business was RMB 36.3 billion, and adding auto-related businesses totals RMB 37.2 billion, in line with market expectations of RMB 36.9 billion.
Of which sales of 145,000 units are basically known. This quarter’s average selling price per vehicle was RMB 250,000, down RMB 10,000 quarter over quarter, affected by a decline in the proportion of SU7 Ultra models and the sale of exhibition/inventory vehicles.
Auto gross margin was 22.7% this quarter, down 2.8 percentage points quarter over quarter. With the reduced shipment share of SU7 Ultra and the sales of inventory/exhibition vehicles, this led to a decline in the company’s average selling price per vehicle. Phase II factory operations also contributed to higher depreciation and amortization; these two factors together led to the decline in auto gross margin.**
Based on Xiaomi’s vehicle sales volume performance and the delivery cycle shown on the official website, the large backlog orders for YU7 have basically been digested. The company’s auto business has shifted from “demand exceeding supply” to “supply exceeding demand.” Relative to this, it should be more focused on order data from the demand side.**
Before the launch of the next-generation SU7, Xiaomi’s weekly auto orders in early March had already fallen to around 4k, which is equivalent to fewer than 20,000 units per month. And from this SU7 “mid-cycle refresh,” the delivery time shown on the official website is basically around May–June, and the market reaction has been relatively muted.

In the current situation, the company still provided guidance for a full-year target of 550,000 vehicles in 2026. Based on current order conditions, this is clearly challenging; the company will also need to deliver more standout new-vehicle performance in the future—possibly the range-extended models expected by the market.
III. Phone business: “gross margin collapse,” and losing market share
In 2025 fourth quarter, Xiaomi’s smartphone business revenue was RMB 44.3 billion, down 13.6% year over year, mainly affected by rising storage prices, tighter government subsidies, and intensifying competition.
Dolphin Jun breaks Xiaomi’s smartphone business into volume and price:
Volume: Xiaomi smart phone shipments in the quarter were 37.7 million units, down 11.7% year over year.**
By market: ① In the domestic market, with tighter government subsidies, Xiaomi’s market share in the domestic market fell to 13.2% (down 2.8 percentage points in market share year over year), affected by intensified market competition; ② In overseas markets, Xiaomi’s shipments fell 8.8% year over year, and its overseas market share fell 1.2% year over year.
Price: The average selling price per phone shipment this quarter was RMB 1,176, down 2.2% year over year,

Mainly due to the decline in overseas market phone ASP.
This quarter’s phone business gross margin was 8.3%, down 2.8 percentage points quarter over quarter, mainly affected by factors such as lower overseas phone ASP, higher costs for key components such as storage, and intensified market competition. With storage continuing to rise in price, the company’s phone business gross margin will face sustained pressure.
IV. IoT business: tighter government subsidies, turning into a “drag”
In 2025 fourth quarter, Xiaomi’s IoT business revenue was RMB 24.6 billion, down 20% year over year. Due to tighter government subsidies, the large home appliances category within IoT fell 40% quarter over quarter, bringing a significant drag to the IoT business.
This quarter’s IoT business gross margin was 20.1%, down 2.8 percentage points quarter over quarter, mainly due to the decline in gross margins for products such as intelligent major home appliances in the China market.
V. Internet services: a relatively steady growth item
In 2025 fourth quarter, Xiaomi’s internet services business revenue was RMB 9.9 billion, up 6% year over year. The main growth drivers this quarter still came from advertising:

a) Advertising services: RMB 7.8 billion in quarterly revenue, up 10.5% year over year. Xiaomi’s core advertising scenarios—app distribution and APP pre-installation—are almost the “distribution tax” that major APP vendors must pay; especially APP pre-installation, advertising is basically low-effort profit.
b) Value-added services: This includes primarily game distribution, Xiaomi e-commerce—Youpin, and Xiaomi Finance, among others. Revenue from this segment was about RMB 2.1 billion, essentially flat year over year. This value-added business remained stable.
Overall, over the long term this business segment still follows the revenue logic tied to hardware shipment volumes. In Xiaomi’s revised revenue classification, it categorizes this generally under Legacy business. Only by combining software and hardware can the company, as a phone maker, continue to explain the logic of monetizing internet services.
VI. Overseas markets: software services continue to grow, hardware remains weak
In 2025 fourth quarter, Xiaomi’s overseas revenue was RMB 36.1 billion, down 3.1% year over year. With growth in domestic auto business, the overseas market’s share of revenue has already fallen to around 31%.
Specifically by breakdown, this quarter Xiaomi’s overseas internet business revenue grew 18% to RMB 3.66 billion, while the company’s overseas hardware revenue fell 5% year over year, marking three consecutive quarters of year-over-year declines—reflecting that overseas hardware demand remains weak.

VII. Profit: Traditional business under pressure; auto continues to be profitable
In 2025 fourth quarter, Xiaomi’s three-item expenses totaled RMB 21.2 billion, and the expense ratio increased to 18%. Some of this was due to the auto business, with operating expenses for the auto business increasing to RMB 7.4 billion.
Excluding the auto business, traditional business operating expenses were about RMB 13.77 billion, also with increases both year over year and quarter over quarter.** Among them, the operating expense ratio for traditional business increased to 17.3%, and the company further increased R&D expenses.
Adjusted net profit was RMB 6.3 billion in 2025 fourth quarter, but Dolphin Jun has always not agreed with Xiaomi’s approach to adjusted net profit—i.e., not moving out financial income, and not moving out the dividend income from the company’s invested companies. Even if those items 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 is more focused on the core operating profit above (revenue - costs - three expenses), which is the metric that more truly reflects the company’s ability to generate profits from its core operating business on an ongoing basis.
In this quarter, the company’s actual core operating profit was RMB 3.2 billion, and the core operating profit margin was 2.7%

, mainly affected by pressure on hardware gross margin and an increase in expense-side costs. Specifically, the company’s core operating profit from traditional business in this quarter was about RMB 2.14 billion, and the core operating profit from its auto business was about RMB 1.05 billion.