Xiaomi Corporation (1810) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Xiaomi's 2026 Interim Results Announcement Investor Conference Call and audio webcast. Today's conference is being recorded. If you object, you may disconnect. [Operator Instructions] Now I'd like to hand the conference over to your host today, Ms. Isabella Gao from Group Investor Relations and Capital Markets Department. Please go ahead.

Good evening, ladies and gentlemen. Welcome to the investor conference call and audio webcast hosted by Xiaomi Corporation regarding the company's 2026 interim results. Before we start the call, we'd like to remind you that this call may include forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions comes from a variety of sources outside of Xiaomi. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for the company's financials prepared in accordance with IFRS. Joining us on the conference today are Mr. William Lu, Partner and President of Xiaomi Corporation; and Mr. Alain Lam, Vice President and CFO of Xiaomi Corporation. To start, Mr. Lu will share recent strategic and business updates of the company. Thereafter, Mr. Lam will review the company's financial performance in the first half of 2026. Following that, we'll move on to the Q&A session. I will now turn the call over to Mr. Lu.

Good evening, everyone. Thank you for joining our Q2 2026 results announcement call. In Q2 of 2026, external environment remains challenging with the cost of core components such as memory remaining high, consumer market demand still recovering slowly and industry competition becoming more intense. Tonight, I will take this opportunity to share with you about 3 aspects. First, a review of our key performance results for Q2 2026. Second, we will share our latest advancements in the fields of AI and embodied robots. Third, we will look at our strategic development direction and business focus for the next few quarters. First, in Q2 2026, the group's total revenue was RMB 108.9 billion. Adjusted net profit was RMB 6.2 billion. Looking at different business segments, first, smartphone. In Q2, we proactively optimized our product structure and increased selling prices, resulting in a record high ASP for smartphones. Although smartphone shipment declined, according to OMDIA data, we maintained our position among the top 3 globally in Q2 of 2026, marking the 24th consecutive quarter that we have ranked among the top 3 globally in market share. In Q2 2026, we ranked among top 3 in smartphone shipments in 53 countries and regions worldwide and among top 5 in smartphone shipment in 67 countries and regions worldwide. Our smartphone shipment ranked second in Southeast Asia, Latin America and Middle East with market share of 19.3%, 16.2% and 13.5%, respectively. We ranked third in Europe and Africa with market share of 16.5% and 10.9 respectively. For gross profit margin, memory costs remained at historically high levels in Q2. We have consistently achieved a good balance between scale and profit through product mix upgrades, software optimization and improved operational capabilities. In Q2 '26, our smartphone gross margin was 8.5%. Gross margin for the first half was 9.3%. Second, IoT business. In Q2 2026, IoT business achieved revenue of RMB 31.3 billion. Due to the high base effect of national subsidy in Chinese market last year, revenue declined year-on-year. However, thanks to the expansion of overseas channels and the increase in overseas product categories, overseas revenue increased significantly year-on-year this quarter. As of June 30, we have opened more than 640 new retail stores overseas. In second quarter 2026, Xiaomi tablets rose to the fourth place globally. TWS earbuds ranked second globally, wearable products ranked second globally. This September, we'll also attend the EFA Exhibition in Berlin, Germany to showcase our comprehensive ecosystem of products for human car homes to the world. Our large home appliances will begin to fully enter the European market. Xiaomi EVs. Xiaomi delivered 104,199 vehicles in Q2 2026, marking the sixth consecutive quarter of year-on-year growth in deliveries. In the first half this year, Xiaomi SU7 series ranked first in sales among pure electric sedans priced above RMB 200,000 in Mainland China. As of 17th August cumulative delivery volume of Xiaomi 7 series exceeded 500,000 units. In July 2026, we held the Xiaomi Automotive Technology Launch Conference, officially releasing our first extended range vehicle architecture, the Xiaomi Quinlan technical architecture. Based on this, we launched Xiaomi SkyNomad series of extended range SUVs positioned as intelligent variable space SUVs, including the Xiaomi SkyNomad N90 Max and N70 Max with presale prices of RMB 299,900 and RMB 259,900, respectively. Preorders have been enthusiastic. Xiaomi SkyNomad will be officially launched in September, and we hope to receive everyone's continued support. We continuously refine Xiaomi EV technology using the Norberg Green Nord Sleeve track. In June 2026, Xiaomi U7 GT with track package set a new Ring Lab record with autonomous driving with a time of 10 minutes and 29.483 seconds. This achievement is the result of the joint effort of Xiaomi EV European R&D center and our Mainland assisted driving team. We hung our smart driving technology on the track to improve driving safety in extreme scenarios for mass-produced vehicles. Second, the issues of AI and embodied intelligence that everyone is concerned about. Latest progress on Xiaomi's foundational large model. In April 2026, we released Xiaomi MiMo V 2.5 series. On 2nd August 2026, CCTV reported on the latest weekly global large-scale model car volume ranking of open router. With Xiaomi MiMo V2.5 topping the list, its core volume increased more than sixfold from CNY 1.5 trillion to CNY 10.5 trillion in 2 months. Developers choose MiMo primarily because of its outstanding full model perception, intelligent agent and code capabilities, highly competitive pricing and the fact that the entire series is open source. Ultimately, the value of technology lies in the breadth of its use. We continue to explore how to extend MiMo from model capabilities to the agent ecosystem. In June this year, we officially released an open source MiMo code, an exploratory AI programming assistant. It's not just a useful AI coding tool, but also an AI teammate who lives in your computer and gets better at understanding you the more you use it. In the same month, we released official version of Xiaomi MiMo Claw and partnered with Kingsoft's Office ecosystem to launch a full chain document office efficiency improvement solution. At the same time, we officially released Miloco 2.0, an open source whole house smart AI solution centered on the MiMo Big Data model. This represents a further step in exploring the next generation of smart homes, enabling home devices to go beyond simply following commands and begin to thing, thus exploring a new form of smart home in greater depth. Benefiting from the continued growth in call volume, our API calls and token plan began contributing revenue this quarter. We'll continue to iterate on our foundational model, striving to place it among the top tier of models with the same parameter levels. It is gratifying to see that Chinese models have entered the forefront of the world. Next AI mobile phones. We have always emphasized that AI phones must integrate AI capabilities into OS. The Xiaomi HyperOS 4 that we just released is an important start. We have upgraded AI from simple question-and-answer function in individual software to a user-friendly assistant that can remember user habits, understand user thoughts and truly help users get things done. Based on Xiaomi self-developed MiMo model and the AI-driven transformation of the OS has been fully upgraded to Hyperiai2.0, bringing a brand-new interactive experience with the island and inspiration ball features while also offering 2 modes, quick and expert. The powerful expert mode with its comprehensive integration with operating system applications can seamlessly complete complex tasks across applications and devices. For expert mode, we have launched HyperSiai2.0, expert mode points-based membership subscription plan. Each user will receive 1,000 points per month for free. Hey AI users can flexibly choose their subscription plan with monthly special offer starting at just RMB 19. Latest advance in embodied robots. In June 2026, our robotics team won 2 championships at CVPR 2026 and ICRA 2026 WBC. In July this year, we released several more important updates. At Xiaomi's EV factory after a quarter of effort, Xiaomi's embodied robots have improved the success rate of dual-side task at the self-tapping threaded insert loading station to 98%. At the same time, our embodied robots have begun to explore new workstations in the logistics area of the final assembly workshop, sorting the center console site cover returnable box folding with success rate of 90%. We have also officially released Xiaomi Robotics U0 and Xiaomi Robotics-1. Robotics 0 is the first unified generative model in embodied intelligence field that can handle all 4 types of tasks, driving solutions to data challenges faced by the embodied intelligence industry. Robotics One was pretrained on 100,000 hours of real-world data and then trained using cross-ontology data, ranking first in multiple simulation evaluations. On August 5, we officially open sourced this model. Finally, I would like to say that in July this year, we were included in the Fortune Global 500 list for the eighth consecutive year, ranking 232nd, an improvement of 65 places from last year, marking a new high since we first appeared on the list in 2019. In 2026, Kantar Brands top 50 global brands in China list , Xiaomi ranked second. Our expanding global brand influence will help us balance our regional impact and help Xiaomi navigate cycle economic cycles. Looking ahead to Q3, several factors that will put pressure on short-term operations remain. Storage costs will remain high, consumer demand recovery will take time and competition will remain fierce. However, as we have mentioned many times before, Xiaomi has always ushered in a new growth cycle after facing each difficulty by improving its capabilities. After proactive adjustments over the past 2 decades, past 2 quarters, we have a clearer understanding of the external environment and our capabilities are steadily improving. Short-term pressure will not change our long-term strategy. We remain committed to our goal of becoming a global leader in next-generation hardcore technologies and continue to increase our investment in hardcore technologies such as AI chips, operating system and embodied intelligence to build strength for the next stage of growth. That concludes my part. Now over to our CFO, Alain.

Thank you, Mr. Lu. In Q2 2026, our total revenue was RMB 108.9 billion. Our gross margin was 19.8% our mobile times AIoT segment revenue was RMB 84 billion. Smartphone times AIoT segment gross margin reached 20%. In the smartphone sector, the continued significant increase in memory cost has had an overall impact on the smartphone industry. We proactively optimized our product mix and increased pricing, resulting in a record high ASP for our smartphones. Revenue for this quarter was RMB 42.1 billion, accounting for 38.7% of total revenue. Our global smartphone shipments reached 31.2 million units. According to third-party data, in Q2 2026, our high-end or premium smartphone sales in Mainland China accounted for 32.1% of total smartphone sales in China, a record high. Despite the significant increase in memory costs, thanks to our continued product mix upgrades and strategies to balance scale and profit through our operational capabilities, our smartphone gross margin for this quarter was 8.5%. In the IoT area, our revenue reached RMB 31.3 billion in Q2 2026. Overseas revenue saw a significant year-on-year increase driven by expansion into overseas channels and a wider product range. Gross margin for IoT segment was 20.1% this quarter. Although some product categories were affected by memory costs and the reduction in national subsidies, from product category perspective, we ranked second globally in wearable wristband device shipments and second globally in TWS earbud shipments. Our tablet business rose to fourth place globally this quarter. For Internet services, we have accumulated a large user base globally. In June 2026, our global MAUs reached 770 million. up 4.8% year-on-year. Among them, MAUs in Mainland China reached a record high of 198 million, up 7% year-on-year. In Q2 this year, our Internet services revenue was RMB 9 billion. Gross margin for Internet services this quarter was 76.8%, up 1.4 percentage points year-on-year. Now let me turn to Smart EV, AI and other new initiatives. For this segment, revenue was RMB 24.9 billion this quarter, up 17.1% year-on-year, accounting for 23% of the group's total revenue. In this quarter, we delivered a total of 104,199 new vehicles with smart EV sales revenue reaching RMB 23.9 billion. Other related business revenue was RMB 1 billion, including revenue from AI big models or large models. Gross margin of smart EVs, AI and other new initiatives segment was 19.2% this quarter. In Q2 2026, we continued to increase investment in AI and other new initiatives. result resulting in an operating loss of RMB 2.6 billion for this segment. In this quarter, our R&D expenses was RMB 9.2 billion, up 18.9% year-on-year. In first half 2026, our R&D expenses was RMB 18.2 billion, up 25.6% year-on-year with AI-related investments accounting for nearly 30%. In terms of net profit, the group's adjusted net profit for Q2 2026 was RMB 6.2 billion. In Q2 2026, our CapEx reached RMB 3.6 billion, of which innovative businesses such as Smart EVs and AI accounted for 65.8%. We remain committed to enhancing shareholder value and actively buy back shares in the open market. Since 2026, our share buyback amount has reached about HKD 11.7 billion, exceeding the total amount bought back for the entire past year or previous year. Regarding ESG, in the research and development of low-carbon materials, we continue to increase our independent R&D investment in core materials. Xiaomi's self-developed Xiaomi Titan Alloy 2.0 released in July reduces carbon emissions by approximately 93% compared to traditional primary aluminum. It has passed international environmental production international environmental product declaration certification and completed registration and public announcement, while maintaining strength, its toughness is further improved and all indicators meet the stringent standards for automotive structural components. It has already been mass produced and applied to the new generation SU7 Series and Xiaomi U 7 series. This breakthrough in material technology further strengthens our independent technological capabilities and high-end product competitiveness in the smart EV business and helps enhance the low-carbon competitiveness of Xiaomi products in the international market. In terms of disaster relief, in July 2026, Guangxi, Hubei, Gansu, Lianing, Jilin, Hubei and other places suffered from floods, hail, storm and other disasters. The Xiaomi Foundation donated RMB 10 million in cash to support emergency relief, transitional resettlements and post-disaster reconstruction in the affected areas. In terms of technological innovation, as of 30th June 2026, Xiaomi Innovation Joint Fund had funded a total of RMB 274 million in research grants, supporting 182 teams in Mainland China. Thank you, everyone. That concludes what we wanted to share with you today. Now we can begin the Q&A session.

[Operator Instructions] First question is from Morgan Stanley, Andy.

I have 2 questions. First, about smartphone. In Q2, we saw that memory costs continued to rise significantly. That's the overall background in the industry. In Q2 for your results, your smartphone ASP rose to record high, even though shipment came down. However, the 2 factors offset one another. So the scale exceeded TWD 40 billion gross margin, 8.5%. though shipment came down. After this test in the first half, can you say that Xiaomi smartphone business is such that price shipment and gross margin can be dynamically balanced. In the coming quarters, Xiaomi can continue to raise price and control volume and improve product mix in order to maintain the stability of your smartphone business. Can you do that? That's my first question.

here are a few points that will affect our smartphone results and performance at the same time. First, as you said, memory costs increase and the extent of increase and the rhythm of increase. Last year, we already predicted that memory costs would increase over a long cycle. And to be honest, regarding last year and Q4 and also Q1, Q2 this year, we believe that the increase exceeded our expectation. The cost increase was indeed alarming. And memory costs increased. There is no way for us to just pass on the whole cost increase to our consumers. We have to rationalize our product lines and adjust our product mix. So from product launch planning, there is the need for a bigger cycle. So we have to work on that. Secondly, we have to adjust our sales strategies. For low-end phones, the entry-level phones, they are subject to the biggest blow or threat. So for the memory version, looking at Q2 cost, Well, smartphone retail price of over JPY 1,500 is being subject to the impact of memory costs, not to mention other costs. So that means that for entry-level product, it has to be sold at JPY 2,000 -- if we talk about normal memory capacity, not super memory capacity. So these factors added together mean that we need consensus on different fronts, not only unilateral consensus. After this round of adjustments, for Q2, we achieved this report card. Our shipments declined on a year-on-year basis. However, we are still #3 globally. Our ASP was at. It rose by almost CNY 30. And then our gross margin was at 8.5%. So I think last time you are worried about our gross margin. However, we still kept it at 8.5%. I think this exceeded your expectation. So overall speaking, I would like to say that when we move into Q3, memory increase still there in Q4, well, I think it would be a slowing process of cost increase. For smartphone business, I think we are now in an appropriate and controllable situation. In the past, when the increase was a big extent, well, of course, that was a big blow to us. Now I think we are in a controllable situation. In Q3, I think you saw already so in the Redmi flagship product, well, in the past, we launched in October. Now we advanced it to August. So Pro and Pro are launched together. So I think they are doing well. For K Pro, -- so I think more than 62% was 16. And then the ASP is 5,000-odd. And today, sales have not been completed yet. But then comparing with the last generation, I think the growth is 60%. So I think you can see that given this product, well, first of all, it sells well because of its product capability. And then for future trend, memory cost increase trend and price trend, I think we have formed an expectation. Final conclusion is that now we are in a controllable condition for this business.

My next question is about EV. In July, you introduced the Sky series, which had a market attention. And there are many very unique innovations for this model. In July, you announced the price of the 2 models and you started to accept orders. So Mr. Lu, based on the current order situation for SkyNomad, what are some unique characteristic with other competitors, SUV what are some points that will attract car owners favor?

Right. For SkyNomad, I think we said clearly that they must be different in terms of user targets for SU7 and U7. So right now, I think we have very well achieved this target for user base. The duplication with SU7 is very small. So looking at the duplication situation, I think we are talking about the drivers, we attach importance to drive first experience for SU7, U7. But then for SkyNomadwe are focusing on the spatial experience for the space. So it is very different. It's -- we want to create a very good space, and there are a lot of breakthroughs in terms of user scenario. So after launch, we have received many small orders, and we have done some analysis. First, I think family buyers or household buyers and also bigger number of passengers. They will be the main buyers for SkyNomad. And age is -- their age is a few years older than the SU7 buyers. This is a clear unique point besides for our very flexible space, I think there has been a lot of attention paid to it. Users have not really experienced that yet, but then they have got already a lot of imaginations. When we designed this call we had not thought of so many special features. But now I think it can already satisfy many scenarios. And so I think in terms of order expectation, we are optimistic.

Timothy Zhao from Goldman Sachs.

My first question is about AI progress. We can see that in the China AI industry in the past few years, innovations came fast and there were many good progress. So can you systematically share with us the pathway of AI monetization, what is your consideration in the short term, medium term and long term? What are your directions and what is the progress so far at the beginning of the year for the full year, you mentioned JPY 16 billion of AI investment budget. So this year in the first half and also in Q2, how much is the overall AI investment? What do you think of the whole year AI investment plan? That's my first question.

Let me take this question. As you can see, and I think you pay close attention to our MiMo development. In the first half, we introduced MiMo V 2.5 after that well, it is well received by global users. In terms of token call volume at the end of July in 1 week, we came first globally and monthly core volume also reached #1 globally. We think that this is this means that global developers have really voted for our model. And then when it comes to model capability and efficiency and also cost control capabilities, there is a systematic advantage. Now let me give you a preview. In the future, well, recently, we will introduce some new applications so that people can use on MiMo. We'll launch the first desktop application. So that on your PC, you can use our MiMo. Secondly, I think you will pay close attention to our new model launch. It is being trained now very soon, it will face the world. So there are many MiMo developments. Now just now you asked a question about progress of our commercialization. For AI, we are now in a large scale investment phase. So we are not too anxious to pursue monetization. We'll continue to promote AI development in a steady and practical way. So we will put our focus on human car home ecosystem. When we launched our OS 4.0, MiMo large model and hyperare already integrated. Hyper Shai 2.0 is also a very critical step -- in the future, there will be more progress. So we are making use of our MiMo large model and our smartphone, our OS, so that they are deeply integrated. And then in terms of foundational models, we have opened up some API and token plan. Earlier, I mentioned our token plan and API, which have already contributed some revenue. However, this business is just at a start. We do not tree monetization as prior -- as our primary goal. So we are now iterating on our model capabilities. We will launch some new models. At the same time, the models will be used in our OS scenarios. There is some API revenue. However, we will not treat revenue as our main monetization goal at this stage. So I hope I have answered your questions.

My second question is about EV and new initiative segment gross margin. In there is volatility on a year-on-year and quarter-on-quarter basis. So can you give us a breakdown on the gross margin? What are the reasons behind the volatility in what will be the impact on AI gross margin? Can you give us an analysis?

for 17 and 19 MAX presale price after this launch, feedback has been positive. In Q3, Q4, what are some factors that will affect gross margin of EV and other new initiatives, gross margin. Regarding gross margin, Well, you can see that our gross margin has fluctuated on a year-on-year and quarter-on-quarter basis. On a year-on-year basis, last year, in Q2, that was the delivery stage of S7 Ultra, Ultra gross margin is that relatively speaking. So gross margin in Q2 last year was relatively higher because of ultra contribution. In this quarter for Ultra, it was worsened a bit. And then if you compare Q2 and Q1, we delivered more new generation 7. It was launched in March. And you can see SU7 and U7 share or breakdown are different from Q1. And in the launch, we said that SU7 costs increased quite a lot besides Well, that's why for SU7 delivery, when the share is bigger in our deliveries, gross margin came down on a quarter-on-quarter basis. The third reason was already explained. When our large model revenue started there is negative impact to gross margin of the whole segment. So these are the 3 main factors.

Okay. Thank you, Alain. Now regarding your second question, just now we said that for SkyMe7andN90 in September, they will be launched to the market. Well, looking initially, response has been quite good, but we have not set the final price yet. So GP margin will rely on final price. So that would affect Q3 and Q4 gross margin of SkyNomad.

Next question is from Kyna Wong of Citi.

Can you hear me?

Yes. Please go ahead.

My first question is about smartphone. So regarding inventory and raw materials in the first half, there was a big increase. Some is related to backup or inventory for future use. And then for your strategic plan, especially for memory and also your reserve the margin or within controllable range, how much is from the inventory to support your profit and gross margin. For finished goods, it also came down fast. Originally, from finished goods inventory to support and now, we can anticipate big gross margin pressure. So in the coming quarter, will this happen? What is your strategic plan or preparation? So should I ask my second question or leave it later?

Okay, regarding our inventory, there are 2 reasons: first, raw materials inventory rose on a quarter-on-quarter basis. Last year or last quarter, it's almost JPY 30 billion in raw material inventory. Now in Q2, it is about billion of inventory. There are 2 reasons here. The first point is we need to prepare some inventory for the future, especially about memory. Mr. Lu has shared with you his evaluation. So that's one point. At the same time, for memory unit price, it is rising. So it's not only about volume, also about selling price, it is rising. So the value will increase. That is about strategic inventory preparation and also selling price impact. Second, finished goods inventory came down. This is normal, because at 18 million we prepared some inventory, and we actually released some inventory for sale. And so I think the -- it is easy to explain the reasons behind the decline. Okay. So looking at inventory reserve, Q3 pressure -- oh, sorry, sorry, another factor I just forgot. As you know, for new generation delivery started in early February. So in -- at the end of Q1, we also advanced some production of new generation 7. And in Q2, overall inventory will come down. So there is also some impact from EVs.

Okay. Understood. Then I have a question about overseas business. IoT overseas revenue increased significantly in Q2. I for retail stores, overseas, you have 600-odd stores. This year, are you going to follow your original plan to establish stores overseas. Are you on track in relation to your plan? For 2027, there will be even more products and also and you are going to have an overseas plan. So are you going to do some preparation. For example, are you going to find land in overseas? And also, are you going to set up plans. And then for large area stores, do you have a plan about expansion. So for IoT and EV overseas business, how is your preparation and what would be your future outlook?