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Rising memory costs and server demand pressure Xiaomi smartphone margins and supply chain
Thursday, February 26, 2026 at 02:54 AM
GF Securities has lowered its target price for Xiaomi to HK$45, citing severe margin pressure from rising memory costs. TrendForce data suggests LPDDR5X prices could rise 91% and eMMC prices 60% in 1Q26 due to server demand crowding out supply. Consequently, Xiaomi's smartphone gross margins are expected to bottom out around 8.1% in 4Q25. To mitigate these supply chain costs, Xiaomi is expected to optimize product mixes and potentially downgrade memory specifications on entry-level handsets while relying on capacity releases from CXMT for future price moderation.
Context
The global memory market has entered an unprecedented "stress test" phase as AI server demand from firms like NVIDIA crowds out supply for consumer electronics. Leading manufacturers including Samsung and SK hynix are reallocating capacity to high-margin HBM and enterprise DDR5, causing a massive shortage in mobile memory. TrendForce reports that LPDDR5X prices are projected to surge by 91% in 1Q26, while eMMC prices could rise 60%. This supply crunch is fundamentally reshaping the smartphone landscape, forcing brands to choose between aggressive price hikes or downgrading hardware specifications to preserve shrinking margins.
Xiaomi is facing significant pressure from this cycle, leading analysts to cut its target price to HK$45.0. The company’s smartphone gross margins are expected to bottom out at 8.1% in 4Q25 as memory costs, which historically accounted for 10-15% of a phone's bill of materials, now consume up to 40%. To mitigate these headwinds, Xiaomi is prioritizing product premiumization and has signaled price increases of RMB 500-700 for its upcoming flagship models. While the company maintains a robust EV segment with a 2026 delivery target of 550,000 units, soaring component costs in its core smartphone business remain the primary headwind for near-term earnings resilience.
Sources (8)
[News] Memory Crunch Hits China: Xiaomi, Huawei Reportedly Tap Domestic SuppliersOmdia: Mainland China's Smartphone Market Declined 1% in 2025 as Huawei Reclaimed the Top Spot After Five YearsIDC - Global Memory Shortage Crisis: Market Analysis and the Potential Impact on the Smartphone and PC Markets in 2026 How Xiaomi Addresses Memory Risks, AIoT, EVs, and R&D Strategy: Key Takeaways from Goldman Sachs Call - Tiger Brokers<Research>BOCI Foresees XIAOMI-W's Adj. NP at RMB5.5-6B Last ...[PDF] CMBIS ResearchRiding the AI Supercycle: Navigating the 2026 Memory & Storage Market - AvnetMemory makers divert capacity to AI as HBM shortages push costs through electronics supply chains - Astute Group
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