Chinese Smartphone Makers, Component Suppliers' Profits Poised to Rise — Market Talk

AI capabilities could mature and drive more consumer spending on new devices in 2026, such as AI glasses and AI companions, Macquarie analysts say in a research note. Major players such as Apple, Google and Xiaomi are pursuing vertical integration strategies, controlling both hardware and AI software to optimize user experience and foster ecosystem loyalty, the analysts say. As AI models become more efficient and affordable to run locally, device manufacturers could offer functions that were previously only available through cloud services. Across the supply chain, the analysts think the memory sector is set to benefit the most given the shortage of DRAM chips. As consumers upgrade to smartphones with AI functions, that would boost the need for AI chips, boding well for contract chip makers like TSMC. (sherry.qin@wsj.com)

By Jiahui Huang

Xiaomi's shares rose sharply after its chief executive and founder Lei Jun bought the company's shares, which have been weighed by concerns of rising memory-chip prices and electric-vehicle production capacity constraints.

Lei bought 2.6 million Xiaomi shares in the open market for $100.3 million Hong Kong dollars, equivalent to $12.9 million, the Beijing-based company said in a statement late Monday. Lei's stake in the company rose to 23.26% after the purchase.

The move boosted market sentiment and sent the Chinese smartphone and home appliance maker's shares 4.0% higher on Tuesday afternoon, outperforming the Hang Seng Tech Index's 0.5% gain.

Xiaomi's shares have been under pressure recently as analysts raised concerns about the company's EV production capacity and smartphone margins. Its shares have lost more than 20% of their value since September.

Although Xiaomi reported a third-quarter earnings beat as its net profit more-than doubled on higher revenue from its Internet-of-Things business and fast-growing EV operations, market participants remain worried about the effect of rising memory-chip prices on its smartphone segment.

Xiaomi expects pressure on the smartphone business's profitability in the near term due to rising memory-chip prices, HSBC Global Research analysts wrote in a recent note. The company said it would prioritize raising its average selling price over shipment growth to help alleviate cost pressures, they added.

That said, late last month, Xiaomi rolled out an introductory offer for a newly launched smartphone after customers expressed disappointment over its higher-than-expected starting price.

Revenue growth in its IoT segment is expected to moderate significantly next year as government subsidies taper off and a high base of comparison weighs. Last year, China introduced a nationwide trade-in program for consumer goods that is set to end in December.

Write to Jiahui Huang at jiahui.huang@wsj.com

Xiaomi looks set to post steady revenue growth next year, but margins will likely weaken, CreditSights analysts say. They see revenue expanding at about 24% on further production ramp-up of EVs, which should help offset softness in Xiaomi's IoT & lifestyle segment. While EV revenue can roughly double, home appliance sales will likely fall due to the phase-out of subsidies in China and fierce competition, Stephanie Sim and Pius Xue write in a note. Higher memory-chip costs will weigh on the firm's Ebitda margin, but debt metrics will improve as net cash position strengthens. That leads CreditSights to expect positive rating actions from S&P and Fitch, but it still sees Xiaomi's bonds as rich, sticking to an underperform call on pricy valuations.(jason.chau@wsj.com)

Xiaomi's share price may stay under pressure in the near term given the hike in memory-chip prices, Citi analysts write in a note. The company said it's secured supply for memory chips next year and will focus on raising the average selling price. The current upcycle of memory chip prices could be long-term, and driven by structural AI demand and insufficient supply, which will lead to lower industry-wide smartphone shipments, they say. There may be improvement in sentiment surrounding the launches of new EV editions and updates on consumption subsidies, they add. Citi lowers its target price to HK$50.00 from HK$65.00, citing pressure in the smartphone business. Citi maintains a buy rating on the stock, which was last at HK$38.82. (jiahui.huang@wsj.com; @ivy_jiahuihuang)

Growth in Xiaomi's Internet-of-Things segment will likely remain subdued for several more quarters, weighed by the phase-out of government subsidies, a high comparison base and stiffer competition, Bernstein analysts write in a note. The company is expanding its overseas presence with 300 stores, but that remains in the ramp-up phase and may require additional time to generate significant earnings contributions. Xiaomi became the first EV startup to achieve profitability by its fifth quarter of deliveries, a notable milestone, Bernstein adds. This underscores the company's strong brand, strategic vision and execution capabilities, it says. Bernstein reiterates its outperform rating for Xiaomi with a target price of HK$57.00. Shares are last at HK$38.86. (jiahui.huang@wsj.com; @ivy_jiahuihuang)

Rising memory-chip prices will likely squeeze Xiaomi's smartphone profitability next year, HSBC Global Research analysts write in a note. The company is prioritizing average selling price improvement over shipment growth, hoping the continued premiumization strategy will help ease cost pressure, they say. HSBC lowers its 2026 gross margin forecast for Xiaomi's smartphone business to 10% from 11.8% after factoring in a 15% memory-chip price hike, they add. HSBC maintains a buy rating for the stock but cuts its target price to HK$62.80 from HK$65.40. Shares are last at HK$38.66. (jiahui.huang@wsj.com; @ivy_jiahuihuang)