Xiaomi’s Hidden Gem: The IoT Division
Xiaomi is evolving beyond its roots as merely a smartphone maker. It now operates as a conglomerate consisting of four significant divisions, each playing a role in its competitive strategy. Surprisingly, it’s the lesser-known Internet of Things (IoT) division that financially supports the other three divisions, as recent results from the first quarter of 2026 have revealed. This “boring business” is turning out to be a financial powerhouse.
Four Pillars of Xiaomi
Xiaomi is structured around four distinct divisions:
Smartphones: This is the brand’s flagship segment, crucial for maintaining its user base.
Internet Services: Including offerings like advertising and Mi Cloud, contributing a tidy profit with a gross margin as high as 76.1%. This segment operates similarly to the ecosystem model used by Apple.
Electric Vehicles and AI: These sectors cultivate a forward-thinking image, showcasing the company’s commitment to innovation.
IoT Division: Often overlooked, this division is now gaining recognition for its financial performance and strategic importance.
The Profitability of Services
While smartphones serve as the entry point into Xiaomi’s ecosystem, the real profits come from its internet services. With almost 750 million active users, Xiaomi capitalizes on advertising, subscriptions, and cloud services integrated into its HyperOS. This creates a loop where devices pull users in, driving them to spend more within Xiaomi’s ecosystem.
The Surprising Success of IoT
Despite playing second fiddle in media attention, Xiaomi’s IoT division achieved a substantial gross margin of 25.2% in Q1 2026. In fact, the gross profit from IoT reached 6.2 billion RMB, overshadowing the 4.5 billion generated by the smartphone division. This division serves as a financial bulwark, especially as the smartphone segment faces challenges from rising memory costs.
Adapting to Market Pressures
Rising component costs compelled Xiaomi to adapt its strategy—selling fewer devices but at higher average prices. The average selling price of a smartphone peaked at 1,310 RMB, reflecting an 8% increase compared to the same quarter in 2025. Xiaomi has also secured a 23.5% share of the premium smartphone market in mainland China, signaling a pivot toward high-end products.
Premiumization in the IoT Space
Xiaomi’s IoT division is likewise embracing a “premiumization” strategy. By developing high-end household appliances like air conditioners and washing machines, the division’s gross margin improved by 5.1 percentage points in just one quarter. This aligns with the overall trend of increasing value perception among consumers, allowing Xiaomi to charge more while maintaining profitability.
Innovations in AI and Cars
The launch of Xiaomi’s AI model, MiMo, introduced new competitive challenges by slashing API prices by up to 99%. Although this aggressive pricing may seem risky, it’s crucial for competing against other heavyweights in the field. The vision here is grand, but it heavily relies on capital from Xiaomi’s other profitable divisions to weather the costs.
Challenges in the EV Sector
On the flip side, Xiaomi’s electric vehicle division recorded a loss of 3.1 billion RMB in the last quarter, despite impressive early interest in models like the Xiaomi Su 7—which saw roughly 80,000 reservations. Operating expenses surged by 45.8%, indicating the financial strain of entering a capital-intensive industry.
Xiaomi’s Position in the Market
In many ways, Xiaomi has shifted from aspiring to mimic Apple to adopting a strategy reminiscent of Samsung. With over 1.1 billion IoT devices in circulation, the company is strategically positioned to invest in diverse sectors like automotive and AI. The big question remains: what will happen if the financial cushion provided by the IoT division begins to dwindle?