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)<\/strong> 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.<\/p>\n Xiaomi is structured around four distinct divisions:<\/p>\n Smartphones<\/strong>: This is the brand\u2019s flagship segment, crucial for maintaining its user base. <\/p>\n<\/li>\n Internet Services<\/strong>: Including offerings like advertising and Mi Cloud, contributing a tidy profit with a gross margin as high as 76.1%<\/em>. This segment operates similarly to the ecosystem model used by Apple.<\/p>\n<\/li>\n Electric Vehicles and AI<\/strong>: These sectors cultivate a forward-thinking image, showcasing the company’s commitment to innovation.<\/p>\n<\/li>\n IoT Division<\/strong>: Often overlooked, this division is now gaining recognition for its financial performance and strategic importance.<\/p>\n<\/li>\n<\/ul>\n 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<\/em>, Xiaomi capitalizes on advertising, subscriptions, and cloud services integrated into its HyperOS<\/strong>. This creates a loop where devices pull users in, driving them to spend more within Xiaomi’s ecosystem. <\/p>\n Despite playing second fiddle in media attention, Xiaomi’s IoT division achieved a substantial gross margin of 25.2%<\/em> in Q1 2026. In fact, the gross profit from IoT reached 6.2 billion RMB<\/em>, overshadowing the 4.5 billion<\/em> generated by the smartphone division. This division serves as a financial bulwark, especially as the smartphone segment faces challenges from rising memory costs.<\/p>\n Rising component costs compelled Xiaomi to adapt its strategy\u2014selling fewer devices but at higher average prices. The average selling price of a smartphone peaked at 1,310 RMB<\/em>, reflecting an 8% increase<\/em> compared to the same quarter in 2025. Xiaomi has also secured a 23.5% share<\/em> of the premium smartphone market in mainland China, signaling a pivot toward high-end products.<\/p>\n Xiaomi’s IoT division is likewise embracing a \u201cpremiumization\u201d strategy. By developing high-end household appliances<\/strong> like air conditioners and washing machines, the division\u2019s gross margin improved by 5.1 percentage points<\/em> in just one quarter. This aligns with the overall trend of increasing value perception among consumers, allowing Xiaomi to charge more while maintaining profitability.<\/p>\n The launch of Xiaomi’s AI model, MiMo<\/strong>, introduced new competitive challenges by slashing API prices by up to 99%<\/em>. Although this aggressive pricing may seem risky, it\u2019s 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.<\/p>\n On the flip side, Xiaomi’s electric vehicle division recorded a loss of 3.1 billion RMB<\/em> in the last quarter, despite impressive early interest in models like the Xiaomi Su 7<\/strong>\u2014which saw roughly 80,000 reservations<\/em>. Operating expenses surged by 45.8%<\/em>, indicating the financial strain of entering a capital-intensive industry.<\/p>\n In many ways, Xiaomi has shifted from aspiring to mimic Apple to adopting a strategy reminiscent of Samsung<\/strong>. With over 1.1 billion IoT devices<\/em> 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?<\/p>\nFour Pillars of Xiaomi<\/h3>\n
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The Profitability of Services<\/h3>\n
The Surprising Success of IoT<\/h3>\n
Adapting to Market Pressures<\/h3>\n
Premiumization in the IoT Space<\/h4>\n
Innovations in AI and Cars<\/h3>\n
Challenges in the EV Sector<\/h4>\n
Xiaomi’s Position in the Market<\/h3>\n