The global smartphone market is expected to be reshaped as rising semiconductor prices coincide with higher oil prices and logistics costs due to the Middle East war. Apple and Samsung Electronics, which have targeted premium models, have gained a relative advantage in this crisis, but forecasts say the outlook is difficult for Xiaomi, which has held the No. 3 spot in the global smartphone market since 2020. Xiaomi's net profit plunged 43% in the first quarter alone this year from a year earlier, making the crisis a reality.
According to major foreign media on the 27th, Xiaomi released first-quarter results the previous day showing adjusted net profit of 6.1 billion yuan (about 1.3501 trillion won), down 43.1% from the first quarter last year. First-quarter revenue was 99.142 billion yuan (21.943 trillion won), down 10.9% year over year. It was the first quarterly contraction since mid-2023.
The smartphone business, Xiaomi's core business, acted as the cause of the weak results. Revenue from the smartphone and Internet of Things (IoT) with artificial intelligence (AIoT) institutional sector was 79.277 billion yuan, down 14.4% from a year earlier. In particular, Xiaomi's first-quarter smartphone revenue came to 44.3 billion yuan, down 12.5% year over year. Xiaomi is trying to move away from a value-for-money strategy and go premium, but it is not easy. Xiaomi pushed its average selling price (ASP) for smartphones to an all-time high of 1,310.1 yuan (289,800 won), but it was not enough to spur demand. Xiaomi's smartphone gross margin fell from 12.4% in the first quarter last year to 10.1% in the first quarter this year due to higher prices of key components and intensifying competition in China.
◇ IDC "worst year ever for smartphones this year, but Samsung, Apple, Huawei will grow"
According to market research firm Omdia, Xiaomi shipped 33.8 million smartphones in the first quarter this year. That was down 19% from a year earlier. It posted the steepest decline among the world's top five smartphone brands. Xiaomi's crisis is tantamount to foreshadowing changes in the global smartphone market. Market research firm IDC projected the world's smartphone shipments this year would reach 1.09 billion units, down 13.9% from last year, saying "the smartphone market will face the worst year ever this year." IDC also forecast a 1.1% contraction next year and predicted shipments would rebound 5.5% year over year only in 2028, when memory semiconductor supply normalizes.
Experts believe only companies that adjust strategies to the crisis and can sustain demand even at high price points will survive. IDC predicted Samsung Electronics would expand its share again this year by growing its premium market and securing share in the mid- to low-end market. IDC revised Apple's shipment outlook for this year from an 8.1% drop to a 5.2% drop. The upward revision reflects Apple's early securing of needed memory and strong demand for the iPhone 17 series in key markets including China. IDC said Apple, Samsung, and Huawei, which have economies of scale, supply chain advantages, and pricing power, will expand their smartphone market shares, but Android brands focused on budget price tiers and emerging markets will take a hit.
Nabila Popal, a senior research director at IDC, said, "The memory shortage is the main cause, but with the United States and Iran at war, higher oil prices and shipping costs are subjecting smartphone makers to new expense pressures," and "these pressures in combination have sent the average selling price (ASP) of smartphones soaring."
◇ Xiaomi seeks diversification with AI and electric vehicles… "we will endure with a strong domestic market"
IDC assessed that smartphone makers cut shipments, raised prices, and focused on high-end lineups, sending smartphone ASP to a record high of $550, up $100 from last year. As a result, the budget market is expected to be hit. The under-$100 segment, which recorded shipments of more than 170 million units last year, is seen as becoming economically unsustainable due to high memory prices. Popal, the senior research director, said, "The under-$200 segment, which has low margins and where consumers are most price-sensitive, will contract the most," adding, "the under-$100 segment will find it hard to survive even after the memory shortage stabilizes in 2028."
Xiaomi is actively pursuing diversification by building an ecosystem that organically connects "people, home, and car." In particular, to seek new revenue sources beyond its core smartphone business, Xiaomi is making large-scale investments in electric vehicles and artificial intelligence (AI). In the first quarter this year, Xiaomi sold 80,856 electric vehicles. That was 44% fewer than the previous quarter (145,115 units), but up 6.6% from a year earlier. Xiaomi's first-quarter electric vehicle business revenue rose 5.1% year over year to 19 billion yuan (4.2041 trillion won), but operating losses related to electric vehicles, AI, and other new businesses reached 3.1 billion yuan (685.9 billion won).
Hong In-gi, a professor in the Department of Electrical and Electronic Engineering at Kyunghee University, said, "When semiconductor supply was smooth, budget models could succeed in the market, but now brands like Apple and Samsung Electronics that can manage supply chains and earn loyalty will survive rather than price competitiveness."