There is a division of Xiaomi that no one pays attention to. It is exactly the one that is paying for the party of mobile phones, AI and cars

Xiaomi is no longer just a smartphone company; It is a conglomerate of four large divisions that support and feed each other to compete in an increasingly aggressive market. The surprise is that financially the division that generates the least attention is the one that is paying for the other three. The results for the first quarter of 2026 make it clear: boring business is pure profit.

Four companies in one. Xiaomi's current structure is based on four large pillars that are also notably different from each other. Smartphones with the brand that ended up becoming popular globally remain critical to preserving the user base. Then there are internet services (advertising, Mi Cloud), which complete the Apple-style mobile ecosystem. The electric car and AI make up another pillar that fascinates and demonstrates the firm's ambition in these new areas. And finally there is the IoT division, which a priori seems the least notable, but is much more so than anyone would think.

Services, services, services. As we said, mobile phones are Xiaomi's hallmark, but its profitability comes from internet services, which operate with an astonishing gross profit margin of 76.1%. As with Apple, here Xiaomi takes advantage of its almost 750 million active users with advertising, subscriptions and cloud services integrated into its HyperOS mobile operating system. It is a profitable vicious circle: IoT and mobile phones are Trojan horses that manage to put the user into a digital ecosystem in which they end up spending money.

Blessed IoT. And despite the fact that it receives less media attention, the gross margin of the IoT division reached a spectacular 25.2% in the first quarter of 2026 according to the company's financial results. This number is much higher than the 10.1% generated by smartphones, which have logically been punished by the memory crisis. In fact, the gross profit of the IoT division has been 6.2 billion RMB, much higher than the 4.5 billion of the mobile division. The latter bills much more, but it does not shine as much in those gross profits.

Refrigerators triumph. The president of Xiaomi's IoT division, Lu Weibing, explained that the role of this business is key in the Xiaomi group, because it is "a very important balancer" against the impact of the increase in memory costs in the rest of the divisions. Company officials expect this "cost supercycle" (or in other words, the memory crisis) to last until 2028, and that will continue to complicate the mobile division's margins.

Sell ​​less, but more expensive. The escalation of component costs has made Xiaomi make a drastic decision: sell less, but more expensive. The units of smartphones distributed fell by 19.2%, but their average selling price reached a record figure of 1,310 RMB, 8% more than in the same quarter of 2025. Xiaomi has a 23.5% share of premium smartphones in mainland China, and makes it clear that the focus is now on super high-end mobile phones.

"Premiumization" of the home. The strategy of selling more expensively is also being notably applied in the IoT division, which includes household appliances, and which has also adopted a "premiumization" strategy. Instead of limiting itself to distributing third-party products, the company is developing its own high-end air conditioners, refrigerators and washing machines. This has allowed IoT gross margin to rise 5.1 percentage points in just one quarter.

AI price war. The launch of its own AI model, MiMo, was already a surprise, but these days the firm has announced that it was cutting the prices of its API by up to 99% (there are technical arguments) in order to compete with rivals like DeepSeek. This model is at the level of the best Chinese open models, but the company itself has not yet achieved the objectives they seek. As with other AI startups, the costs are massive, so this division of Xiaomi depends on the cash flow generated by the rest of the businesses.

Cars impress, but they lose money. The division that brings together electric cars and AI did not have a good quarter and lost 3.1 billion RMB. The new Xiaomi Su 7 has been a success in number of reservations (80,000), but the operating expenses of this part of the business have risen by 45.8%, too much to be offset by the income growth of this division.

Xiaomi is the new Samsung. Xiaomi was born looking very similar (or aspiring to be very similar) to Apple, but currently its structure and strategy are much more similar to those of Samsung. Its advantage is that it currently has an ecosystem with more than 1.1 billion IoT devices that allow it to grow and invest in cars, AI or mobile phones. The problem is what happens if the cushion provided by the benefits of the IoT division deflates.