---
title: "The Double Helix of ASP and Storage Costs: When Will Xiaomi's Smartphone Gross Margin Rebound?"
type: "Topics"
locale: "en"
url: "https://longbridge.com/en/topics/33233354.md"
description: "In previous articles, we established a basic analytical framework for Xiaomi smartphones, which has been validated in practice: 1) The prices of raw materials, represented by storage, have begun to affect the gross margin of smartphones; 2) The key to improving gross margin lies in ASP (product premiumization), where pricing power can offset cost pressures. In Q2 2025, both the gross margin and ASP of Xiaomi smartphones showed a decline, with the latter hitting a multi-year low. The market is now rife with talk of Xiaomi's struggles in premiumization. So, what challenges is Xiaomi facing, and will the situation improve in the short term? The core points of this article are: First..."
datetime: "2025-08-22T04:46:43.000Z"
locales:
  - [en](https://longbridge.com/en/topics/33233354.md)
  - [zh-CN](https://longbridge.com/zh-CN/topics/33233354.md)
  - [zh-HK](https://longbridge.com/zh-HK/topics/33233354.md)
author: "[仝志斌](https://longbridge.com/en/profiles/10247393.md)"
---

> Supported Languages: [简体中文](https://longbridge.com/zh-CN/topics/33233354.md) | [繁體中文](https://longbridge.com/zh-HK/topics/33233354.md)


# The Double Helix of ASP and Storage Costs: When Will Xiaomi's Smartphone Gross Margin Rebound?

![图片](https://pub.pbkrs.com/uploads/2025/e8993fafa165a9ced37521e3ea480008?x-oss-process=style/lg)

In previous articles, we established a basic analysis framework for Xiaomi phones and verified it in practice:

1) The price of raw materials, represented by storage, begins to affect the phone's gross profit margin;

2) The improvement in gross profit margin is seen in ASP (product high-end), and pricing power can hedge against cost pressures.

In Q2 2025, Xiaomi's phone gross profit margin and ASP both showed a decline, especially the latter, which hit a new low in recent years, and the market began to be filled with voices of Xiaomi's high-end strategy being hindered.

So what situation is Xiaomi facing, and will its current situation improve in the short term? The core viewpoints of this article:

Firstly, just looking at the basic numbers in the financial report, Xiaomi's phone performance this quarter is indeed not good. After careful analysis of relevant factors, Xiaomi's performance in the domestic market should be positive;

Secondly, Xiaomi has long used a low-price strategy to conquer overseas markets, and now it can consider adjustments;

Thirdly, the short-term improvement in Xiaomi's phone gross profit margin depends on domestic high-end, while the long-term depends on the adjustment of business strategies.

**Pricing-sensitive and cost-sensitive markets coexist**

Since the big model became popular, AI phones have been seen as the next industry trend, generating the viewpoint that a new generation of phone replacement will open up, and the industry was once filled with optimism.

Manufacturers betting on AI phones certainly have more selling points and gimmicks, but on the other hand, big model phones will also increase storage demand, and phone storage parameters will start to soar with costs. In this context, **Xiaomi's phone gross profit margin increasingly anchors storage prices.**

![图片](https://pub.pbkrs.com/uploads/2025/93467b9d79eab65e869ea8a6ed1e794e?x-oss-process=style/lg)

Since Q1 2025, international market storage prices have started to rebound from the bottom, and after Q2 2024, the pace of Xiaomi's gross profit margin improvement was disrupted, bringing significant disturbances to Q2 2025 operations.

The above explains the trend of Xiaomi's phone gross profit margin from a cost perspective. From a demand perspective, there would be a different view.

In a market economy, supply and demand together determine prices. If the market is in short supply, product pricing will inevitably rise, and companies can capture greater profits from it. Therefore, ASP (average selling price) is often seen as an important reflection of a company's brand competitiveness, which is also a highlight that Xiaomi was particularly willing to share with the outside world.

![图片](https://pub.pbkrs.com/uploads/2025/a4eba80500e01a4b271b912efac8ffa3?x-oss-process=style/lg)

In the above picture, we can clearly see that Xiaomi's phone ASP is rising amid twists and turns, maintaining a high correlation with the gross profit margin. In Q2 2025, ASP experienced a significant pullback, while the gross profit margin's pullback was relatively small. Since the product's pricing power showed a weak side and raw material costs are soaring, the gross profit margin should have been sharply adjusted, rather than such a small adjustment.

Based on observation and analysis, we believe that Xiaomi phones exist in two completely different environments, with vastly different sensitivities to gross profit margin:

Firstly, in overseas markets, Xiaomi uses low ASP low-end phones to gain market share, such as the REDMI A5 launched in Q1, with a starting price of $79 (about 574 RMB), and priced at 99.99 euros (about 785 RMB) in the European market. This is the most important reason for Xiaomi's ASP decline this quarter.

According to Counterpoint Research data, global smartphone shipments in Q2 2025 only increased by 3%, and total demand is very weak. To ensure the stability of basic business and inventory turnover and other financial indicators, Xiaomi's low ASP strategy in overseas markets is understandable.

However, it is worth noting that low-end phones in overseas markets do not have AI and other special functions, and hardware requirements are also low (REDMI A5 basic model storage 3GB). Such phones do not bear much of the cost pressure of high-end hardware.

Secondly, in the domestic market, Xiaomi is still following a high-end route with AI phones as the selling point, with the pressure of rising raw material costs represented by storage falling on this part.

Pricing-sensitive markets (overseas) and cost-sensitive markets (domestic) coexist. The former has stronger ASP dilution ability and relatively small cost pressure, while the latter has to bear greater raw material cost pressure. However, due to high-end operations, it can alleviate this pressure through pricing power.

At this point, we have a very clear judgment on Xiaomi phones:

**Overseas markets dilute ASP, while domestic markets should have higher gross profit margins and ASP**. Although the gross profit margin has a significant pullback this quarter, the above logic stabilizes the indicator without drastic changes.

**Operations should gradually focus on revenue scale**

Lu Weibing stated in the investor conference call, "New products will be concentrated in the fourth quarter, and the phone business gross profit margin is expected to rebound," so what is the logic behind this?

![图片](https://pub.pbkrs.com/uploads/2025/f6f6aaab0176856dc4adf85e17508e40?x-oss-process=style/lg)

From a cost perspective, storage costs remain high in Q2-Q3 2025, and the AI phones in the domestic market still face significant cost pressures. This means that when new products are concentrated, their pricing strategy needs to be more aggressive (increasingly expensive). **At this time, discussing the phone's gross profit margin is no longer about evaluating its "operational efficiency," but rather its "cost transfer" ability.**

We have no doubt about Xiaomi's competitiveness in this regard and believe that operational adjustments can completely improve Xiaomi's business strategy. Here, we want to take the opportunity to discuss the company's overseas business strategy.

After Xiaomi became popular domestically, it was enthusiastic about going overseas due to factors such as seeking a second curve (creating sales miracles in countries like India and Eastern Europe). However, due to limitations in brand recognition, Xiaomi has retraced the domestic cost-effective model overseas, using low-priced phones to drive sales, conducting initial brand education, and then seeking brand premium high-end. Low prices became the stepping stone to enter overseas markets.

Xiaomi is using competitive pricing to capture overseas markets, which can be said to be its operational path dependence.

However, overseas markets are complex and changeable, and the growth path is not entirely consistent with the domestic market:

1) Geopolitical factors are unpredictable, and Xiaomi's experience in the Indian market may not be an isolated case;

2) The overseas mid-to-high-end phone track is still occupied by companies like Apple and Samsung. If Xiaomi shows itself too much with low prices, it may delay its brand premium pace or be anchored in the low-end price track.

![图片](https://pub.pbkrs.com/uploads/2025/70ca0154a2e6befee31a1c7305e9e9ee?x-oss-process=style/lg)

According to Counterpoint Research data, Xiaomi's global phone shipments account for 14%, second only to Samsung's 20% and Apple's 17%. However, if measured by revenue, it is only 6%. In contrast, OPPO's global ASP is $120 higher than Xiaomi's, and its revenue market share is higher than Xiaomi's.

This makes us think: **Which is more important, shipment volume or revenue scale?**

Looking back at industry development, when the industry is booming, shipment volume often represents greater brand recognition, more basic users, and more friendly supply chain relationships (large procurement volume). Using this as a measure can often reveal the dynamic competitive landscape of the industry. Considering the current industry situation (saturation, extremely low growth), global phone shipments are at risk of not rising but falling. **At this time, the weight of revenue scale should be increased, and the brand premium ability, profitability, and sustainable business ability behind it are all of great concern to the market.**

As the market enters the red ocean, and new opportunities such as big models and 5G phones have not boosted global total demand as expected, companies should gradually focus on profitability as the core.

In the short term, the improvement in Xiaomi's phone gross profit margin is mainly based on the domestic market (premium ability brought by high-end phones), while in the long term, if Xiaomi can change its business pace in overseas markets, this indicator should have greater room for improvement.

Although Xiaomi's automotive business is currently the most star-studded, the phone business, as the company's founding business, should not be ignored, especially since this part of the business is quite important for stabilizing operating profits. In a complex external environment, management should also give more support to the phone business (market budget to assist brand upgrades). The short-term fluctuations in the Q2 2025 financial report should soon pass, and we are more curious about whether Xiaomi will focus on ASP sensitivity or cost sensitivity afterward.

$XIAOMI-W(01810.HK)

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## Comments (2)

- **加速到未来 · 2025-08-24T12:01:00.000Z**: Professional
- **南风起 · 2025-08-23T03:11:50.000Z**: Very detailed