Xiaomi announces HK$2.5 billion buyback as competition and cost pressures weigh on stock

A person walks past the logo of Xiaomi while looking at a smartphone China on July 9, 2018.AFP | Getty ImagesChinese tech giant Xiaomi saw its shares pop over 2% in trading on Friday after it announced a stock buyback program worth up to HK$2.5 billion ($321 million). The repurchase plan comes as the electric vehicle and smartphone maker looks to reassure investors amid intensifying competition, rising component costs and recent product safety concerns. Despite Friday's gains, Xiaomi's shares are down over 8% so far this year, reflecting sustained pressure on its valuation.The company has regularly repurchased shares in recent years, including 4 million shares for HK$152 million on Jan. 13.Critics of stock buybacks argue that the practice can boost share prices without improving a company's underlying business. They say buybacks divert cash from other investments, such as employee pay, factory expansion, job creation and innovation.Xiaomi's latest buyback begins Jan. 23 and will be executed on the open market, subject to market conditions and regulatory approvals, according to a filing with the Hong Kong Stock Exchange late Thursday. The Beijing-based firm is one of China's largest consumer technology companies, with businesses in smartphones, electric vehicles and smart home devices. Analysts say the stock has faced pressure recently as a looming memory chip shortage threatens to push up component costs for its consumer devices, particularly smartphones. "[The shortage] has caused margin compression for smartphone manufacturers and a number of independent industry forecasters have lowered their outlook for smartphones," said Dan Baker, senior equity analyst at Morningstar.The memory shortage is only expected to worsen this year, as manufacturers continue to focus on the growing memory demands of the AI industry, diverting capacity from electronics manufacturers."2026 is going to be challenging not just for Xiaomi but for many Chinese [Original Equipment Manufacturers] as domestic Android players remain most vulnerable to chip shortages," said Ivan Lam, senior analyst at Counterpoint Research. Xiaomi has also been affected by an ongoing price war in China's EV market, which has weighed on margins across the sector. Last year, the company's shares also faced pressure following reports of accidents involving its vehicles that went viral on social media. Meanwhile, Xiaomi has been investing heavily in longer-term initiatives, including an internal semiconductor division. Last year, the company committed at least 50 billion yuan over the next 10 years, starting in 2025, to develop its own chips.Xiaomi also plans to expand its electric vehicles business globally over the next few years, following the launch of its premium SU7 Ultra. — CNBC's Matthew Chin contributed to this report