Yesterday, IDC released shipment data for the Chinese smartphone market in the second quarter, showing a 4.3% year-over-year decline in the overall market. Among them, Xiaomi's smartphone shipments fell by 21.7% year-over-year, the largest drop among the top five brands. This marks the second consecutive quarter of significant year-over-year decline for Xiaomi phones. In the first quarter of this year, while the domestic market only declined by 1%, Xiaomi's shipments fell by 35% year-over-year. Last year in the first quarter, Xiaomi phones once again topped the domestic market after a decade, showing strong momentum.

"When we set our goals, the bosses had already accepted the fact of a year-over-year decline," said Lin Yushen, an employee in Xiaomi's retail system. According to Jiemian News, Xiaomi has lowered its full-year smartphone order volume for 2026 by over 20%.

In tandem with the decline in phone sales, Xiaomi's internal personnel optimization has accelerated, with frequent organizational adjustments over the past year. Behind these developments, what has drawn more external attention is why Xiaomi's phone business has experienced such significant fluctuations in just over a year. Within Xiaomi's comprehensive ecosystem strategy of people, vehicles, and homes, what challenges has the phone business, as the foundation, encountered?

01. Ongoing Personnel Optimization

"Many workstations were vacated in July, and the conference rooms that were once crowded for lunch breaks are now deserted," a post with a photo of Xiaomi's headquarters attracted much attention online, with many commenters claiming to be Xiaomi employees expressing agreement.

According to Caixin, since March this year, Xiaomi has initiated layoffs in batches, affecting multiple business departments including smartphones, automotive, internet, and international divisions, covering positions in R&D, testing, product, and marketing. The report quoted a Xiaomi employee stating that the layoff ratio in their department was about 20%, "not calculated by headcount but as 20% of the entire department's labor costs."

Jiang Pingping, a former employee who spent a decade in Xiaomi's camera department, told Shuzhiqianxian that in fact, last September, Xiaomi began a round of personnel culling, advocating for a younger workforce and having department leaders draw up preliminary lists, essentially implementing an age-based cull with an optimization target of around 15%.

"Entering 2026, there have actually been layoffs every month, but the movement and stillness (commotion) has been relatively small," Jiang Pingping said, noting a peak in May and June this year, especially with June 30 being a critical juncture, and layoffs continuing in July.

Adjustments in Xiaomi's phone business are also affecting some positions. Xiaomi Home's overall tone (tone) this year remains contraction, leading to many outreach positions being cut, such as roles for establishing store presence in shopping malls and assisting partners in setting up stores, with positions being "retracted to headquarters and no positions set up in branch offices." With the contraction of offline stores, many store managers have also been laid off. A Xiaomi dealer told Shuzhiqianxian that some people on Xiaomi's provincial company platforms, such as those responsible for specific product categories, have either been rotated or laid off.

Previously, Xiaomi had regional managers and operations supervisors in key cities, with regional managers responsible for store expansion and operations supervisors managing telesales. "Now, all operations supervisors have been eliminated. Besides our headquarters, various platforms in branch offices have also undergone layoffs and optimizations," Lin Yushen said.

AI-driven office efficiency improvements are also causing some positions to disappear. Jiang Pingping told Shuzhiqianxian that Xiaomi began deploying AI for automated testing three years ago, decoupling code across various smartphone system departments and promoting AI-driven automated testing. It is reported that Xiaomi's automated testing team now only retains its Nanjing team, with automated teams in Shanghai, Shenzhen, and Xi'an being disbanded.

The project management team has also been significantly impacted, "with processes now online, project management is no longer needed," Jiang Pingping said. The algorithm software team has also eliminated many positions, with these functions being trained through AI feedback.

Of course, several Xiaomi employees also told Shuzhiqianxian that many positions and departments at Xiaomi are being relocated to southern cities like Wuhan and Nanjing, with many employees unwilling to be transferred choosing to leave voluntarily. Moreover, while optimizing older employees, Xiaomi is also increasing its recruitment of fresh graduates.

02. Sales Decline, Offline Stores Hit the Brakes

From topping sales in the first quarter of 2025 to a significant decline in the first quarter of 2026, the most intuitive (intuitive) factor behind Xiaomi's phone sales rollercoaster is the pain of transitioning from expansion to contraction in its offline sales system.

In the first half of 2024, Xiaomi convened a national dealer conference at its Beijing headquarters, presided over by Wang Xiaoyan, President of Xiaomi China, with the core content being to encourage dealers to open larger and new stores. Multiple merchants told Shuzhiqianxian that signs of Xiaomi's aggressive store openings began at the end of 2024.

At that time, the Xiaomi SU7 was a huge success, with sales exceeding 136,900 units in just 10 months since its launch, and delivery lead times once extending beyond three months, showing remarkable sales and popularity. A Xiaomi employee described it as "car dealers making money effortlessly," with all traffic from the Xiaomi Car App and Xiaomi Mall App directed to nearby stores, ensuring no shortage of sales. There were reports at the time that top-performing Xiaomi car salespeople could earn commissions of up to 100,000 yuan a month.

The strong performance of Xiaomi cars gave Xiaomi's management the confidence to expand offline stores.

In February 2024, Xiaomi held its first "People, Vehicles, and Homes Comprehensive Ecosystem" launch event. In October of that year, Xiaomi adjusted its sales system, merging the car sales, delivery, and service department into the new retail department of the China region, strengthening synergy with smartphone sales channels. This adjustment meant that Xiaomi's online and offline sales systems for smartphones, cars, and major appliances were all managed by Wang Xiaoyan, President of Xiaomi China.

The core strategy was to use the popular Xiaomi cars to drive the expansion of 3C stores. At that time, dealers wanting to open a car store were required to first open around 20 to 30 Xiaomi 3C stores. Many merchants, attracted by the benefits of Xiaomi cars, chose to increase their investments.

Besides 3C products, Xiaomi was even using car store targets to drive sales of major appliances. Peng Zhongshan, a phone dealer in an eastern province, told Shuzhiqianxian that instead of just increasing the revenue proportion of major appliances, Xiaomi's more direct approach was to guide dealers to take delivery directly through the conditions for opening car stores, such as requiring local dealers to stock whole vehicles of air conditioners, with a one-time delivery of 100 units.

Even merchants without the intention to open car stores were encouraged to open larger and new stores. Xiaomi's regional manager once tactfully told Peng Zhongshan that if he didn't open new stores, existing store contracts would not be renewed. Most Xiaomi Home stores have one-year contracts. Besides contractual constraints, Peng Zhongshan also revealed that Xiaomi would use less friendly methods, such as reducing supplies of popular models and not assigning store managers, to make merchants comply.

The explosive growth of stores indeed had an immediate effect on Xiaomi's phone sales. According to IDC data, in the first quarter of 2025, Xiaomi's phone shipments surged, and it once again topped the charts after a decade.

Until August 2025, Wang Xiaoyan, President of Xiaomi China, still announced at the opening ceremony of the Xiaomi Home Kunming flagship store that Xiaomi Home would exceed 20,000 stores by the end of 2025, with a comprehensive image upgrade for 3,000 stores.

However, under this aggressive target and store opening strategy, execution began to falter. An employee in Xiaomi's retail system believed that the widespread store expansion led to low efficiency in many stores, with a large number of Xiaomi Homes appearing in the same commercial district, and customer traffic unable to support the growth in store numbers.

Peng Zhongshan already had four Xiaomi Homes in a small county in a coastal province, sufficient to cover the entire county, but at that time, Xiaomi required 11 to 12 stores, even having three Xiaomi Homes on a hundred-meter-long communication street.

Peng Zhongshan once asked Xiaomi's regional manager how they could guarantee the profitability of the new stores, but he didn't get an answer. Instead, he was met with a rhetorical question (rhetorical question), "How do you know for sure it won't be profitable?" "Since the first half of last year, they haven't really focused on store operations," Peng Zhongshan judged.

A few months later, the situation took a sharp turn, and instead of achieving the glory of 20,000 stores, Xiaomi quickly hit the brakes, initiating a wave of store closures. In November 2025, an internal notice from Xiaomi to dealers leaked, with Wang Xiaoyan explicitly mentioning that the focus of Xiaomi Home's development in 2026 would shift from "scale expansion" to "quality improvement," with an orderly closure of some inefficient and loss-making stores, and proposing to bear 27.26 million yuan in one-time losses.

"The situation has been relatively unstable every month, with an overall reduction of ( percent ) thirty to forty percent," a Xiaomi employee told Shuzhiqianxian. Another Xiaomi Home store manager told Shuzhiqianxian that the peak of store closures occurred around December last year, and he also left Xiaomi due to the store closure.

Xiaomi's significant fluctuations in its offline channels directly impacted phone sales. According to IDC data, in the first quarter of 2026, Xiaomi's phone shipments in the domestic market fell sharply by 35%, dropping directly from the top spot to outside the top five.

However, in Lin Yushen's view, besides the aggressive offline store operations, the decline in Xiaomi's phone sales in the first half of this year was influenced by multiple factors: On the one hand, it was largely related to the high base of the previous year. In the first quarter of 2025, Xiaomi's sales reached a peak, making the data for the first quarter of 2026 particularly glaring. On the other hand, with memory prices surging, Xiaomi significantly cut orders for its low-end product lines, while Apple's price reductions affected the sales of Xiaomi's high-end models.

The reduction in subsidies was also a significant variable. 3C national subsidies diluted many non-essential market demands last year, but subsidy policies have generally tightened this year. Moreover, online channels like JD.com, which last year aimed to capture market share by offering various platform subsidies, are now focusing on profitability, as Lin Yushen told Shuzhiqianxian. Besides normal platform commissions, JD.com is demanding more profit from Xiaomi, leading to a stalemate between the two companies, "This 618, Xiaomi almost didn't supply JD.com's self-operated stores."

According to her, besides closing inefficient stores, Xiaomi is also introducing measures this year to help partners increase revenue, such as promoting trade-ins and increasing dealer rebates, "with the core goal of hoping merchants will continue to work with us."

Nowadays, automotive sales channels are no longer deeply tied to 3C stores. In October 2024, the General Manager of Xiaomi's car sales, delivery, and service department, who originally reported to both Lei Jun and Wang Xiaoyan, began reporting solely to Wang Xiaoyan. However, in the latest organizational adjustment, the reporting line of Xiaomi's car sales, delivery, and service department General Manager Xia Zhiguo to Wang Xiaoyan was not indicated.

03. Streamlining Products

Compared to the series of negative impacts caused by aggressive offline channel operations, the lack of sufficient highlights in products is also affecting Xiaomi's phone performance.

A mid-level employee who has worked at Xiaomi for many years told Shuzhiqianxian that last year, Lu Weibing even offered rewards within Xiaomi to develop technologically innovative products, but no impressive results were achieved in half a year. However, the innovation bottleneck in the phone industry is a pain point for the entire sector, with even Apple struggling to make significant breakthroughs in product innovation.

This view was also shared by multiple Xiaomi dealers.

Ma Ming, a long-time Xiaomi dealer, believes that Xiaomi has had fewer blockbuster products in recent years. Although the Xiaomi 17 had strong initial sales, it quickly entered a flat sales period.

Another Xiaomi dealer, Peng Zhongshan, also mentioned that the overall performance of the new products (Xiaomi 17 Max/17T) launched by the Xiaomi 17 series this year was not as good as last year's. He even noticed that the recently released Redmi K90 Ultimate Edition was only available online.

This seemed incredible to Peng Zhongshan, who had been operating Xiaomi stores for seven or eight years and had only seen one instance of a new product being sold exclusively online—the Redmi 14C released at the end of 2024. However, the Redmi 14C was a machine priced at a few hundred yuan, while the Redmi K90 Ultimate Edition is a flagship model priced around 3,000 yuan.

"Offline stores lack the confidence to sell this product," Peng Zhongshan said. In his view, online sales rely more on parameters rather than actual user experience since users cannot experience the real product.

In the context of increasing product homogenization and innovation bottlenecks, Xiaomi phones have begun streamlining system functions and product lines.

Jiang Pingping told Shuzhiqianxian that previously, just one camera app had over 10,000 basic function cases, requiring over 20 people and more than 200 machines to run tests for a week. And this was only when 70% of the code was run, with the remaining 30% of functions generally considered low-risk and basically not tested.

However, through backend data analysis, she found that many functions had extremely low user engagement, with even product managers unable to explain why these functions were included, only serving to make the system bloated, reducing smoothness, and increasing power consumption. According to her, many functional apps in Xiaomi's phone system, as well as features related to cameras and radio frequency, have been removed.

On the product side, the Redmi Note series, Xiaomi Digital series, and Redmi K series now support Xiaomi's phone sales, with some underperforming product lines being optimized. For example, Xiaomi's Civi series, targeting the mid-range lightweight market, has been lukewarm, with the latest release over a year ago. Two Xiaomi dealers told Shuzhiqianxian that the newly released Xiaomi 17T is actually a continuation of the Civi series, originally a version released overseas and now reintroduced in the domestic market.

Xiaomi's small foldable phones have stalled, with multiple tech bloggers reporting that the development of the Xiaomi MIX Flip series has been halted. Xiaomi's large foldable phones have also not seen new releases in two years. However, according to internal sources, Xiaomi's large foldable phones will not disappear, "they may just need some time to refine their internal capabilities."

04. What Ails Xiaomi?

Last June, Peng Zhongshan completely exited the Xiaomi Home business he had operated for eight years. As a Xiaomi fan turned dealer, operating multiple Xiaomi Home stores, he once hoped to appeal to emotions when attending a meeting at Xiaomi's provincial company last year, considering the difficulty of profitability for new offline stores. However, the local city manager told him, "If we talk about emotions, my job will be gone."

"They moved too fast and became complacent," Peng Zhongshan said, feeling that the momentum of Xiaomi cars had made some people below become complacent.",

Putting aside the issues at the tactical execution level, Xiaomi's long-discussed problems, such as cost-effectiveness and low gross profit margins, have not seen significant improvement.

Although Xiaomi no longer emphasizes extreme cost-effectiveness and has raised the prices of its flagship products, Jiang Pingping told Shuzhi Qianxian that Xiaomi still demonstrates a very strong price-oriented approach in its supply chain procurement strategies.

Jiang Pingping revealed that for the zoom ring of the Xiaomi 17 Ultra Leica edition, there were initially several suppliers. At that time, the product and quality departments considered that the zoom ring needed a damping feel, but since it was adjacent to the microphone, there were high requirements for product yield; otherwise, it would generate noise.

However, the procurement team ultimately chose the cheapest supplier. “It's not that there weren't suppliers with better yields, but they weren't selected. This is ingrained in the company's culture and is indeed hard to change,” Jiang Pingping said.

Jiang Pingping mentioned that Xiaomi often controls costs for very minor components, such as eliminating one or two MCUs for power control, each costing only a few dollars. Although this does not affect the overall use of the device, it slightly worsens the power sequencing control and increases power consumption.

Such practices not only make it difficult to build a high-end product image but, more critically, long-term low gross profit margins affect Xiaomi's investment in multiple business lines. Xiaomi Auto has spent over 40 billion yuan in the past five years, and Lei Jun announced at this year's spring product launch that the company will invest more than 60 billion yuan in AI over the next three years.

However, Xiaomi's smartphone gross profit margin was only 10.9% in 2025. Not to mention profit monsters like Apple, even Transsion Holdings, which primarily targets the low-end market, had a gross profit margin of 18.43% in 2025. From past business cases, excessively low profit margins often make it difficult to sustain long-term high levels of R&D investment.

“Our smartphone (division) doesn't receive much funding; most of it goes to the automotive division,” said a Xiaomi employee. Meanwhile, the smartphone industry itself has entered a period of innovation bottleneck, making it difficult to stimulate R&D enthusiasm.

Additionally, the outside world has often criticized Xiaomi for its excessive reliance on founder Lei Jun. Internally, there have been discussions suggesting that the comprehensive advancement of multiple businesses has also affected the internal status of the smartphone business. In a recently written article by a former Xiaomi employee, humorously titled “Inside the Xiaomi Universe,” it was mentioned that the founder's allocation of attention is key to whether a business can make progress.

Currently, among Xiaomi's original founding team, only Lei Jun remains on the front lines, and his focus has long shifted from smartphones to automobiles, with the smartphone business primarily managed by a group of externally recruited managers.

In Jiang Pingping's view, when Lei Jun was in charge of the smartphone business, there was a clear central idea centered around making friends with users, with all efforts focused on addressing user pain points and a relatively flat organizational structure. However, now things have become increasingly disorganized.

Not long ago, Xiaomi's camera division welcomed a new general manager, Ge Weiyan. Prior to this, the top position in Xiaomi's camera division had been vacant for nearly two years—a rare occurrence for such a critical role at Xiaomi. Additionally, personnel adjustments within Xiaomi's retail system have been frequent recently, with Xiaomi Home changing general managers three times in just half a year.

Xiaomi has experienced many highs and lows throughout its history. In "Xiaomi's Entrepreneurial Thinking," Lei Jun reflected on the issues Xiaomi's smartphones faced around 2015: “In the first five years, Xiaomi grew too fast, leading to an inflated mindset, including my own, resulting in misjudgments of the situation. Coupled with the accumulation of numerous problems and an inadequate management system, the Xiaomi model became distorted in many areas.”

At that time, Xiaomi overcame its low point through a series of adjustments. A decade later, Xiaomi's smartphones are once again facing similar issues. However, back then, smartphones were Xiaomi's absolute core, and the overall market was still growing. Today, IDC data shows that except for Apple and Huawei, which are still growing, almost all other smartphone brands are experiencing varying degrees of decline, and automobiles have replaced smartphones as the driving force behind Xiaomi's business.

Xiaomi's overall strategy has also evolved from “Smartphone + AIoT” to the “Human-Car-Home Full Ecosystem,” centered around people and achieving seamless ecological connectivity among personal devices, smart homes, and smart mobility through HyperOS. This is a highly imaginative strategic vision and represents an advantage Xiaomi has over its competitors due to its diverse product lineup.

Today, with innovation in the smartphone industry and overall market growth stagnating, Xiaomi's breakthrough for its smartphones may lie beyond the smartphone itself.