(Aug 18): Xiaomi Corp posted profit that fell less than expected, raising hopes it can weather a persistent memory shortage that’s weakened demand for smartphones.

Beijing-based Xiaomi posted net income for the June quarter of 9.46 billion yuan (US$1.4 billion or RM5.7 billion), more than the average analyst projected, but a 21% fall from a year earlier. Revenue fell 6.1% to 108.92 billion yuan.

Xiaomi has been among the biggest casualties of the world’s top smartphone makers in the ongoing global memory chip crunch. Leading suppliers including Samsung Electronics Co and SK Hynix Inc have prioritised manufacturing of advanced memory used in data centres for artificial intelligence work, sparking a shortage of conventional memory products and skyrocketing costs.

Investors are questioning whether Xiaomi has gotten a handle on rising material expenses. Its shares have climbed nearly 20% in Hong Kong since the end of June, reflecting some confidence in the company’s outlook.

But the company posted the biggest decline in smartphone shipments among the world’s top five brands over the June quarter, according to market research firm Counterpoint. The company’s strategy of capturing the whole gamut of smartphone demand — from premium phones with foldable screens to budget devices selling less than US$100 (RM405.91) — has left it most exposed to the memory crunch.

Meanwhile, founder Lei Jun’s pivot to electric vehicles and China’s ultra-competitive auto market has become an additional drag on Xiaomi’s bottom line. In recent weeks, investors have been concerned by the release of two new hybrid gas-electric vehicles priced below market expectations. The company is banking on its SkyNomad sport utility vehicles to reignite excitement at a time when most carmakers are facing declining sales in China.

Xiaomi will begin selling EVs overseas next year, which could nurture the business into a stronger growth driver and pose a threat to established western brands in markets including Europe. But the company faces a host of challenges in its expansion, including tariffs, regulatory scrutiny and stricter safety standards.