Xiaomi launches its own smartphone processor to cut reliance on suppliers

The Beijing-based smartphone maker aims to claw back market share from domestic rivals like Oppo and Vivo

PUBLISHED : Tuesday, 28 February, 2017, 6:44pm
UPDATED : Tuesday, 28 February, 2017, 10:49pm

Chinese electronics giant Xiaomi on Tuesday launched its own smartphone chips to cut its dependence on suppliers such as Qualcomm and MediaTek.

The move makes Xiaomi the fourth smartphone maker in the world - after Apple, Samsung Electronics and China’s Huawei Technologies - to have the ability to put processors designed in-house into commercial use through their devices.

Xiaomi’s Mi 5C, the first smartphone to be powered by the processor, will be available from Friday with a price tag of 1,499 yuan (US$ 219.2 ). It forms part of the Beijing-based smartphone vendor’s ambitious strategy to grab back market share after losing significant ground to rivals in the mainland.

“Chips occupy the commanding height in the smartphone battle. Core technologies, such as chips, are must-have technologies for Xiaomi to become a great company,” said Lei Jun, co-founder and chief executive officer of Xiaomi.

He said the company will see the number of its patents grow to exceed 10,000 in the coming years, up from the current 3,612.

Speaking at a project launch event in Beijing today, Lei revealed that in October, 2014, Xiaomi had set up a subsidiary focusing on developing microchips.

“After 28 months, we are able to mass produce the chips, which target the mid-to-high end market,” he said.

The move comes as the Chinese government pours billions of dollars into home-grown chip companies in a bid to end the country’s reliance on foreign semiconductors. Lei said the development of the company’s self-designed chips had received financial support from the government but he did not reveal the amount.

Xiaomi is trying to regain its top position in China , the world’s largest smartphone market, after local rivals Oppo and Vivo snatched customers in small cities through their aggressive strategy that relied on opening brick-and-mortar stores.

Xiaomi targets 10bn yuan revenue from 1,000 new offline stores

Oppo saw smartphone shipments more than double to 78.4 million units last year as it took top spot with a 16.8 per cent share, according to IDC data. Huawei Technologies and Vivo both rose at a double-digit pace to rank second and third. Xiaomi’s shipments slumped 23 per cent and its share of the market was just 8.9 per cent, having led the pack two years earlier.

Analysts said that developing chips in-house would not immediately boost Xiaomi’s market share or profit margin in the highly competitive smartphone market in China. But it is a strategically important move in the long-run.

“The research and development expense to produce chips in-house will be quite heavy for Xiaomi to shoulder. But in the long run, Xiaomi can have better control of production management, if it is able to develop quality chips,” said Jessie Ding, an analyst with market research firm Canalys.

Ding said that smartphone markers were sometimes unable to deliver new products as promised because their chip suppliers had fallen behind schedule.

James Yan, research director of Counterpoint Technology Market Research, said the investment into developing the chips would shrink Xiaomi’s profit margin in the near term.

MediaTek was likely to come under pressure as it supplied most of Xiaomi’s mid- to low-priced smartphone chips, analysts said. MediaTek shipped about 20 million processor chips to Xiaomi last year, according to a report by Jefferies.