Strategy Note /
China

What triggered Xiaomi's new semiconductor endeavour

  • In a high-stakes market, even though Xiaomi has built chips for over 7 years, it still struggles to remain competitive

  • It can benefit from China's rising market share in the global semiconductor area, with increasing production capacity

  • Local backward technology processes and threats from the US will remain issues for Xiaomi on its chip-making journey

What triggered Xiaomi's new semiconductor endeavour
EqualOcean
23 April 2021
Published byEqualOcean

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The Chinese electronics company has been carrying the public's anticipation of a boom in local semiconductor technology since it announced its production of chips in 2014. The question remains – will it eventually succeed in this field?

Xiaomi released its new chip – Surge C1 – at its Spring Meeting on March 29, 2021, attracting massive public attention. Moreover, the latest phone, Mix Fold, conforms to the firm's increasing presence in the high-end bands, which in this case is only possible thanks to the Surge C1.

Founded on March 3, 2010, Xiaomi specializes in R&D in intelligent hardware and digital products. Differing from other manufacturers, Xiaomi aims to make quality technology accessible to everyone, so its products are in comparatively low price but relatively high quality. By now, Xiaomi has built the largest IoT platform, connecting over 100 million intelligent devices. Xiaomi's share in the global smartphone market has gradually increased from 2018 and peaked at 13% in the third quarter of 2020. 

Read more about Xiaomi Corporation in our latest report.

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Smartphones as the main income source

After going public in Hong Kong on June 7, 2018, Xiaomi started opening its international markets and selling products overseas. Specifically, foreign income has gradually aligned with domestic income. Since 2018, the foreign income has risen by 74.86% to CNY 122.4 billion in 2020. More importantly, the smartphone sector was consistently the primary revenue stream, accounting for 64.14% on average of the whole revenue in the last three years. As a result, Xiaomi's income has shown an overall upward trend from 2017.

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Xiaomi's trip on the chip

Xiaomi's chip business has been apparently underperforming, although Xiaomi got good returns from the smartphone sector. Pinecone Electronics, its first semiconductor spinoff, was founded in 2014 to help Xiaomi conduct its R&D in the space, indicating the beginning of Xiaomi's long-distance run for self-developed chips. In 2017, it released its first-generation chipset Surge S1 and established Xiaomi Yangtze River Industrial Fund. Nevertheless, with the large gap between Xiaomi's products and those of the other players, Surge S1 gradually quit the market. In the following years, the firm did not have news on self-developed chips and weakened the public's confidence. Surprisingly, in the latest meeting in 2021, Xiaomi showed up with its new chip – the Surge C1. Unlike the Surge S1, this chip utilized image signal processor (ISP), helping it perform more sophisticated and advanced 3A processing. 

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External trends driving the chip industry's attractiveness

Why does Xiaomi still insist on its R&D in chips? This might be attributed to two main factors which could bring long-term benefits...

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