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Huawei rival Xiaomi steps up chip ambitions amid US pressure

April 11, 2021
in Technology News
Reading Time: 6 mins read
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Leading Chinese smartphone maker Xiaomi is expanding its investment in chips as the US clampdown on compatriot Huawei Technologies spurs a national campaign to reduce China’s reliance on foreign technology.

Xiaomi bought or significantly increased stakes in at least 34 Chinese chip-related companies from 2019 to March this year, a Nikkei Asia analysis of business data shows. It also added stakes in nearly 25 other tech hardware companies beyond semiconductors. The targets include chip developers and chip equipment makers, start-ups and makers of advanced displays, camera lenses and automation and precision equipment.

The investment targets are in line with Beijing’s plan to build a more competitive tech manufacturing supply chain and strengthen the country’s tech sector.

Xiaomi is a rapidly rising star in China’s tech firmament, with a global smartphone market share rivalling that of Apple. Like Huawei, the company has been targeted by US restrictions over its alleged links to the Chinese military, allegations Xiaomi denies.

Its investments in chip and other tech hardware were made primarily through an affiliate known as the Hubei Xiaomi Changjiang Industry Fund Partnership. The fund — which counts subsidiaries of appliance maker Gree and a Wuhan government-backed investment arm among its main shareholders — was set up in 2017 with Rmb12bn ($1.82bn) of registered capital but was largely dormant in its first few years. It invested in six semiconductor-related companies in 2019, according to Nikkei’s analysis of data from Qichacha, a Chinese provider of business data.

That number rose to 22 last year as the tech war between the US and China intensified. Many of these companies already supplied Xiaomi or other leading tech companies, including Oppo, Huawei and Samsung Electronics. The fund had already invested in six local chip developers as of March 29.

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Xiaomi says its chip development ambitions, which began in 2014, are beginning to bear fruit. On March 30, it unveiled an in-house designed image processor chip, the Surge C1, for use in its first-ever foldable smartphone, as well as a wide line-up of new devices.

“It has been seven years since Xiaomi invested in chips . . . [The C1] is only a small step in Xiaomi’s chip progress, but it marks a milestone for our image processing capability,” chair Lei Jun said at an online press event. “The road to [Xiaomi’s chip ambition] is long and full of challenges, but we have the patience and perseverance to make it.”

A number of Chinese companies have made similar efforts in chip development since last year, when Washington suddenly cut off Huawei from its key global suppliers, citing the Chinese company’s alleged links to the Chinese military and government.

Huawei itself has invested in over 20 chip-related companies in the past year and a half to plug holes in its supply chain, while Oppo, the world’s fourth-largest smartphone maker, has hired many industry veterans from its suppliers and rivals such as MediaTek and Huawei to develop its own chips. China’s leading automaker Zhejiang Geely Holdings Group plans to put its own core chips in its cars as early as 2023.

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This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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Alibaba Group Holding and Baidu, China’s two leading internet giants, have jumped into chip-design development, too, with both unveiling their own artificial intelligence chips.

Analysts say Chinese tech companies recognise the necessity and the challenges of developing their own chips.

“China has a massive market that gives it room for its own chip ecosystem, but Chinese companies all saw what happened to Huawei when its powerful chip design arm was cut off from vital American technologies,” Donnie Teng, an analyst with Nomura Securities, told Nikkei Asia.

The more likely way forward for big Chinese tech companies will be to build some chips in-house but not all of their core chips, Teng said. “It’s not realistic that any company could do all the things and use chips all developed by itself . . . That would consume too many resources and at the same time be too risky to put all the eggs into one basket considering the geopolitical tensions.”

Nevertheless, the wide range of Xiaomi’s investments — including power management, display drivers and base stations, as well as Wi-Fi, sensors and microcontrollers — reveal the scope of its ambitions.

Several of its investments have recently listed or plan to. Bluetooth audio chip leader Bestechnic last year listed on Shanghai’s Star market, while Telink Semiconductor, which develops customised chips for IoT devices and counts Intel as a key shareholder, is pursuing an initial public offering.

Xiaomi has also invested in Cvitek, an AI chip developer focusing on video monitoring and edge computing technology, and Xi’an Intelligence Silicon Technology, which develops field-programmable gate array, or FPGA, chips. The technology for this type of programmable chip is currently dominated by US companies, including Intel and Xilinx.

While ramping up investment at home, Xiaomi last month scored a victory in the US, when a federal judge temporarily blocked a Trump-era ban restricting American investors from buying its shares. The Chinese smartphone maker was placed on a list of companies with alleged links to the Chinese military by the Department of Defense early this year in the final days of the Trump administration.

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The investment blitz comes with Xiaomi’s position in the global smartphone market on the rise.

“We forecast that Xiaomi’s smartphone shipment this full year could match Apple’s level for the very first time,” an analyst at Isaiah Research told Nikkei Asia. “It’s very natural for all these major tech brands to build up [their] own chip capability, no matter from in-house or [by increasing] external investments going forward . . . After all chips are at the core of all the electronics devices and are the best means to differentiate themselves from competitors.”

Xiaomi briefly overtook Apple in the third quarter of 2020 and edged Huawei out of the global top three in the final quarter of last year.

Its smartphone shipments for 2020 reached 146.4m units, up 17.5 per cent from a year earlier, according to research company Canalys, despite an overall decline in the global smartphone market.

A version of this article was first published by Nikkei Asia on April 2 2021. ©2021 Nikkei Inc. All rights reserved

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