Takes a stake in VeriSilicon in vertical integration move
As the trade war between China and the US continues to create uncertainty for hardware makers and buyers around the globe, Chinese semiconductor companies are looking to develop their own chipsets to avoid being reliant on US companies for silicon to power their devices.
Last week, Xiaomi announced an investment of about 6% in VeriSilicon, a Chinese chip designer. This investment makes Xiaomi the second-largest external shareholder in the company. Founded in 2001 and based in Shanghai, VeriSilicon calls itself a “silicon platform as a service company”, acting as a contractor to other semiconductor companies. The news comes as the Chinese government has identified chips as one of several sectors it wants to the country to focus on under its Made in China 2025 initiative.
To be more self-reliant, Xiaomi started its own semiconductor division in 2014. Three years later it announced its first system-on-chip, the Surge S1. The chip featured in Xiaomi’s Mi 5 smartphone, but it wasn’t rolled out widely. The smartphone maker has been revamping its years-long pursuit of success in semiconductors, which it sees as central to fostering innovation and pushing ahead with its dreams of global expansion.
Xiaomi has had its ups and downs since it released its first smartphone at the beginning of the decade, but has been growing strongly over the past two years and was the fourth largest smartphone brand globally by shipments in the first quarter of 2019. Initially the company concentrated on its home territory, but the slowdown in the Chinese smartphone market combined with increased competition from local companies such as Huawei led Xiaomi to turn to international markets for growth. Xiaomi is now heavily dependent on India and South-East Asia for sales volumes, but it’s building momentum in Europe.
Processors have become central to smartphones, driving a large part of the device experience as users juggle a growing number of apps and services. This market is currently ruled by US-based Qualcomm. It’s an uncomfortable position for Chinese smartphone makers as this level of dependence for such an important component could be seen as a long-term threat to growth. So, it’s no surprise that the Chinese government wants to support its technology companies by strengthen its position in silicon.
Xiaomi isn’t alone in its chip ambitions. Huawei’s HiSilicon subsidiary makes its Kirin smartphone processors, which compete with top chipsets from Qualcomm. And in 2018, Alibaba acquired Chinese chipmaker C-Sky, with plans to unveil its first artificial intelligence chip before the end of 2019.
There’s also a larger trend of verticalization among many top device makers. For example, Apple has used its A series chips since 2010 in its iPhones and iPads, taking control of almost all the silicon design for its major devices. Samsung uses its own Exynos line of processors in many markets.
However, vertical integration of this magnitude requires enormous investment and massive scale to make it viable. Customized CPU cores based on Arm’s architecture takes huge time and effort to create sustainable differentiation at the level Apple has realized. Moreover, ownership of all-important modem technology is likely to be an unobtainable goal for Xiaomi; Apple itself is still years away from removing its reliance on Qualcomm.
Xiaomi is wisely investing to take ownership of major parts of its supply chain, but it’s premature to call this a vertically integrated strategy akin to that of Samsung, Huawei or even Apple.
Subscribe to our blog
Make sure you don't miss out on our fresh insights on topical news in the connected world
"*" indicates required fields