Jacob Schindler

Xiaomi has always invited comparisons to Apple, and its latest major initiative is straight out of the Steve Jobs playbook. The Beijing-based company appears intent on designing its own microprocessors, as Apple, Samsung and domestic rival Huawei all do. And while Xiaomi is a loyal customer of Qualcomm and Mediatek for the time being, recent reports suggest that it could be selling handsets outfitted with chips of its own creation as early as next year. The company is said to have reached a licensing deal with ARM that it hopes will allow it to design the chips for its low- and mid-tier handsets by 2016. In addition to keeping production costs down, the move could also have real IP significance by increasing Xiaomi’s bargaining power in licensing negotiations with other companies.

The Chinese smartphone giant has not made anything official yet, but a number of sources have connected Xiaomi to ARM’s recent announcement that it had agreed to a subscription licence with a large, unnamed Chinese OEM. UK-based ARM designs and then licenses processors that run in the semiconductors found in almost every smartphone. Last week, new details emerged suggesting that Xiaomi would release two versions of a processor: a super low-cost version for the company’s least expensive models, and a more powerful chip for its mid-range offerings. While the target date for the new hardware’s release is early 2016, observers stress that Xiaomi’s top-of-the-line devices will continue to rely on Qualcomm’s Snapdragon.

This blog has previously reported on Xiaomi’s close relationship with fabless semiconductor company Leadcore – an offshoot of Chinese SOE Datang Telecom. A top Leadcore executive said in May that the two firms work together at “all three different levels — product, technology and patent”, and commented that Xiaomi was keen to have more control over its supply chain. The precise relationship between the Leadcore link and Xiaomi’s ARM chip-design efforts remains unclear (Xiaomi already sells a low-end handset – the Redmi 2A – which features a Leadcore processor). We also do not know to what extent the two have access to each other’s intellectual property – Leadcore having access to a wealth of state-developed IP assets in the communications field, while Xiaomi is said to have been both filing and buying patents. But regardless of just how independent Xiaomi’s chip design effort will be, it’s a good bet that it will play some role in growing the company’s stock of available patents, which the company knows is vital to increasing its freedom to operate.

To the extent that it can help the company along in its drive to create more IP, bringing chip design in-house could see Xiaomi in an improved bargaining position vis-à-vis some of the patent-rich rivals with the potential to keep it out of certain markets. In a telling move last June, Xiaomi announced the hire of Xiang Wang, at the time, head of Qualcomm Greater China, as a new senior vice president. It is said that Xiang will focus on partner relations, and one of the most important is likely to be with his former employer. It is a signal that Xiaomi probably knows that its future hinges on relationships with Western companies like Qualcomm on both the product and patent level.

For now, Xiaomi’s market entry decisions make clear that it is still heavily constrained by its patent vulnerabilities. Its next expansion, to take place this month, will be to sub-Saharan Africa, where few observers expect the Chinese company to be hit with legal challenges. The move follows launches in India and Brazil which have proven to be a mixed bag. While its smartphones have attracted a loyal fan base among Indian consumers, a patent dispute with Ericsson means that Xiaomi can only sell some of its models (those with Qualcomm chipsets) and must deposit about $1.57 with the court for each device it sells. Last week, the company indicated that the dispute is still ongoing and the court order is still in force when it announced that it had no plans to sell its flagship Mediatek-powered Redmi Note 2 in India. Xiaomi’s Brazil debut has been smoother sailing so far, though the fact that Ericsson has had some recent success in its enforcement efforts against TCL there could be interpreted as a bad omen.

Xiaomi has hinted that it is hoping for a US launch somewhere in the timeframe of 18-24 months from now. If it actually manages to do so successfully, then the scale of its IP maturation over the span of just a few years will have been impressive. These latest moves toward taking a bigger role in creating its own technology suggest that the company’s executives may have a strategic vision that is more sophisticated than mass patent acquisition, an encouraging sign.