Huawei rival Xiaomi boosts chip ambitions amid US pressure

Prominent Chinese xiaomi smartphone maker Expands investment in chips as the US crackdown on compatriot Huawei Technologies sparks a nationwide 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, according to a Nikkei Asia analysis of trade data. He also added stakes in nearly 25 other tech hardware companies beyond semiconductors. Targets include chip developers and chip equipment manufacturers, start-ups and manufacturers 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 technology manufacturing supply chain and strengthen the country’s technological sector.

Xiaomi is a fast rising star in the Chinese tech firmament, with a global smartphone market share rivaling that of Apple. Like Huawei, the company has been targeted by US restrictions on its alleged ties to the Chinese military, Xiaomi claims.

Its investments in chips and other technological hardware have been made primarily through a subsidiary known as Hubei Xiaomi Changjiang Industry Fund Partnership. The fund – which has subsidiaries of home appliance maker Gree and an investment arm backed by the government of Wuhan as its main shareholders – was established in 2017 with a share capital of 12 billion rmb (1.82 billion dollars), but was largely inactive during its early years. It invested in six semiconductor-related companies in 2019, according to Nikkei’s analysis of data from Qichacha, a Chinese trade data provider.

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

Xiaomi claims that its chip development ambitions, which started in 2014, are starting to pay off. On March 30, it unveiled an in-house designed image processor chip, the Surge C1, for use in its very first foldable smartphone, along with a wide range of new devices.

“It’s been seven years since Xiaomi invested in chips. . .[The C1]This is just a small step in the progression of Xiaomi’s chip, but it marks a significant milestone for our image processing capability, ”Chairman 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 persistence to make it happen.

A number of Chinese companies have made similar efforts in chip development since last year, when Washington cut Huawei off from its main global suppliers, citing alleged links of Chinese society with the Chinese military and government.

Huawei itself has invested in over 20 chip related companies over 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. The main Chinese automaker Zhejiang Geely Holdings Group plans to install its own base chips in its cars as early as 2023.

This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and external commentators from around the world share their perspective on Asia, while our Asia300 section offers in-depth coverage of 300 of the largest publicly traded companies and the fastest growing 11 economies outside of the Japan.

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Alibaba Group Holding and Baidu, China’s two main internet giants, have also embarked on chip design development, both unveiling their own artificial intelligence chips.

Analysts say Chinese tech companies recognize the need and challenges of developing their own chips.

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

The most likely path for big Chinese tech companies will be to build chips in-house, but not all of their core chips, Teng said. “It is unrealistic that a company can do everything and use chips all developed by itself. . . It would consume too many resources and at the same time be too risky to put all the eggs in one basket given the geopolitical tensions.

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

Several of its investments have recently been listed or are planning to do so. Bluetooth audio chip leader Bestechnic was listed on the Shanghai Star Marketplace last year, while Telink Semiconductor, which develops custom chips for IoT devices and has Intel as a key shareholder, is pursuing an initial public offering.

Xiaomi has also invested in Cvitek, an AI chip developer focusing on video surveillance and cutting edge technology, and Xi’an Intelligence Silicon Technology, which develops field programmable gate array chips, or FPGAs. The technology of this type of programmable chip is currently dominated by American companies, notably Intel and Xilinx.

While increasing home investments, Xiaomi took a victory in the United States last month, when a federal judge temporarily blocked a Trump-era ban preventing U.S. investors from buying its shares. The Chinese smartphone maker was placed on a list of companies with suspected ties to the Chinese military by the Defense Ministry earlier this year in the dying days of the Trump administration.

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

“We expect that Xiaomi’s smartphone delivery this full year could match Apple’s level for the very first time,” an Isaiah Research analyst told Nikkei Asia. “It is very natural for all these big technological brands to develop [their] own chip capability, whether internally or [by increasing] external investments for the future. . . After all, chips are at the heart of all electronic devices and are the best way to differentiate yourself from the competition. “

Xiaomi briefly overtook Apple in the third quarter of 2020 and knocked Huawei out of the world’s top three in the last quarter of last year.

Its smartphone shipments for 2020 reached 146.4 million units, up 17.5% from the previous year, according to research firm 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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