Why Xiaomi Is Retooling Its Semiconductor Business

Xiaomi Corp has kicked off its Mi Fans Festival, an annual event that coincides with the company anniversary, offering customers a host of special deals on flagship products. The Chinese firm certainly has good reason to celebrate as it has emerged as a major player in the technology world in just nine years since its founding in April 2010.

The Beijing-headquartered entity has helped bring advanced smartphones into the mass market through low pricing, and also introduced a series of smart home products including televisions, fans, air purifiers and even air conditioners. But it has often been dogged by criticism about not doing enough to develop original technologies and of being a copycat.

Among the charges leveled by critics in recent years is that Xiaomi had lagged in developing own chipsets for its products and services, unlike key Chinese rival Huawei. Recognizing the need, Xiaomi did set up an in-house semiconductor division, but the operation is yet to gain scale.

This is something that the company now intends to fix, judging from an announcement this week about an overhaul of the chip-related business.

On Tuesday, Xiaomi issued an internal memo to staff about the revamp of Songguo Electronics, a wholly-owned subsidiary that has developed the Surge S1 chip that powers some mobile devices.

In the memo, Xiaomi’s founder and CEO Lei Jun informed employees that Songguo has been restructured to ensure better coordination with the company’s AIoT (Artificial Intelligence and Internet of Things) department and accelerate the research and development of new chips.

Songguo, which helped Xiaomi develop its first mobile chip a few years ago, has now seen its team split up into two. Some Songguo team members have formed a new company called Nanjing Big Fish Semiconductor. Xiaomi holds 25 percent stake in the new entity, while the team’s founding members will hold the remaining 75 percent stake collectively.

Nanjing Big Fish Semiconductor will focus on research and development of AI and IoT chips and solutions, while Songguo will continue to work on SoC chips for mobile phones and development of other Artificial Intelligence chips.

SoC stands for system-on-a-chip, tech jargon that refers to an integrated circuit where various electronic or computer components are combined onto a single chip.

Lei said the restructuring will give Big Fish team flexibility in developing their own products to meet the fast growing smart home market and to seek external funding for growth.

AIoT has become Xiaomi’s group-level strategy as the two technologies — AI and IoT– offer the potential to be the next growth engine for the Chinese tech sector. Xiaomi needs to seize the opportunity to have its own developed chips in its products to secure control of the whole supply chain.

And the initiative can help Xiaomi build its own smart home standard globally, potentially making it one of the leading smart home device networks.

The new structure should allow Big Fish to aggressively tap into the AIoT market with innovative applications to attract new investors and launch products as soon as possible.

Xiaomi, as a matter of fact, has been a venture investor in hundreds of startups in its supply chain to support the group’s expansion into products such as electrical appliances, wearables and home network equipment. Some of the startups have successfully listed on the US bourses.

The Chinese tech giant is seeking to build a large-scale smart home or IoT network around the world through the firm’s smart home appliances. As of end-December 2018, the number of connected IoT devices (excluding smartphones and laptops) on Xiaomi IoT platform stood at around 150.9 million, representing an increase of 14.7 percent from the third quarter and a whopping 193 percent growth compared to a year ago.

Xiaomi IoT platform is also expanding to support non-Xiaomi ecosystem products. IKEA’s full range of smart lighting products will be connected to Xiaomi IoT platform. The IoT user base is diversified across smartphone platforms. Mi Home app had 20.3 million monthly active users in December and over 50 percent of the users were from non-Xiaomi smartphones, according to reports.

With its own chip design capability, Xiaomi will be able to offer more customized services through AI embedment. The group’s Xiaoai Tongxue artificial intelligent voice recognition service, which is similar to Amazon’s Alexa, had been installed and activated on more than 100 million smart devices and had more than 38.8 million monthly active users, making it one of the most used AI voice interactive platforms in mainland China.

One of the key services Xiaomi has in the AI field is its Xiaoai AI speaker, which has accumulated shipment of over 9 million units. The current AI service is only limited to Putonghua speaking users. With the launch of Big Fish, the entity could now have the flexibility to develop foreign language version such as English as well as Cantonese to expand the AI service market.

The English version will be critical especially in India, where Xiaomi is now the biggest smartphone brand. The launch of AI service should help the group cement its leadership further in the country.―EJ Insight