China’s Number One Startup May Soon Use Its Own Chips

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By Jacob Maslow

Smartphone maker Xiaomi Inc (XTC.UL) is designing its own smartphone processor, and may transition some of its mid- to low-end phones to the home-grown chip beginning the second half of this year, according to a report by Reuters.

The move is consistent with Beijing’s thrust of developing local semiconductor companies in an effort to end the country’s reliance on foreign chip companies. The government has reportedly invested billions of dollars into several Chinese companies to boost their research and development (R&D) initiatives.

Analysts say this development could impact chip companies Qualcomm Inc (O:QCOM) and MediaTek Inc (TW:2454), which both supply mobile processors to the company. Market reports say MediaTek shipped close to 20 million processor chips to Xiaomi last year.

Xiaomi, which is the world’s fifth-largest smartphone vendor and China’s most valuable startup, has reportedly hired around 200 to 300 people to work on the development of its first smartphone chip.

Currently, only a few phone vendors have the ability to design smartphone processor systems in-house. They include Apple Inc (O:AAPL), Huawei Technologies Co Ltd [HWT.UL], and Samsung Electronics Co Ltd (KS:005930).

Most smartphone manufacturers rely on 3rd party semiconductor companies like Qualcomm, Intel and MediaTek to save on R&D costs.

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