Xiaomi, by means of paying royalties, has made a new agreement with Qualcomm on 3G/4G patent licensing, so that Xiaomi can get better R&D, production and sales of its own 3G/4G devices (including TDD-LTE, TD-SCDMA,WCDMA,CDMA2000 and GSM). It is known that the patent will allow Xiaomi to build its own SoC processors
According to the current news, Xiaomi’s self-developed processor will be released next year and we may see it early next year. Given that authorization from ARM earlier, Xiaomi processor is expected to cover the entry level first.
The current strategy of Xiaomi is more practical, as it only equipped low-end phones with its self-developed processor, in order to further reduce the cost thus improving price performance and competitiveness.
Xiaomi is one of Chinese smartphone manufacturers which conduct independent R&D on processor following Huawei. But Huawei goes its own way to increase its competitiveness by entering high-end market through self-developed processor, which is a completely different thing for Xiaomi.
As far as we know, Xiaomi is not going to apply its self-developed processor to high-end smartphone, so what is the purpose of its self-development?
Why Xiaomi Develops Its Own Processor
From current smartphone industry, we can hardly see any major innovations, while most innovations are about metal or plastic material, whether having fingerprint recognition and double WeChat functions and such innovation is more of a micro-innovation than a major one.
Admittedly, micro-innovation is also important, but this kind of innovation indicates that products are sharing more similar properties thus have increasing homogeneity of product.
How can Xiaomi, a company who has built up its fortunes by MIUI and fans, solve this problem? Low price! That’s right. Models such as Note2, Xiaomi 4 c, Redmi Note3 all hit the price floor of the industry, as Xiaomi have no choice but to compete with low price since its system and the hardware is not a competitive edge any more.
Now can Xiaomi win the competition with low price strategy? Maybe not. Letv have started to sell smartphones at a loss, and Xiaomi can’t follow that, right?
So Xiaomi can only reduce the cost by cutting the costs of mobile components to solve the problem. As the major part of a smartphone, a processor’s cost actually is relatively high, so developing one’s own processor can greatly reduce the cost.
The screen is also a major component of a smartphone, of course. However, Xiaomi cannot afford to invest hundreds of millions of dollars in screen development every time.
Can the Low Price Strategy of Xiaomi Persist
As is known to all, Xiaomi is currently valued at over $46 billion, which is at the top in the world. In such a high valuation, what investors value is not how much Xiaomi earn every year, but the potential of the company, the growth rate of Xiaomi. Therefore, the company has no other option but to develop its own processor , as it wants to rely on low price to win the competition, then it is bound to hold down costs as much as possible.
At present, Huawei has made its move to high-end market, which is successful right now; Meizu also have their own characteristics, still looking for entering high-end market; it seems that Xiaomi has given up the high-end market, while focused on mid-and low-range. They expand their product reach by selling more product and then get those users into Xiaomi’s ecosystem in which they can make profit.
But the problem is that no effective interaction has been built in Xiaomi’s ecosystem. Each product is like they are having their own circle. Throughout the smart hardware industry, what the manufactures do is still to use concept as a way of commercial promotion. Meanwhile Xiaomi relies on a lower price to acquire users but how to effectively convert those users is a big problem.