The rollout of Xiaomi’s Redmi 2A last month may have marked the beginning of a new era for the company. The low-cost smartphone was the first to feature a chipset from Chinese fabless chipmaker Leadcore rather than usual vendors Qualcomm and Mediatek. The much-speculated upon partnership illustrates the convergence of interests between a central government keen to encourage home-grown technology and Chinese companies seeking greater IP protection.
This blog first covered the linkup between the two companies back in November, when Leadcore was reported to have transferred 4G technology to Beijing Songguo Electronics (of which Xiaomi is part-owner) in a deal worth RMB103 million (US$16.8 million). It was also rumoured in some corners that the fast-growing smartphone company would take a 51% stake in the chipmaker. Speaking this week to EE Times, Leadcore vice president Marshal Cheng dismissed the notion: “It’s not possible. One third of our parent group — Datang Telecom Technology and Industry Group — is still state-owned.”
But whether or not there is an ownership relationship, the two are working together very closely. Cheng said his company is collaborating with Xiaomi at “all three different levels — product, technology and patent”. He said Lei Jun’s company is eager to design its own processors, like rivals including Huawei do, in order to differentiate its products from those of the many smaller companies which use Qualcomm and Mediatek chips, as well as to have greater control over its own supply chain and product cycles.
Working with the partially state-owned enterprise also gives Xiaomi access to a trove of government-developed intellectual property. Datang is descended from the China Academy of Telecommunication Technology (CATT), which has had a hand in creating important communications standards in China including TD-SCDMA 3G. Cheng acknowledges that these and other standards patents are an important driver in the relationship: “The modem technology that’s ready in silicon and patent portfolio created by CATT including LTE and LTE-A make us very attractive to Xiaomi.”
These IP goals dovetail nicely with those of Datang and Chinese authorities. Leadcore clearly stands to gain if it can get its systems into products as hot as Xiaomi devices. And as for the central government, its desire to ramp up China's semiconductor industry is no secret. This is partly attributable to the fear that foreign-manufactured chips could have back doors allowing surveillance, but just as important is the wish to help domestic industry save on production costs. It is no surprise then, that Xiaomi phones will not be the only ones to feature Leadcore chips. Cheng doesn’t say which other brands might be involved, but we can assume they will be smaller Chinese manufacturers targeting the lower end of the market.
Could the move away from foreign chips also have an impact on licensing and the potential for litigation? Xiaomi will hope that bringing some of its processor design in-house (or at least closer to home) can keep production costs down, while developing its own patents could reduce royalty costs by giving it more leverage in licensing negotiations with third parties. For now though, we are only talking about Xiaomi's cheapest offerings; premium devices will continue to rely on technology developed overseas. Whether they can progress to designing higher-end chipsets that can compete with the big boys, hardware-wise, will tell us a lot about Xiaomi’s and Leadcore’s innovation bona fides.
Back in March this blog examined Huawei as an example of a Chinese company whose patent strategy clearly goes beyond bulk acquisition; one that contributes to standards and creates technologies that competitors actually want to use. We wondered whether Xiaomi would someday do the same. A move toward vertical integration shows that this may well be on its leadership's mind. Though don’t count us surprised if Xiaomi makes more splashes on the acquisitions front.