Xiaomi reaffirms commitment to proprietary chipsets after rival Oppo's recent closure of Zeku

Xiaomi has reaffirmed a commitment to developing its own chipsets after the abrupt closure of competitor Oppo's chip design unit Zeku, as the Beijing-based smartphone giant reported a 19 per cent slump in first-quarter revenue amid a sluggish handset market.

"Chip development plays a crucial role in Xiaomi's core business. It is not about whether we are doing it or not; it's that we have to do it," the firm's partner and president Lu Weibing said in a conference call with analysts and investors late on Wednesday.

"So, do not worry about our determination. This is an area that we will continue to invest in over the long run," Lu said.

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Xiaomi's pledge came after its Chinese smartphone rival Oppo made a surprise move to shut down its chip design unit Zeku earlier this month, letting go of over 3,000 employees, citing "uncertainties in the global economy and smartphone market".

Without referring specifically to Oppo and Zeku, Lu said in the call that "it's quite a pity" that its peer decided to terminate its chip efforts. "It also fully shows the difficulties in the chip business, and I would like to applaud them for their bravery and innovation."

Xiaomi has also "paid a high price and learned hard lessons" in its own chip development that started in 2014, Lu said, stressing the importance of patience in assessing the long-term investment needed in the journey.

"The chip industry has its own pattern, which is a long-term [effort]. It's very difficult to achieve breakthroughs with a huge amount of capital or human resources development in the short run," Lu said. "We have to be aware of the long-term [efforts], complexity and difficulty of chip investment."

The company launched its first in-house chipset, the Surge S1, in 2017, and later unveiled its own image signal processor in 2021 as well as two more chips designed to improve battery performance last year.

Xiaomi's refreshed chip commitment came as its business faced pressure from weakened demand for smartphone devices amid a sluggish macroeconomic environment. Overall sales plunged 18.9 per cent to 59.5 billion yuan (US$8.42 billion) in the first quarter of 2023, with a 24 per cent slump in smartphone revenue.

Profit in the first quarter reached 4.2 billion yuan, from a loss of 530 million yuan a year ago thanks to cost-cutting measures and a one-time gain from investment. The company poured 1.1 billion yuan into a foray into electric vehicles and other new businesses in the March quarter.

Xiaomi, the fifth-biggest smartphone player in China, faces a shrinking domestic market, which saw an 11 per cent drop in shipments in the first quarter to their lowest level in a decade, according to a report by Canalys.

Internationally, the company also faces regulatory uncertainties and a weakened global market. An Indian High Court last month rejected a plea from Xiaomi to return funds worth more than US$676 million, which were seized in April 2022 after India's federal financial crimes agency said it uncovered years of suspicious remittance payments made by the company's local arm to three foreign entities. Xiaomi has denied the accusations.

Once the top smartphone brand in India for five straight years, Xiaomi saw a 41 per cent plunge in its shipments in the first quarter, sliding to fourth place in the country, according to the latest figures from IDC earlier this month.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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