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Why a Custom SoC May Not Be Worth It for Xiaomi

Why a Custom SoC May Not Be Worth It for Xiaomi

Why a Custom SoC May Not Be Worth It for Xiaomi

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There have been rumors recently that Xiaomi is considering making its own smartphone system-on-a-chip (SoC). The SoC is the heart of a smartphone and can make or break a device – just ask anyone who’s used a phone running on Qualcomm’s Snapdragon 810 and faced excessive heating and bad weather. performance.

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Qualcomm and MediaTek are the leading SoC vendors whose microprocessors form the backbone of smartphones of all brands; others like Intel, Spreadtrum and many others have a tiny market share by comparison.

Most SoC manufacturers such as MediaTek simply use original Cortex cores provided by ARM. Others license the core architecture and create custom cores for specific use cases. Qualcomm has licensed ARM’s v7 architecture to create the custom Krait cores for its Snapdragon SoCs, and is now doing the same with ARM’s v8 architecture for Kryo starting with the Snapdragon 820. Apple has licensed the v8 architecture from ARM and created custom Cyclone, Typhoon and Twister cores. for its A7, A8 and A9 SoCs, which formed the backbone of successive iPhone and iPad models.

Developing these custom cores requires a lot of effort and resources. This often costs companies hundreds of millions of dollars, but it may be necessary to gain a competitive advantage. Developing these custom cores enables enterprises to improve performance and reduce power consumption. This has certainly been the case for Apple, whose internal A7, A8 and A9 chips all topped the benchmark charts when they were launched.

If Xiaomi does enter the SoC market, it could also use ARM’s Cortex cores, but in that case, why spend money developing an in-house SoC, instead of using MediaTek’s SoC? Samsung and Huawei currently make SoCs based on ARM Cortex cores, but in terms of processing power per core, they lose out to Apple and Qualcomm. That’s not a big deal for Samsung and Huawei, which are well-established brands with huge distribution and marketing networks, no longer relying entirely on specs to sell their phones.

The public perception of Xiaomi, on the other hand, emphasizes high-end specs and performance at low prices. If Xiaomi went the route of ARM Cortex cores, its SoC would be just another option on the market, and probably not something that would be lauded for its performance. This all adds up to suggest that Xiaomi is going to have to opt for a custom core – if it enters the SoC business.

What can Xiaomi gain from a custom SoC?
Building your own SoC can bring many benefits to a smartphone manufacturer. The company can adapt the SoC to the specific needs of its own devices – the best example of this is probably Apple. Since the iPhone 4S, every iPhone has had a dual-core processor that delivers decent performance while keeping power consumption in check. When it comes to tablets, Apple uses a more capable variant of its smartphone SoCs. This leads to higher power consumption, but the iPad’s battery is large enough that this isn’t an issue. Apple Watch, on the other hand, consumes less battery by offering much lower performance. In this way, custom SoCs give manufacturers the ability to tailor the chip to different devices and different needs.

Third-party SoCs are usually designed to fit all devices, but this does not allow you to get the most out of the device. Besides getting the most out of a device, a custom SoC can also be a competitive divide. For example, when Qualcomm’s Snapdragon 810 was released, it was criticized for overheating. Companies such as LG, Sony, and HTC, which lacked an internal SoC, had no choice but to use the Qualcomm Snapdragon 810 with reduced clock speeds and other optimizations, but Samsung and Apple were able to use their internal SoCs instead. , giving them the edge for this generation of devices.

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On the other hand, the competitive advantage of Qualcomm, for example, has been its ability to integrate the modem into the SoC. Qualcomm holds a ton of CDMA patents. The United States is by far one of the largest markets still using CDMA and EVDO. The United States is the third largest telecommunications market and both Verizon and Sprint have around 50% of the US cellular market and both operate CDMA and EVDO networks. Other than that, some carriers like Verizon are actively trying to implement LTE-U which, again, only Qualcomm is actively participating in. This allowed Qualcomm to have a sort of monopoly in the North American market.

Different custom SoCs brought different added values ​​to the picture, and Xiaomi will have to think about what it can do to make a custom SoC worth the investment, if it wants to go that route. Apple, for example, was able to customize the SoC to have a secure enclave to store TouchID data. Nvidia’s specialty is GPU design, while MediaTek offers decent performance at a low price.

MediaTek and other Chinese SoC makers are great at keeping costs down; they offer decent performance at lower prices than Qualcomm would charge. These are fueling the bottom of the smartphone market.

If Xiaomi builds its own SoC, it could build its own competitive moat, with its own areas of specialization, and start building deeply customized chips for its devices. But there are also challenges along the way.

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Is it worth it for Xiaomi to go this route?
Neither Apple nor Qualcomm own foundries – multi-billion dollar factories where SoCs are made. Space in these foundries is limited and currently Samsung and TSMC are the major players in this industry. These foundries bring out process nodes on which SoCs are built – quite a complex subject, but suffice it to say that it refers to the size of the chip on which the SoC is built. The smaller the node the better, which is why an SoC on a 14nm node could yield performance gains over the same design of a 20nm node.

Since Samsung has foundries and the Exynos SoC is also made by Samsung, it is often made using the latest process nodes. This was very evident with Exynos 7420 (made on a 14nm process) which showed considerably better performance than the Qualcomm snapdragon 810 (made on a 20nm process).

If Xiaomi made its own chips, it would have to compete with Apple, Samsung, Qualcomm and tons of others for foundry space. This is going to be expensive, even leaving aside the R&D cost of the design, and it begs the question of how the company can recoup any investment in a SoC.

Different chip makers all have their own way of making money. Apple’s investment in chips is recouped from the hardware it sells. Samsung already owns its foundry and manufactures millions of devices aside from phones, all of which can be powered by in-house processors.

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Qualcomm has two businesses, one is manufacturing application processors and the other is licensing; Interestingly, while manufacturing accounts for almost 70% of its revenue, licensing accounts for almost 70% of profits.

If Xiaomi ends up making SoCs, the business model will likely be similar to Samsung’s; using internal chips in a wide variety of devices, including smartphones, tablets, TVs, and more. But lately, doubts have started to emerge about Xiaomi’s business model. This is because there is a big difference between Samsung and Xiaomi.

Samsung’s products are sold at significantly higher margins, with prices ranging from entry-level to very high-end flagships like the Samsung Galaxy S7 Edge and Note series. At the same time, Xiaomi’s software and services business is also not a huge revenue generator. Xiaomi’s thin margins beg the question of whether an in-house SoC will really deliver meaningful returns.

(Also see: Xiaomi – From Chinese Apple to Chinese Samsung?)

Its main sales come from the sale of smartphones, and 90% of Xiaomi’s smartphone sales take place in China. The global and Chinese smartphone market is facing stagnation and other areas where Xiaomi is present – such as TVs, tablets, etc., are areas where it is not even in the top five, and therefore it doesn’t have the scale to justify an in-house SoC for these products.

As mentioned above, the benefits of having a custom SoC can be significant; in fact, in the age of commoditized smartphone hardware, the SoC is something that can still make a smartphone stand out in a crowd. But, as mentioned, the challenges of a custom SoC are also enormous, and for a company like Xiaomi that faces many business uncertainties, the custom SoC route might actually be more trouble than it’s worth. the penalty.

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