Xiaomi Inc. is planning to use smartphone processor chips designed in-house on some of its lower-priced handsets in the second half of this year, a source privy to the matter told Reuters.
According to the Reuters report, it would be the first time that Xiaomi will use chips designed in-house, which could put pressure on the company's suppliers such as industry leaders Qualcomm Inc. and MediaTek Inc., analysts said.
The source said it was not yet clear how many in-house smartphone application processor chips Xiaomi is planning to make this year as the chips are designed for the company's mid- to low-priced smartphone model RedMi Note series.
The report said the move came as the country is investing billions of dollars into home-grown chip companies in an effort to end China's dependence on foreign semiconductors.
Xiaomi, the world's fifth largest smartphone vendor, has reportedly hired 200 to 300 people to work on smartphone chip design in cities such as Beijing, Nanjing and Shanghai.
"Xiaomi is copying the model of designing processor chips in-house from Apple Inc., Samsung Electronics Co. Ltd. and Huawei Technologies Co. Ltd.," the source said, referring to the only three smartphone vendors who have made commercial use of self-designed smartphone processor chips.
The report said that Xiaomi, which has long been interested in making in-house chip, declined to comment when contacted on Friday, Feb. 19.
In 2014, Chinese chip designer Leadcore Technology Ltd., a subsidiary of state-backed Datang Telecom, signed an agreement with Beijing Pinecone Electronics to jointly design 4G multiple mode chips.
Industry analysts said that Xiaomi controls Beijing Pinecone Electronics, although Xiaomi declined to comment on its ties with the company.
Analysts said that one of the major strategies of Chinese smartphone vendors to maintain market share and margins amid intense competition is to design smartphone chips.
MediaTek, which supplied most of Xiaomi's mid- to low-priced smartphone chips, will likely come under pressure, analysts said. The Taiwan-based company shipped about 20 million processor chips to Xiaomi last year, according to a report by Jefferies.
"Designing chips in-house actually costs more if the scale of smartphone vendors is not enough to support the cost of R&D," MediaTek said. "In the end, they still have to outsource that to professional chip suppliers."
Qualcomm did not respond to Reuters' request for comment, the report said.