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Xiaomi Mobile Supply Chain Crisis Emerges: Cooperation with MTK "Suspended"---


An insider revealed to Tencent Technology that chip manufacturer MediaTek (hereinafter referred to as MTK) has recently terminated its cooperation with Xiaomi smartphones and will temporarily no longer provide chip support for Xiaomi phones.

Tencent Technology sought confirmation from the relevant person in charge of Xiaomi's mobile phone, but they did not respond. MTK's official response stated, "MediaTek maintains good interaction with mainland mobile phone manufacturers, and we are unable to comment on a single customer."

But an insider at MTK confirmed to Tencent Technology that the cooperation between the two parties has been "suspended", and "the previous cooperation with Xiaomi has now ended, and there will be no new cooperation projects with Xiaomi in the future.".

Analysts have pointed out that once Xiaomi loses support from MTK, it will face a major crisis in its supply chain history. Prior to this, Qualcomm had lowered the priority of cooperation with Xiaomi smartphones. Despite Xiaomi's joint venture with another chip manufacturer, Lianxin, to establish Pineapple Electronics, it still cannot meet Xiaomi's huge demand gap for low-end chips.

It is not yet known how long the suspension of cooperation between MTK and Xiaomi will last, and MTK insiders estimate that it will last for at least one quarter. This will affect the supply of Redmi Note and subsequent versions, thereby affecting Xiaomi's overall shipment volume in the future.

It is worth noting that MTK previously told Taiwanese media that "what Lianxin received was only one of Xiaomi's 5 to 6 newly launched phones next year, and it will not exclude MediaTek's orders.".

However, the domestic statement is completely different from it. The above analysts believe that based on the supply cycle of mobile phone chips, scale support will take at least six months; Moreover, the joint venture between Xiaomi and Lianxin is not just a superficial matter, so MTK's "suspension" cooperation may be indefinitely extended.

It is understood that Xiaomi holds 51% of the shares in Pineapple Electronics, but the latter's employees are mainly diverted from Lianxin employees. The packaging testing and wafer manufacturing of the new company will still be entrusted to Datang Lianxin. There are reports that this company is building the next generation of 4G smartphones for Xiaomi, which will continue to ignite ultra-low prices. Xiaomi's emphasis on it is evident.

The information obtained by Tencent Technology from another channel can also support the above statement. In addition to MTK, Xiaomi has recently rejected cooperation proposals from other smartphone chip manufacturers to ensure key cooperation with Lianxin.

Red rice creates "grudges"

In early November of this year, Lianxin Technology, a subsidiary of Datang Telecom, signed a mobile chip patent license with Beijing Songguo Electronics for 103 million yuan. This seemingly ordinary patent license is actually an important layout of Xiaomi's mobile chip, which is worried about being surrounded by patents.

In the eyes of the outside world, Xiaomi has two reasons for this: first, to defend its products against patent infringement overseas, and second, to leverage Lianxin Technology to engage in independent chip joint research and development. This can be seen from the fact that Lei Jun (Weibo) did not want to be restricted from cooperating with Qualcomm and MTK earlier.

But such measures will inevitably affect the cooperation between Xiaomi phones and Qualcomm and MTK, especially MTK, which is positioned in the middle and low end with Lianxin Technology, will be in an awkward situation.

According to insiders at MTK mentioned above, after learning of the joint venture between Xiaomi and Lianxin Technology, MTK decided to completely abandon its future cooperation with Xiaomi. In the words of an insider at MTK, "Chip companies do not want to support a smartphone brand that breeds trouble. Even if Redmi has good sales, they are willing to tear up their partnership."

In fact, the suspension of cooperation between MTK and Xiaomi may seem sudden, but it has already been foreshadowed before.

In order to compete with Qualcomm's advantages in mid to high end chip solutions, MTK released the 1.5GHz quad core chip solution MT6589-T in May last year, and subsequently collaborated with Xiaomi to launch Redmi smartphones based on this chip for the first time in August.

MTK originally hoped to take off its long-standing low-end hat with this, but to their surprise, the Redmi phone was priced at an ultra-low price of 799 yuan, making its dream of entering the mid to high end come to naught. Not only that, Xiaomi later adjusted the price to 699 yuan, completely breaking the determination of other mobile phone manufacturers to adopt MT6589-T in mid to high end products.

"Chips like the MT6589-T were intended as second flagship models for manufacturers such as ZTE, vivo, and TCL Communications, but the emergence of Redmi once again marked the MT6589-T with a low-end brand." A senior terminal manufacturer recalled the situation to Tencent Technology at that time.

Xiaomi disregarded the wishes of chip manufacturers, which greatly displeased MTK. Another senior executive from a mobile phone manufacturer also told Tencent Technology about this matter, "Xiaomi has been suppressing sales, disrupting the balance of the chip industry's supply system, which has greatly harmed the cooperation between mobile phone manufacturers and MTK." However, MTK still refuses to comment on this matter in public to this day.

Shortly thereafter, MTK launched the true eight core product MTK6592, but the initial partner has switched to TCL Communications, the first model of TCLidolX equipped with this chip priced at 1999 yuan. This collaboration did not bring a qualitative change to MTK's chip strategy due to the low market response, nor did it bring it closer to its competitors who mainly focus on mid to high end Snapdragon 600 chips.

Supply chain hazards

Without MTK, the major crisis for Xiaomi phones is that supply may face severe shortages.

The third quarter report on the global smartphone market recently released by market research firms IDC and Strategy Analytics shows that Xiaomi ranks third in the world in terms of smartphone shipments and market share, with a staggering shipment of 18 million units in the third quarter. This is due to the chip support from Qualcomm and MTK.

The report believes that the key to Xiaomi's success lies in the low price impact of the Xiaomi 4 released in August, as well as the Redmi 1S (3G/4G version) and Redmi Note (3G/4G version). Among them, Xiaomi 4 comes from Qualcomm's chips, while the vast majority of the Redmi series comes from MTK's chips.

The loss of MTK support will have a serious impact on Xiaomi's Redmi series, especially the supply of Redmi Note and subsequent versions, which will have a serious shortage, thereby affecting Xiaomi's overall shipment volume.

Industry insiders have pointed out that Lei Jun initially did not want to be limited by Qualcomm in terms of processors. At the same time, in order to improve the compatibility of MIUI on the MTK platform, he leveraged MTK to launch low-priced models to increase shipment volume.

Nowadays, although Xiaomi has "married" Lianxin Technology, its 4G multimode LC1860 chip has not yet achieved mass production. According to Tencent Technology, the scale of LC1860 chip will support mobile phone manufacturers as soon as the first quarter of next year, and the existing the third mock examination chip obviously cannot meet the market demand. Data shows that MTK's baseband chip market share doubled in 2013, from 7.3% to 14.4%. With the downward trend in 4G phone prices this year, MTK's baseband chip share is expected to continue to rise, and it is obvious that Lianxin Technology will not be able to reach the supply scale that MTK can provide for Xiaomi in the short term.

From a technical perspective, the existing MTK chips cover various levels, including high and low. The 6592 chip has been in the market for several months, and its overall maturity is much higher than that of Lianxin Technology's LC1860. Moreover, the terminal performance experience brought by MTK chip technology is also higher than that of Lianxin Technology.

Currently, Qualcomm still supports Xiaomi smartphones. As early investors in Xiaomi, both the first and second generations of Xiaomi have become experimental fields for Qualcomm's new CPU products. But at the Xiaomi 3 press conference, the chip manufacturer on the platform was replaced by NVIDIA CEO Huang Renxun, and Xiaomi's relationship with Qualcomm bid farewell to their honeymoon period.

The alliance between Xiaomi and Qualcomm's arch rival MediaTek in Redmi smartphones has sparked strong opposition from Qualcomm, which intends to promote the Snapdragon 200 low-priced solution in China.

It is understood that the cooperation between Qualcomm and Xiaomi is not as invested as before, and the priority for support has also been lowered. From this perspective, Xiaomi's future chip supply for smartphones will encounter a huge gap in the high, medium, and low end.

The chip dream of downstream manufacturers

In a sense, the deterioration of the relationship between Xiaomi and upstream manufacturers is due to the overall lack of chips in the domestic mobile phone industry, which can only passively accept the lower position of the industry chain, while Xiaomi, whose sales are gradually increasing, has been trying to break away from the position of downstream manufacturers.

From this perspective, Xiaomi's choice to establish a joint venture with Lianxin not only reserves patents, but also has the idea of building its own chips, which has a certain demonstration effect on the industry. But this move is bound to touch the interests of upstream chip manufacturers, thereby affecting the subsequent supply of their own products.

Despite the fierce competition in the current mobile phone chip market, the favorable environment is that the continuous withdrawal of overseas giants has freed up development space for domestic manufacturers. With established chip manufacturers such as Ericsson, Nvidia, and Broadcom withdrawing or transitioning, only Qualcomm and Intel remain in fierce competition. In addition to Spreadtrum and Datang Lianxin, mobile phone manufacturers such as Huawei's Hisilicon and ZTE's ZTE Micro have shown certain strength in China.

Tencent Technology has learned that a domestic mobile phone manufacturer has sent a lawyer's letter to some mobile phone manufacturers, aiming to enhance market competitiveness through patent protection. The cooperation between Xiaomi and Lianxin has also been interpreted by the outside world as an advance defense in this regard.

From an industry perspective, there are currently over 17 chip companies worldwide investing in the development of LTE terminal chips, significantly higher than the number in the 2G and 3G eras. Whether it's a collaboration like Xiaomi phones or picking up patent weapons, its great significance is to break the monopoly of overseas chip manufacturers such as Qualcomm, and thus rewrite the industry landscape.

More importantly, the country's support for domestic chips is increasing, and a large-scale integrated circuit support plan has been officially introduced in history. The scale of the National Integrated Circuit Industry Fund exceeds 120 billion yuan.

The anti-monopoly case by Qualcomm has also settled the dust, and regardless of the outcome, domestic mobile phone manufacturers have reached a time to re-examine the importance of chips.




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