Why is Xiaomi doubling down on in-house chips despite profit slump?

Xiaomi is bolstering its investment in homegrown chips, despite facing a decline in profits and rising costs for components. The company unveiled its latest Xring O3 3-nanometre AI processor for smartphones, which is set to launch in September on the Xiaomi 18 Fold device. Additionally, Xiaomi introduced the Xring O100 – a 6nm AI accelerator meant to enhance its MiMo large language model when combined with the O3 – as well as a 3nm Xring D100 chip, intended for use in autonomous driving applications. Both the O100 and D100 are scheduled to be commercially available next year.

Ivan Lam, senior analyst at Counterpoint Research, highlighted Xiaomi's semiconductor advancements, positioning the Chinese tech giant among the leading developers of self-developed mobile systems-on-a-chip (SoC). He explained that as AI workloads grow increasingly sophisticated, on-chip AI capabilities have become increasingly vital. Despite the chip investments not immediately generating profits, Lam expressed optimism about Xiaomi's commitment to long-term growth in this area.

Xiaomi's semiconductor expansion coincides with the global smartphone industry struggling with soaring memory and component costs, which are compressing profit margins across various devices, including electric vehicles. In early August, Xiaomi disclosed a 6.1% year-on-year decrease in revenue for the second quarter, reporting 108.9 billion yuan (US$16.2 billion) in earnings. Net profit also declined by 20.3% to 9.46 billion yuan, marking the third consecutive quarter of reduced profits.

Despite these financial challenges, Xiaomi has intensified its research and development efforts. During the first half of the year, the company increased its R&D spending by 25.6% year-on-year to 18.2 billion yuan, with nearly 30% of the total allocated to AI-related initiatives. The Xring O3 processor builds upon the Xring O1, which was introduced in May of the previous year.

The new chip features 24 billion transistors on a die measuring 133mm on each side, representing a 26% increase in transistor count and a 5% improvement in density. Xiaomi claims that the chip delivers superior performance with reduced power consumption and is the world's first mobile processor capable of supporting next-generation low-power dynamic random-access memory (DDR6) designed for on-device AI operations.

This launch underscores the broader trend among Chinese smartphone manufacturers to develop proprietary silicon.

Earlier this year, Xiaomi achieved a significant milestone by becoming the world's fourth tech firm to design a 3nm mobile SoC for mass production, following in the footsteps of Apple, Qualcomm, and MediaTek. Meanwhile, competitor Huawei Technologies is set to unveil its Kirin 2026 processor, which will incorporate the company's new LogicFolding architecture, in its upcoming Mate series smartphones.