Why is Xiaomi So important for Qualcomm?

In 2014, Xiaomi overtook Apple to become the largest smartphone vendor in China. Owing to slowing economic growth in the region, China’s smartphone market declined for the first time in Q2 2015 (by 4% year on year). Nevertheless, China is still the largest smartphone market and accounts for almost 30% of the global smartphone sales. As per research firm IDC, Xiomi is currently the fourth largest smartphone vendor in the world, accounting for 5.6% of global smartphone sales.

If sources are to be believed, Xiaomi will continue using Qualcomm’s Snapdragon processors for its high-end models. But it is a possibility that Xiaomi might start designing its own chipsets even for the high-end range in the future. Additionally, growing demand for low-end smartphones in emerging economies (mainly Asia and Latin America) is expected to be the primary growth driver for smartphone sales. Thus, Xiaomi using its own chips in the low-tier and mid-tier segment will serve a major blow to Qualcomm’s plan of expanding its footprint in the segment.

Xiaom revealed its ambitious expansion plans across Asia and Latin America, in 2014. Last month, the company started selling its smartphones in Brazil, marking its entry in Latin America.

Qualcomm’s top line has grown at a CAGR of over 20% in the last five years. However, rising competition (from HiSilicon, Intel, MediaTek, Marvell, Samsung and others), the exclusion of its application processor from Samsung’s new Galaxy S6 smartphone (due to some overheating issues), and regulatory investigations in China, the U.S. and Europe, have all slowed the company’s growth momentum in the last few quarters. Qualcomm paid $975 million earlier this year to settle the regulatory investigation by China’s National Development and Reforms Commission for alleged monopolistic practices in the region. While the settlement helped clear the uncertainty around Qualcomm’s business in China, the company is still suffering from heightened competition in the premium-tier segment, as well as continued under-reporting by certain licensees in the region.

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