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Xiaomi's VeriSilicon stake purchase to boost IoT chip business

Chinese smartphone maker Xiaomi Corp.'s acquisition of VeriSilicon's shares is both an investment and a way to strengthen its internet of things chip strategy, according to experts.

Xiaomi bought a 6% stake in Shanghai-based semiconductor intellectual property company VeriSilicon Holdings Co. Ltd. in June. The chip designer's biggest external holder is the China Integrated Circuit Industry Investment Fund Co. Ltd., a centralized state-backed fund.

The investment could improve Xiaomi's access to several integrated circuit designers through VeriSilicon's roster of clients with IoT experience, said C.Y. Yao, a senior analyst at TrendForce. With access, Xiaomi, which is relatively new to the chip designing market, can create an ecosystem to develop its IoT chip business.

VeriSilicon, founded in 2001, is the biggest semiconductor intellectual property company in China with a suite of graphic and video IPs.

"The biggest challenge for building IoT networks is compatibility, which is largely decided by chips," said Roger Sheng, vice president analyst at the Gartner Inc. research semiconductors and electronics group. He added VeriSilicon can provide chip designing capabilities to help Xiaomi with its IoT chip designs, therefore improving the overall compatibility of Xiaomi's various connected devices, such as smartwatches and smart TVs, with its system.

The Chinese smartphone maker has recently placed greater importance on its IoT business, launching an artificial intelligence IoT strategy earlier this year.

Indeed, the handset maker reported that revenue from its IoT and lifestyle products grew 56.5% year over year to 12.04 billion yuan in the first three months of 2019. Meanwhile, the company spun off part of its chip research and development unit, Pine Cone, into a subsidiary called Nanjing Big Fish Semiconductor.

The investment could also give Xiaomi an opportunity to focus on specific IoT chip solutions, Phil Solis, research director, connectivity and smartphone semiconductors at IDC, said, pointing to how the company has had limited time and resources to pursue its mobile chip plan since its first chip debuted in 2017. For example, Xiaomi can use chips based on VeriSilicon's IP designs in its wearable devices, he said.

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VeriSilicon is using a free and open instruction set architecture, RISC-V, to develop its own IP cores. RISC-V technology provides benefits such as easier support from a broad range of operating systems, software vendors and tool developers and the ability to tap into multiple suppliers.

RISC-V enables strong IoT build-out due to its diverse architectures, which can be used for different chip designs, the experts said.

"The elasticity of the RISC-V community can inspire different features of IoT devices," Yao said, adding that current IoT devices are more or less alike and rely on pricing wars to compete for market share. The diverse features of IoT devices enabled by RISC-V chips can give Xiaomi an edge over its peers in an aspect other than price, he said.

In addition, experts say the investment will help Xiaomi with capital injection as VeriSilicon is reportedly applying to list on China's Nasdaq Inc.-like STAR Market tech board. The company has not started with registration procedures yet, according to records on the Shanghai Stock Exchange STAR Market website.

The Chinese government is paying close attention to the technology exchange, therefore, companies that are listed on it will be deemed important, according to Sheng.

The Chinese integrated circuit industry recorded 21.5% year-over-year growth to 657.4 billion yuan in 2018, according to Ministry of Industry and IT research unit China Center for Information Industry Development, largely due to various policies rolled out by the ministry over the last seven years.

As of Aug. 7, US$1 was equivalent to 7.06 Chinese yuan.