December 1, 2014 by ...
Xiaomi is buying a chip manufacturer called Leadcore. The deal is supposed to lower Xiaomi phone costs. An unexpected result of this purchase is that Xiaomi’s current supplier, Mediatek, has told Xiaomi to kiss off. Mediatek will supply chips to them no more. Xiaomi is betting on the cum and hoping to profit in the future. But is this reasonable?
Contrary to what Lei Jun says, Xiaomi is not an Internet play. Over 90% of their profits come from the sale of handsets. Xiaomi, however is not a manufacturer either. Similar to Apple, Xiaomi merely assembles phones and markets them.
Twisted logic in buying a supplier?
In order to cut costs even further, Xiaomi is buying into a chip supplier. The problem with this is that it runs contrary to their business model. Once again, Xiaomi is an assembler, not a manufacturer.
The skill sets and value proposition of these two capabilities varies greatly. What has made Xiaomi good has nothing to do with their new investment.
For Xiaomi this is a risky proposition. They will have to rejigger the way they do business in order to accommodate this change. Such a thing presents reward commensurate with risk involved.
With a lack of experience in this area however, it seems even riskier for a company such as Xiaomi. In its plunge to the bottom of the price spectrum it could mismanage itself out of what made it good.