Xiaomi has unveiled a new generation of its proprietary smartphone processor, expanding its push into semiconductor design as the Chinese handset maker seeks greater control over critical components, reduce reliance on external chip suppliers, and strengthen its position in the premium smartphone market.
The company on Monday introduced the Xring O3, roughly a year after launching its first in-house smartphone processor, the Xring O1. The move places Xiaomi among a growing group of major device manufacturers, including Apple, Samsung Electronics and Huawei, that are developing proprietary chips to differentiate their products and gain greater control over hardware and software integration.
Taiwan Semiconductor Manufacturing Co. will manufacture the Xring O3 using its 3-nanometre process technology, according to two people familiar with the matter cited by Reuters.
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One of the sources said the O3 is expected to power Xiaomi’s next flagship foldable smartphone, with the company targeting shipments of between 200,000 and 300,000 units.
The move into foldable phones would put Xiaomi into more direct competition with Huawei in one of China’s fastest-growing premium smartphone categories. Huawei shipped 1.6 million foldable handsets in China during the second quarter, giving it a 68% market share, according to research firm Smart Analytics Global. Honor followed with 13.7% and Oppo with 8.5%.
Combining a proprietary processor with a high-end foldable device is expected to help Xiaomi differentiate its flagship products at a time when smartphone manufacturers are facing increasing pressure to deliver new features while controlling component costs.
A smartphone system-on-chip integrates several critical functions, including general computing, graphics, artificial intelligence processing, and imaging, into a single component. Controlling the design of that component gives manufacturers greater scope to optimize hardware and software together and potentially tailor devices for specific workloads.
Apple has long designed its own smartphone processors, while Samsung develops chips through its Exynos business. Huawei has also pursued domestic chip development as U.S. restrictions have constrained its access to some foreign semiconductor technologies.
Developing proprietary processors is believed to be Xiaomi’s strategy to reduce its dependence on Qualcomm and MediaTek, the two major external suppliers of smartphone chipsets, while giving the company more control over product development and supply planning.
The company is already increasing the scale of its in-house chip deployment. Xiaomi said during an earnings call last week that cumulative shipments of devices powered by the Xring O1 had surpassed 1 million units since its introduction. The chip has been used across smartphones, tablets and smartwatches.
Sources said Xiaomi had sold about 150,000 smartphones using the Xring O1 since its launch in May 2025, suggesting that much of the broader 1 million-device figure comes from other categories.
The O3 represents a significant progression in Xiaomi’s semiconductor ambitions because it is designed using a more advanced 3-nanometre manufacturing process. Smaller process nodes can improve performance and power efficiency, although they also tend to involve higher design and manufacturing costs.
Beyond Smartphones
The company is not limiting its chip strategy to smartphones.
Xiaomi said on Monday that it has also contracted TSMC to manufacture two additional Xring processors. The Xring O100 is a 6-nanometre neural processing unit designed to support Xiaomi’s MiMo large language model on consumer electronics, while the Xring D100 is a 3-nanometre processor intended for autonomous-driving applications.
The O100 and D100 have completed development and are expected to be deployed next year, Xiaomi said. The O3 has already entered mass production.
The expansion shows that Xiaomi is attempting to build a broader semiconductor platform rather than develop a single smartphone processor. Chips for AI processing and autonomous driving could eventually extend the company’s in-house silicon strategy into areas beyond handsets.
That approach could become relevant as consumer electronics companies incorporate AI capabilities into phones, tablets, wearables, vehicles and connected devices. Proprietary chips can allow manufacturers to tailor processing capabilities to their own AI models and software ecosystems while potentially reducing reliance on third-party processors.
The strategy also comes as Xiaomi confronts a more difficult smartphone market. Global smartphone shipments are expected to decline 14% in 2026, according to research firm International Data Corp, as higher memory and component costs push up device prices and put pressure on consumer demand.
Xiaomi’s own sales data show the changing economics of the handset market. The company sold about 65 million smartphones during the first half of 2026 at an average selling price of 1,329 yuan ($197.74), according to Visible Alpha data from S&P Global.
That compares with 84 million units at an average price of 1,141 yuan in the first half of 2025 and 83 million units at an average price of 1,123 yuan during the same period of 2024.
The figures point to a significant decline in unit sales accompanied by a higher average selling price. That suggests Xiaomi is increasingly relying on more expensive devices to support revenue as the broader smartphone market contracts.
The shift toward proprietary chips could help Xiaomi differentiate those higher-end products, but it also requires substantial investment in semiconductor design, software optimization, and manufacturing relationships.
Using TSMC as the manufacturing partner allows Xiaomi to pursue advanced chip designs without having to build its own fabrication facilities. It also highlights the continuing importance of Taiwan’s leading chip foundry to the global electronics industry, even as Chinese technology companies seek greater control over their supply chains.
However, analysts believe Xiaomi faces a challenge to turn its investment in silicon into a durable competitive advantage. Designing a chip is only one part of the equation. The company must also optimize operating systems and applications around its processors, achieve sufficient production volumes and demonstrate that the chips can compete with offerings from Qualcomm, MediaTek and other established suppliers.
The O3’s deployment in a flagship foldable phone could provide an important test. Foldables command higher prices and require advanced processors capable of handling demanding displays, imaging, AI and power-management workloads. Success in the segment would give Xiaomi an opportunity to strengthen its position in China’s premium smartphone market.
Huawei’s dominance in Chinese foldables means that Xiaomi faces a difficult benchmark. But the use of proprietary silicon could give the company another avenue to differentiate its products as competition intensifies.