Xiaomi is forming a new subsidiary to shore up its goal of becoming the next chipmaking powerhouse, part of a RMB 10 billion ($1.5 billion) artificial intelligence of things (AIoT) initiative.

Pinecone, a chipset subsidiary launched in 2014, will be restructured. Part of the team to be split out to form a new company named Dayu (Big Fish, translated literally), according to a company announcement released Tuesday. The newly formed semiconductor company will focus on the research and development (R&D) of chipset solutions in AIoT applications such as smart speakers, while Pinecone will continue to develop mobile computing processors for smartphones.

Xiaomi will hold 25% of Dayu, with the balance to be held by company employees. The new subsidiary may soon start raising funds independently—a number of investment firms had already expressed their interest, and several agencies “have completed due diligence,” Chinese media reported citing an employee.

“Now, the world’s three largest smartphone companies have all achieved chip technologies. We should develop our own technology to be one of the top makers,” Xiaomi CEO Lei Jun said in February 2017 at an event in Beijing. The company had just unveiled its first proprietary mobile chipset, Surge S1, according to Tencent Tech, which the company spent nearly two and a half years developing.

Chinese smartphone makers are building more customized, software-defined system-on-chips (SoCs) for different tasks, such as image processing and video decoding, as they look ahead to 5G and increasingly interconnected smart devices. In late December, Huawei announced that its IoT platform HiLink had connected 300 million devices, including AI speakers and vehicle systems. It also said it would roll out a low-energy usage IoT chip to enhance its cloud-based IoT platform.

Xiaomi, on the other hand, set it sights early this year on “smartphone + AIoT” as the company’s dual-engine growth strategy. It reported an 86.9% year-on-year surge in revenue of its IoT and lifestyle products segment in 2018, more than double the 41.3% year-on-year growth in its smartphone segment during the same period. Global smartphone shipments fell 4.1% in 2018 and China-specific data points to a slowing growth trend, according to research firm IDC, as the market reaches saturation and economic headwinds continue.

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen

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