Xiaomi Corp (小米) became the biggest smartphone seller in China without an extensive — or expensive — collection of patents. That low-cost approach is now backfiring as accusations of technology infringement stall its global push.
Ericsson AB sued Xiaomi in India, saying the smartphone maker had not licensed inventions by Ericsson that enable wireless devices to connect to networks. Judges banned some Xiaomi devices in the company’s biggest overseas market, pending another hearing next month.
The lawsuit threatens founder Lei Jun’s (雷軍) drive to boost next year’s shipments to 100 million units, a five-fold gain from last year, with an eye toward overtaking Samsung Electronics Co and Apple Inc globally. It also puts Xiaomi’s strategy of selling devices for near-cost at risk as the Beijing-based company increases spending on research and licensing to avoid the legal battles Samsung and Apple fought around the world.
“The nightmare will keep on going,” said Neil Shah, Mumbai-based research director for devices at Counterpoint Research. “Patent companies in other countries will now go after Xiaomi in other markets and use the India market as the example.”
Low research costs helped Xiaomi go from startup to the world’s No. 3 smartphone vendor within four years of its founding. Virtually all those sales were in China, where weak enforcement of intellectual property rights meant Xiaomi was “much more protected,” Shah said.
Xiaomi says its patent portfolio does not make it any more exposed than other makers using Googe Inc’s Android software.
“Our IP [intellectual property] situation is the exact same as everybody else’s in this space,” Xiaomi vice president for global operations Hugo Barra said in an interview last month.
Technology companies often have their own hoard of intellectual property, which includes patents and trademarks, to protect their innovations and provide a type of currency when it comes to using that of others.
Xiaomi’s challenges in this area are noticed by rivals.
“The IP issue may delay the expansion speed of the Chinese company,” Sony Mobile Communications Inc president and chief executive officer Hiroki Totoki said in response to questions in Tokyo on Friday last week.
Sony’s Xperia devices compete with Xiaomi.
The patent portfolio is small because Xiaomi is young and must build it over time, said Denis Berger, a patent lawyer at Eiger Law in Shanghai.
Entering an overseas market with a limited portfolio can be a “calculated risk,” he said.
Xiaomi focused on software while offering devices “at or near cost,” Barra said.
Xiaomi is working to expand its portfolio globally after filing 600 patent applications last year, company spokeswoman Joy Han said. It will make 1,000 applications this year and double that in each of the next two years, she said.
“We file a ton of patents, particularly in China, but not only in China, around the world,” Barra said. “We license patents, buy patents. It’s the same thing as everybody else has done.”
Ericsson holds essential patents for 2G, 3G and 4G mobile wireless technology, which means any seller of products compliant with those standards must secure licenses, Ericsson spokesman Johannes Persson said.
“Xiaomi refused to respond in any way regarding a fair license to Ericsson’s intellectual property,” Persson said.
Xiaomi suspended all India sales to comply with the Dec. 8 Delhi High Court ruling in Ericsson’s lawsuit. A Xiaomi appeal on Dec. 16 led to a partial lifting of the ban, for devices using Qualcomm Inc chips.
While Qualcomm assists its customers to get licenses from other patent holders, Xiaomi can not rely on such help in all cases, said Bryan Wang, China country manager for Forrester Research.
“It will become a major issue that Xiaomi needs to address,” Wang said.
Xiaomi has a license agreement for 3G multimode units, while details can not be disclosed, Qualcomm said in an e-mail.
Even if Xiaomi quadruples patent applications to 8,000 by the end of 2016 as planned, it would lag older competitors.
A group including Apple, Ericsson, BlackBerry Ltd, Sony Corp and Microsoft Corp agreed in 2011 to pay US$4.5 billion for about 6,000 patents held by Nortel Networks Corp. Google’s 2012 acquisition of Motorola Mobility for US$12.5 billion included 17,000 patents.
Huawei Technologies Co (華為) had 36,511 patents at the end of last year, the company said. ZTE Corp (中興) had 17,000 patents as of June.
Xiaomi might need to buy or license portfolios from other companies, said Kiranjeet Kaur, a Singapore-based analyst at International Data Corp.
“In the short term, Xiaomi may need to pay licensing fees, but eventually it may need to build up its patent portfolio,” Kaur said. “That won’t come without cost.”
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by