The Shift to Custom Silicon: Why Companies Are Designing Their Own Chips

Xiaomi, the Chinese smartphone giant, recently announced its self-developed mobile chipset (XRING 01), rumored to be built on TSMC’s advanced 3nm process and aiming to rival performance levels seen in top-tier chips like Qualcomm’s Snapdragon 8 Gen 2. The move positions Xiaomi as only the fourth global smartphone brand, after Apple, Samsung, and Huawei, to develop its own core mobile processor. This isn’t just news for the smartphone market; it’s the latest example of a growing trend across the tech industry: companies increasingly designing their own custom-tailored silicon rather than relying solely on standardized components.

What is “Custom Silicon” and why are companies pursuing it?

Custom silicon refers to semiconductor chips designed by a company specifically for its own internal use or products, rather than buying standard chips from a general-purpose supplier like Intel, AMD, or Qualcomm. This trend, once limited to a few tech giants like Apple, is now expanding rapidly. Companies are choosing to design their own chips for several key reasons:

• Performance and Efficiency: Custom chips can be optimized precisely for a company’s specific software, algorithms (especially for AI workloads), and product needs, often leading to significant gains in performance, power efficiency (performance per watt), and form factor integration compared to general-purpose chips.
• Cost Control: By designing their own chips, companies can potentially reduce per-unit costs over time by cutting out the profit margins of traditional chip vendors, especially for high-volume applications.
• Differentiation and Competitive Advantage: Unique chip capabilities can provide a distinct edge in product features or service delivery, making offerings stand out in crowded markets.
• Supply Chain Security and Control: Designing in-house provides greater control over the chip roadmap, supply chain dynamics, and reduces dependence on external suppliers, mitigating risks of shortages or geopolitical restrictions on specific components.

Who are the major players driving the custom silicon trend?

The trend spans various parts of the tech landscape.

• Consumer Device Makers: Apple is a prime example, having successfully transitioned its Macs to Apple Silicon (M-series chips) leveraging its long-standing expertise in designing chips for iPhones (A-series chips) and integrating specialized “Neural Processors” for on-device AI. Samsung designs its own Exynos processors for some of its devices. Xiaomi is now explicitly joining this group with XRING 01, dedicating a 1,000-person team to the effort. Huawei also designs its own Kirin and Ascend chips for its devices and systems, though its ability to manufacture them is now significantly constrained by export controls.
• Cloud and Data Center Operators (Hyperscalers): Some of the largest consumers of chips, including Google (TPUs since 2016), Amazon (Trainium and Inferentia chips), Microsoft, and Meta, are investing billions in developing custom silicon for their vast data center infrastructure. This allows them to optimize chips specifically for the AI training and inference workloads that are driving massive data center expansion. Amazon is reportedly building out data centers featuring billions of dollars of its internal chips, including a cluster for Anthropic.
• Emerging Hardware Innovators: While not designing chips for their own products in the traditional sense, companies like Cerebras (wafer-scale chips) and Groq (TPU architecture) also represent a form of custom silicon designed specifically for AI workloads, offering alternative architectures to traditional GPUs and targeting performance/efficiency advantages.

How does this trend impact traditional chip suppliers?

The rise of custom silicon directly challenges traditional chip suppliers, particularly those who primarily sell standardized components or designs. Fabless companies like Qualcomm, historically a dominant player in mobile SoCs, face competition from customers like Apple, Samsung, and now Xiaomi designing their own chips that might otherwise use Snapdragon processors. NVIDIA, while still dominant in the overall AI chip market, faces potential headwinds from hyperscalers replacing some of its high-margin GPUs with their own custom AI accelerators optimized for their specific data center needs. While this doesn’t mean the end for these companies, it forces them to adapt, focus on segments less targeted by custom designs, or offer their IP/services in new ways.

What role do foundries like TSMC and Arm play in enabling custom silicon?

The success of the custom silicon trend is heavily reliant on the capabilities of third-party manufacturers, particularly advanced foundries and intellectual property (IP) providers. The “pure-play” foundry model, pioneered by TSMC, allows companies to focus entirely on chip design without the prohibitively high cost and complexity of building and operating their own fabrication plants. Companies like Apple, the hyperscalers, and now Xiaomi can leverage TSMC’s cutting-edge process nodes (like 3nm and the upcoming 2nm) to turn their complex designs into physical chips.

IP providers like Arm are also critical. Many custom chips, including Xiaomi’s XRING 01, are based on licensed core architectures (like Arm’s Cortex-X925 CPU and Immortalis-G925 GPU). This allows companies to build sophisticated custom chips without having to design every component from scratch, dramatically accelerating development. Thus, while custom silicon shifts power dynamics away from traditional chip vendors, it often strengthens the position of cutting-edge foundries like TSMC and key IP providers like Arm by increasing demand for their fundamental services.

Are there export control issues for companies designing chips in China?

The Xiaomi development clarifies a key point regarding US export controls: current restrictions primarily target advanced chips and equipment critical for AI and military modernization, not generally consumer-grade chips. This is why a Chinese company like Xiaomi can reportedly design a high-end mobile SoC (XRING 01) and have it manufactured by TSMC on a 3nm process, even though TSMC is based in Taiwan and uses US technology in its fabs. While companies like Huawei have faced severe restrictions limiting their access to advanced manufacturing for any of their chip designs, including mobile ones, the XRING 01 case demonstrates that for other Chinese companies focused on the consumer market, access to global foundries for advanced nodes remains possible within the current regulatory framework. This illustrates the nuanced nature of the export controls, which are targeted at specific technologies and end-uses rather than a blanket ban on all advanced chip production for China.

What’s next for the custom silicon trend?

The trend is likely to continue as AI permeates more products and services, and as companies seek competitive advantages through hardware optimization. More companies across various sectors — from automotive to industrial equipment — may explore designing specialized chips.

While building in-house design teams and navigating manufacturing relationships remains challenging, the proven benefits in performance, efficiency, and strategic control suggest that custom silicon will play an increasingly important role in the technology landscape. This will in turn challenge traditional business models and further solidify the critical position of advanced foundries.