While the performance and market acceptance of Xiaomi's recently released Surge S1 application processor still remains to be seen, the roll-out of the Surge S1 will certainly heat up competition in China's mobile AP market and affect the market shares of China's smartphone vendors and upstream component suppliers, according to industry sources.

Some China-based smartphone vendors are even pleased to see fellow vendor Xiaomi develop CPUs in-house as the homegrown SoC chips will help enhance supply chain management, component costs and shipment schedules, while reducing the reliance on development and production of third-party suppliers, the sources commented.

The world's top-three smartphone vendors, Apple, Samsung and Huawei, have been able to achieve success in the highly competitive smartphone market by leveraging in-house developed CPUs, added the sources.

Huawei still maintains a strategy of buying mobile CPUs from multiple suppliers, but it has been using its SoC subsidiary HiSilicon Technologies as a bargaining chip, indicated the sources, noting that Huawei did increase its pull-in orders for chips from MediaTek and Spreadtrum Communications in the fourth quarter of 2016 before giving more orders to HiSilicon in the first quarter of 2017.

The face that Xiaomi is using the Surge S1 to power its own Mi 5c, which will be available in China starting March 3 at CNY1,499 (US$218), suggests that the S1 is suited for entry-level and mid-range smartphones, said the sources.

The Surge S1, as well as the SC9861G-IA chip announced by Spreadtrum, will likely be competitive with the MediaTek Helio X30, Qualcomm Snapdragon 600 and 400-series products, Samsung Exynos 3 and 7 ModAP, and the Kirin 650 from HiSilicon, according to IHS Markit.