Xiaomi has unveiled the Xring O3, an in-house system-on-a-chip built to handle artificial intelligence work and image processing on its phones — and it is leaning on Taiwan's TSMC to manufacture it.

According to Business Standard, the Xring O3 advances Xiaomi's own semiconductor design efforts with more power-efficient image processing and stronger AI capabilities, positioning the company as a challenger to Qualcomm and MediaTek, the two firms that supply most of the world's Android phone processors.

The O3 arrives a year after Xiaomi launched the Xring O1, its first proprietary smartphone processor, marking the latest step for the world's third-largest smartphone vendor, per the report carried on MSN. Taipei Times and The Daily Star also reported the launch and the TSMC manufacturing tie-up.

Xiaomi is not stopping at one chip. Iris Deng of the South China Morning Post reports that Xiaomi also revealed the Xring O100, a 6-nanometer AI accelerator designed to boost the company's MiMo AI models when paired with the O3, plus the 3nm Xring D100 aimed at autonomous driving. The SCMP report says the 3nm Xring O3 is scheduled to debut aboard a folding smartphone in September.

Digitimes frames the broader picture: Xiaomi is tapping TSMC to make chips spanning foldables, AI and autonomous driving — a portfolio that stretches well beyond a single flagship phone.

The "nanometer" figures are shorthand for how advanced a manufacturing process is; smaller generally means faster and more efficient. Getting 3nm parts made at TSMC puts Xiaomi's silicon in the same production tier as the industry's leaders.

Why it matters: a major Chinese phone maker designing its own leading-edge AI silicon chips away at the grip Qualcomm and MediaTek hold over the smartphone market, and shows how central custom chips have become to competing on AI features.