Why have domestic mobile phones made a comeback?

Global mobile phone market landscape

Data from the "Operational Status of the Electronic Information Manufacturing Industry in 2017" released by the Ministry of Industry and Information Technology at the beginning of this year showed that in 2017, my country produced 1.9 billion mobile phones, a year-on-year increase of 1.6%; of which 1.4 billion were smartphones, a year-on-year increase of 0.7%, accounting for 74.3% of all mobile phone production.

CCTV Consumer Report shows that China is the world's largest mobile phone manufacturing base, accounting for nearly 80% of the world's mobile phone production. Among the world's top five mobile phone manufacturers in 2017, three are Chinese mobile phone brands.

If we look at the current global mobile phone market shipments and market share, domestic mobile phones are not at all inferior, and are even the main players in the global mobile phone market.

According to the 2018Q2 global smartphone market shipment rankings, market share and year-on-year growth data released by market research firm Counterpoint on July 31, 2018, among the top ten global smartphone manufacturers in 2018Q2, 6 were domestic smartphone brands, with total domestic smartphone shipments reaching 160 million units and a market share of 43.6%, which does not include manufacturers such as Meizu, ZTE, OnePlus, TCL, and Hammer.

What is certain is that domestic mobile phone manufacturers account for at least half of the global mobile phone market in terms of both shipments and market share. So what is wrong with domestic mobile phones that they are being called "turnaround"?

What problems are domestic mobile phones facing?

In the current global mobile phone market, the biggest rivals of domestic mobile phones are Samsung, Apple and Qualcomm, which holds the patent hegemony in the field of wireless communications. If the war between major powers is a contest of comprehensive national strength, then the competition between domestic mobile phones and giants such as Samsung and Apple must also be a competition of comprehensive corporate strength.

It has sufficient scale to develop global markets; sufficient profitability to carry out technological innovation and research and development; sufficient talent development capabilities to support the implementation of the company's development strategy; and sufficient scientific and complete organizational and system capabilities to ensure the company's sustainable and healthy operations and maintain the pace of continuous innovation and development.

Obviously, these are what domestic mobile phone manufacturers lack.

As the domestic mobile phone market gradually becomes saturated, major Chinese mobile phone manufacturers have turned their attention to countries and regions such as the United States, Europe, Southeast Asia, and Africa. However, the overseas expansion of domestic mobile phones has not been smooth sailing. In the past few years, Huawei, ZTE, OPPO, vivo, Xiaomi, Gionee, etc. have all encountered patent lawsuits in overseas markets. Domestic mobile phone manufacturers have had to deal with the continuous patent lawsuits by forming alliances with patent leaders, paying mobile phone patent fees, and purchasing standard essential patents.

Typical cases of domestic mobile phone companies being sued by overseas companies in recent years (excluding cases with little influence and unclear process information) are shown in Figure 3:

Whether it is domestic mobile phone companies being sued by overseas companies or overseas companies being sued by domestic mobile phone companies, it is far less frightening to domestic mobile phone manufacturers than the "US sanctions on ZTE incident" in April this year. This is not just a problem that can be solved by prohibiting mobile phone manufacturers from selling in a certain country or paying patent fees, but a problem related to the survival of the company. No one would have thought that ZTE, which had a revenue of 108.82 billion yuan, R&D investment of 12.96 billion yuan, ranked fifth in China in terms of invention patent applications in 2017, and was the fourth largest telecommunications operator in the world, would be so vulnerable.

This concerns the direct employment of 80,000 people and an immeasurable number of jobs in the upstream and downstream supply chains. Faced with the unilateral and direct shutdown sanctions of the United States, ZTE was almost in shock.

Apart from the factor of great power game between China and the United States in the "US sanctions on ZTE incident", the problems such as domestic mobile phone manufacturers not having their own core technology, relying entirely on foreign companies for key components in mobile phone manufacturing, and having a chaotic compliance management system for overseas business development have been exposed. Domestic mobile phone manufacturers have realized that they must master core technologies in order to stand up and not be at the mercy of others.

The key reasons why domestic mobile phones are regarded as "turning around" are:

The market position of domestic mobile phone manufacturers is completely disproportionate to their profits. The profit level of a single mobile phone is far lower than that of Samsung and Apple, the leading foreign companies.

Previously, Canaccord Genuity, a Wall Street market research firm, released a report stating that in the fourth quarter of 2017, Apple accounted for 87% of the smartphone industry's profits with 17.9% of global sales, Samsung accounted for 9% of the smartphone industry's profits, and domestic manufacturers accounted for less than 5% of the profits.

According to Xiaomi's second quarter financial report, Xiaomi's smartphone gross profit margin dropped from 8.7% in the second quarter of 2017 to 6.7% in the second quarter of 2018. Compared with Samsung and Apple, Samsung's gross profit margin is about 10%, and Apple's profit margin is as high as 38%. The profit of a single Apple phone is as high as US$151 (RMB 1,000), which is nearly 14 times the average profit of each phone made by Chinese manufacturers. For domestic mobile phone manufacturers, each business of technology research and development, marketing, channel construction, and overseas market development requires huge capital investment, and they cannot do without money.

The key software systems and components of domestic mobile phones are heavily dependent on foreign companies, and the supply chain is subject to others.

Figure 4 below shows the sources of key components for domestic mobile phone manufacturers. In terms of the operating system, storage and CPU, which are the most critical in mobile phone manufacturing, domestic mobile phone manufacturers rely on Google for operating systems, and basically rely on Samsung, Micron, Toshiba, and SK Hynix for storage, without any domestic companies. In terms of CPU, looking at the leading manufacturers in the domestic mobile phone market such as OPPO, vivo, Xiaomi, OnePlus, and Meizu, except Huawei (detailed analysis in the next section), domestic mid-to-high-end smartphones basically use Qualcomm CPUs.

On December 8, 2014, the Delhi High Court ruled that Xiaomi infringed eight of Ericsson's standard essential patents and issued a sales ban. In December, the Delhi High Court allowed Xiaomi to sell smartphones equipped with Qualcomm chips as normal before January 8, 2015, on the condition that a prepayment of 100 rupees was made for each device. However, Xiaomi was not allowed to sell phones with built-in MediaTek chips. Since then, if domestic smartphones want to be exported on a large scale, except for Huawei, they must almost all use Qualcomm chips.

In terms of smartphone screens and COMS, COMS is almost entirely dependent on Sony, OV, and Samsung. Although there are two major panel manufacturers, BOE and Shenzhen Tianma, there is still a big gap between them and foreign Samsung, JDI, LGD, and Sharp in terms of high-end OLED panels, technology accumulation, and innovative research and development. If the supply chain is controlled by others, it will suffer a great loss.

In 2010, when HTC was at its peak, Samsung suddenly stopped supplying AMOLED, forcing HTC to switch to Sony SLCD midway. By 2013, HTC publicly condemned Samsung for using its dominant position as an upstream accessory supplier to suppress HTC. Last year's popular Huawei Mate 9 was also rumored to have limited supply of AMOLED screens by Samsung. Pan Jiutang, who has now joined Xiaomi's industrial investment department as a partner, also said that the price of memory chips supplied by Samsung to Huawei is also higher than that of other manufacturers, forcing Huawei to purchase in the spot market. The pain of the supply chain of domestic mobile phone manufacturers has a long history.

The supply chain being controlled by others not only affects the normal sales of domestic mobile phone products, but also greatly reduces their profitability. If this continues, there will be no hope of turning things around.

Domestic mobile phone manufacturers are far inferior to industry leaders Apple and Samsung in product design, R&D investment, and technological innovation.

It is undeniable that in recent years, domestic mobile phone manufacturers have become more and more innovative in the field of mobile phones, and have invested more and more in technology research and development. From Huawei's HiSilicon to today's Kirin, from Xiaomi MIX to vivo NEX, domestic mobile phones have a stronger sense of innovation and motivation.

Judging from the R&D investment of listed mobile phone companies, in 2017, Apple and Samsung's R&D revenue accounted for 5.5% and 6.3% respectively. As their revenue scale exceeded 1.5 trillion yuan, Apple's R&D investment reached 86.36 billion yuan, and Samsung's reached 95.2 billion yuan. In contrast, Xiaomi and Lenovo's R&D investment was less than 10 billion yuan, and the R&D revenue accounted for only 2.8% and 2.6%. However, why did ZTE, which invested 12.96 billion yuan in R&D and accounted for 11.9% of its R&D revenue, rarely make major innovations in the mobile phone market and lose ground in the market? (Analysis below)

Since domestic mobile phone manufacturers such as OPPO and vivo are not listed, we cannot obtain specific data, but we can get a glimpse of it from the R&D investment of global listed mobile phone manufacturers in Figure 5.

Many key patents in the field of mobile phone wireless communications and system software are controlled by foreign companies, which is strangled

Due to historical reasons, the People's Republic of China was not established until 1949, and my country took many detours in the development of socialist economy, so my country did not start reform and opening up until 1978. At the beginning of reform and opening up in 1978, China's economic scale was only 367.9 billion yuan, and its per capita GDP was 381 yuan, which was only two-thirds of India's per capita GDP in the same period, making it a typical low-income country in the world at that time.

On the other hand, Irwin Jacobs, the founder of Qualcomm, the dominant patent company in the field of mobile communications, has become the chairman of Linkabit, a company he founded and known as the Huangpu Military Academy of San Diego Telecommunications. In July 1985, seven visionaries gathered at Dr. Irwin Jacobs' home in San Diego to discuss major plans. These visionaries - Franklin Antonio, Adelia Coffman, Andrew Cohen, Klein Gilhousen, Irwin Jacobs, Andrew Viterbi and Harvey White finally reached an agreement and decided to create "QUALity COMMunications".

When Qualcomm was first established, it mainly provided project research and development services for the wireless communications industry, and also engaged in limited product manufacturing. In the past 30 years, Qualcomm has submitted and obtained more than 130,000 patent applications worldwide. As of the second fiscal quarter of 2018, Qualcomm's cumulative R&D investment exceeded US$51 billion, and it insists on investing 20% ​​of its annual revenue in R&D every year. This R&D volume, technological innovation and patent accumulation are difficult for domestic mobile phone manufacturers to easily surpass.

It is more appropriate to use patent measurement indicators and patent portfolio models to discuss the patent and technological competitiveness of Chinese mobile phone companies from multiple aspects such as patent quantity, quality, technological competitive position and technological competitive strength. However, due to the complexity of the research content, data and models, this article will not provide a detailed introduction. If you need to know more, you can go to CNKI and Google Scholar to study it carefully.

In terms of communication technology patents, the important patent technologies of 1G, 2G, and 3G are almost monopolized by Qualcomm, Ericsson, Motorola, and Nokia, and China has always been in a state of lagging behind and following. The lack of original and patented technologies has caused China's communications industry to encounter many attacks from overseas powers in the process of "going out", such as accusations of infringement and embargoes. In the 4G stage, my country's patent level can barely be considered to be synchronous. Huawei, ZTE, and Datang ranked third, seventh, and tenth in the number of 4G LTE patents respectively.

Qualcomm holds a large number of essential patents (SEPs) related to wireless communication technology standards such as CDMA, GSM, WCDMA, TD-SCDMA and LTE. About 30% of its annual revenue (US$6.4 billion in 2017) and most of its profits come from patent licensing fees. According to Qualcomm's current licensing agreement, for 3G devices and 4G devices sold in China that use authorized patents, a patent fee of 5% and 3.5% will be charged respectively based on 65% of the net sales price of the entire device.

In the 5G era, Qualcomm has not given up. It has become the company with the most 5G patent technologies in the world. Relying on its strong technology research and development and patent portfolio, Qualcomm's patent licensing business model has been able to continue in the 5G era. Domestic mobile phone manufacturers have to face the "Qualcomm tax". In November 2017, Qualcomm announced the patent licensing rate content. Qualcomm's cellular communication standard essential patent licensing program is licensed to branded mobile phones of original equipment manufacturers that implement 3GPP Release 15 and subsequent versions of the standard under the following licensing terms worldwide:

The actual licensing fee rate for branded single-mode 5G mobile phones is 2.275% of the sales price;

The actual licensing fee rate for branded multi-mode (3G/4G/5G) mobile phones is 3.25% of the sales price. Qualcomm also provides a license for a patent portfolio that includes Qualcomm's cellular communication standard essential patents and non-cellular communication standard essential patents, totaling more than 130,000 global patent applications and authorized patents. The licensing fee rate is 4% of the sales price for branded single-mode mobile phones and 5% of the sales price for branded multi-mode mobile phones.

Note: A1- Number of patents, A2- Percentage of patents, A3- Total citation frequency, A4- Average citation frequency per paper, A5- Number of citations, A6- Patent citation rate, A7- Maximum number of citations, A8- Self-citation number, A9- Technological independence.

Through the research and analysis of the current very authoritative global patent database, the Derwent Patent Database, as the data source (Figure 7), through the statistical analysis of patent application indicators in the field of 5G technology, as shown in Figure 7, the main technical entities and competition in this field can be obtained. In terms of the number of patents, Qualcomm of the United States has the largest number of 715. Its strong technology patent market operation strategy makes Qualcomm still the overlord; followed by China's Huawei and Sweden's Ericsson, with 444 and 432 patents respectively. The two companies started to lay out the research and development of 5G technology very early.

Among the top 10 patent holders in the world in terms of the number of patents, the United States and South Korea each occupy three seats, namely Qualcomm, Intel, Alcatel-Lucent and Samsung, LG, and Korea Telecom Technology Research Institute; China's Huawei and ZTE occupy two seats, and Sweden's Ericsson and Finland's Nokia each occupy one seat.

By counting the main IPC distribution of 5G patent holders, the core technology areas of enterprise research and development are analyzed. The technology areas studied by the top 10 global companies in terms of the number of patents are mainly concentrated in H04W 72/00 (local resource management); Qualcomm, which ranks first in the number of patents, has its main technology area in H04W 4/00 (business or facilities specifically suitable for wireless communication networks), Ericsson, Samsung, ZTE, LG, and Nokia all have their main technology areas in H04W 72/00 (local resource management in wireless communication networks); Huawei and Intel's main technology areas are different from those of other companies. Huawei's main technology area is H04L 12/00 (interconnection or transmission of information or other signals between storage, input/output devices or central processing units in data exchange networks), and Intel's main technology area is H04B 7/00 (radio transmission systems, including transmission control equalization, relay systems, etc.); Alcatel-Lucent's main technology area is H04W 76/00 (wireless communication network connection management).

If Huawei and ZTE have patented technologies in the field of wireless communications, and Huawei, MTK, and Xiaomi Pengpai have patented technologies in the field of CPUs, then domestic mobile phone manufacturers have been completely wiped out in terms of mobile phone operating systems. Among the smartphones sold in 2017, 99.9% of the phones were equipped with Android and iOS operating systems, and other competitors have been completely eliminated.

In February this year, BlackBerry officially announced that it would shut down its operating system BlackBerry OS in two years, and has already started to deal with the BlackBerry OS system and its app store. The remaining Symbian system, Firefox system, Ubuntu system mobile version, Brew MP system, and MTK system are either antique products or extremely unpopular, and none of them can achieve great success.

The good news is that Huawei has been developing mobile phone operating systems for many years, just in case. Luo Yonghao of Smartisan Technology also said at the recent Nut Pro 2S launch conference that he would write an operating system.

Domestic mobile phone companies are not highly globalized and still lag far behind Samsung and Apple

Looking at the history of global economic development, in the field of consumer electronics, consumer electronics companies that can become world giants all have extremely high levels of globalization. Globalized corporate organizations, globalized talents, globalized markets and businesses. If domestic mobile phones want to surpass Apple and Samsung, and are not constrained by patents, technology, and supply chains, companies must have a higher level of globalization.

When Xiaomi 8 and Meizu 16 were sold through domestic channels such as JD.com, Tmall, Suning.com, and specialty stores, Apple iPhone 8 was first sold in 28 countries (the specific data for Samsung was not found, please let me know if anyone knows), and was subsequently sold in 126 countries and regions around the world. The iPhone 8 series shipped more than 10 million units in the first month, and Samsung S9/S9+ shipped 8 million units in the first month. In contrast, the domestic mobile phone manufacturer Xiaomi 8 shipped only one million units in the first month. According to the forum of Meizu founder Huang Zhang, the first batch of materials for Meizu 16 was only 500,000 units. This is a world of difference.

Why domestic mobile phones are making a comeback

If we change the title to "Why do domestic SLR cameras make a comeback?", "Why do domestic memory chips make a comeback?", "Why do domestic display panels make a comeback?", "Why do domestic cars make a comeback?", we will find that the problems faced by domestic mobile phones now are more or less the same problems faced by other industries in my country, but here we only analyze the domestic mobile phone industry.

45 years ago, on April 3, 1973, Martin Cooper invented the world's first mobile phone in Motorola's laboratory. Subsequently, Motorola became almost synonymous with wireless communications and naturally became the leader in the mobile phone industry. However, after 1997, Nokia from the small country of Finland came from behind and dominated the world. In 2008, Nokia topped the list with a market share of 38.6% and annual sales of 467 million units. Looking at the history of global mobile phone development, no one has been able to surpass it so far. But now, after Motorola was sold to Google, it was taken over by Lenovo, and Nokia has turned into a network telecommunications equipment provider.

In the history of global mobile phones, no one is enduring and no one is invincible. Therefore, domestic mobile phones will inevitably have a chance to turn around and dominate the world.

Friends who read this article carefully will find that Huawei is almost the only one in the above analysis of domestic mobile phone manufacturers. The above article also intentionally or unintentionally avoids talking about Huawei, because Huawei is the only domestic mobile phone company that can compete with Samsung and Apple in mobile phone business and company comprehensive strength. If Huawei can represent domestic mobile phone manufacturers, it is no exaggeration to say that domestic mobile phones are about to turn around. Looking back at the bold words of Mr. Yu Chengdong, CEO of Huawei Consumer Business, "Honor brand will surpass Xiaomi brand, Huawei brand will surpass Apple and Samsung brand", this seems to be moving towards a prophecy step by step.

So can Huawei use this stone from another mountain to polish jade?

In the 40-year history of global mobile phone development, in addition to Samsung, Huawei, ZTE and other manufacturers, other mobile phone manufacturers such as Kejian, Bird, Panda, Amoi, Dibit, and Southern High-Tech have experienced ups and downs in the great waves. Most of the current mobile phone manufacturers have less than 12 years of mobile phone manufacturing history. Today, Huawei has basically succeeded in the mobile phone business, except that its mobile phone profits are not as good as Samsung and Apple. It can be imagined that with Huawei's current size, technology reserves, innovation capabilities, and brand influence, as long as Huawei follows its current development strategy, it is basically a matter of time before it catches up with Samsung and Apple, if not surpassing them.

As a rising star among domestic mobile phones, Huawei started to enter the mobile phone industry in 2003. After 2004, Huawei began to manufacture 3G mobile phones in large quantities. Huawei HiSilicon Semiconductor was also established in 2004. At that time, Huawei's revenue had reached 31.3 billion yuan. Until 2011, Huawei's mobile phones were basically sold to operators in a customized form, not directly to consumers, and there was little advertising, so it was little known.

There are two types of customized business models: one is that the customer promises sales volume, and the mobile phone only prints the customer's (main telecom operator) logo, not Huawei's; the other is that the mobile phone is printed with both the customer's and Huawei's logos. In this case, Huawei has to give customers publicity subsidies for each phone, just like "IntelInside". Because customized mobile phones have meager profits and domestic smartphone brands have been established, Huawei decided to open up the market and establish its own mobile phone brand in 2011. That year, Huawei's smartphone shipments reached 20 million units. In 2011, Huawei's total sales revenue also reached RMB 203.9 billion, with a net profit of RMB 11.6 billion. Huawei's chip supply chain lessons in router and data card businesses have strengthened its determination to develop mobile phone chip business.

In February 2012, Huawei Ascend D equipped with HiSilicon K3V2 was released. However, due to problems such as internal product adjustment and supply chain, Ascend D was not launched until half a year later. HiSilicon K3V2 also had serious overheating due to backward technology and insufficient technical experience, and Ascend D was basically declared a failure. In 2013, Xiaomi's Internet model made "pigs fly", and major companies followed suit. In 2013, Huawei's Internet sub-brand Honor was established.

The recognition of HiSilicon K3V2 did not defeat HiSilicon. HiSilicon learned from its mistakes and released HiSilicon Kirin 910 and 920 in 2014. Huawei P7, Huawei Mate 7 and Honor 6 equipped with HiSilicon Kirin 910 and 920 have achieved success one after another. This year, with the rapid growth of the smartphone industry, Huawei's consumer business has become Huawei's fastest growing business. In 2014, Huawei's consumer business revenue reached RMB 75.1 billion, a year-on-year increase of 32.6%. Huawei's annual sales revenue also reached RMB 288.2 billion, a year-on-year increase of 20.6%; net profit was RMB 27.9 billion.

2017 was a year of strategic success for Huawei. In 2017, Huawei became the world's largest telecommunications equipment provider; its global mobile phone shipments reached 153 million units, ranking third in the world; HiSilicon also became the world's third largest mobile phone chip manufacturer after Qualcomm and MediaTek. In 2017, Huawei achieved sales revenue of RMB 603.6 billion and net profit of RMB 47.5 billion. More importantly, in 2017, Huawei's consumer business revenue was RMB 237.2 billion, a year-on-year increase of 32%, accounting for 39% of total revenue. Huawei's consumer business will most likely surpass its operator business since its establishment in the next few years, which will be a historic leap for Huawei.

It is not difficult to see that the success of Huawei's mobile phone business relies on Huawei's success in the field of network communication business, which provides business development funding support, technical support, talent support, global operator channel support, and the company's operational experience in the development of network communication business for the development of Huawei's mobile phone business. Relying on Huawei's accumulated technical advantages in the field of network communication business, HiSilicon K3V2 was born, and the success of Huawei's mobile phone business greatly accelerated the development of HiSilicon Semiconductor.

In turn, the development of HiSilicon chips has strengthened Huawei's voice in the supply chain, enhanced Huawei's mobile phone brand influence, and allowed Huawei's mobile phones to further develop in the high-end market. This is a win-win situation for all. Can domestic mobile phones replicate the success of Huawei's mobile phones? Before that, let's take a look at how the major mobile phone manufacturers in the global mobile phone market enter the mobile phone market.

Among the major global mobile phone manufacturers in Figure 11, Samsung, Apple, Huawei, ZTE, Lenovo, Meizu, and OPPO all relied on the success of their companies in other business areas to enter the mobile phone market. Only Xiaomi entered the mobile phone market from the beginning, and the development of the vivo brand was also established by relying on the development of BBK Group. Therefore, Xiaomi has become the fastest growing and the biggest uncertainty factor in the global mobile phone market. (Note: The development of each mobile phone manufacturer can almost be written into a book, so the following is just a simple analysis)

Among domestic mobile phone manufacturers, ZTE and Lenovo have the most similar mobile phone business development to Huawei. Lenovo, both mixed-ownership enterprises, went public in 1994, and ZTE was successfully restructured and listed in 1997. The two largest shareholders are state-owned assets, which has forced them to face the constraints of national policy systems and control entities in terms of enterprise management, business decision-making, enterprise restructuring and incentives. ZTE's wrong development in the strategic direction of the 2G era, its timid expansion of global business, and ZTE's over-emphasis on current profits and neglect of long-term development of the enterprise, like Lenovo, ZTE began to be left far behind by Huawei in the 3G era.

ZTE and Lenovo are deeply trapped in the operator channel. Lenovo's "Lemon", "VIBE" and "ZUK" sub-brands have all failed in operation. Its domestic business is even worse than OnePlus and Hammer phones. Obviously, this is not a problem of corporate resource investment and technical strength. Compared with Lenovo, which is weak in technology, ZTE is much more generous in investing in technological innovation, with annual R&D investment accounting for about 10% of revenue, but its Nubia mobile phone is now half-dead. What is the reason?

Compared with Huawei, ZTE has invested a lot of R&D in existing products and mature businesses, but has made no progress in its core business of key mobile phone components. It has failed to combine technological innovation with the company's products and invest in the market to earn real money.

Although OPPO and vivo have achieved great success in the mobile phone market, the sustainability of the competition between the two companies is questionable. Without key smartphone operating systems, CPUs, screens, and storage technologies, and without brand influence and globalization in other parts of the world, how can they compete with Samsung, Apple, and Huawei in the future? Looking at Figure 12, we can see that OPPO and vivo are not companies that do not focus on technological innovation. In terms of mobile music HIFI, camera, and charging technology, OPPO and vivo play the role of domestic mobile phone leaders.

However, the same thing about OPPO, vivo and ZTE is that they lack R&D investment and technological innovation in forward-looking technologies and high-investment and high-barrier fields, and always appear as followers. Like other domestic mobile phone manufacturers, OPPO, vivo, ZTE and other domestic mobile phone manufacturers not only face the external environment of relying on foreign countries for key components and being subject to the control of the supply chain, but also the innovations made by the companies are mostly micro-innovations. The comparison between domestic mobile phones and Samsung, Apple and Qualcomm is not about full screen and special-shaped screen, three cameras and dual cameras, 24W and 5W charging power, under-screen recognition and fingerprint recognition.

The innovations of OPPO, vivo, and ZTE are worthy of recognition, but only disruptive innovation, only core technology innovation in the upstream mobile phone industry chain and converting innovative technologies into industrial manufacturing capabilities can they fundamentally change their own industry status and change the global mobile phone industry landscape.

Whether it is ZTE's NeoVision electronic aperture technology, visual borderless technology, Meizu's mback button or OPPO's flash charging technology, the big bang function of the Hammer phone is just micro-innovation. Domestic mobile phone manufacturers must realize the gap between themselves and Samsung and Apple; the gap between themselves and Qualcomm, Broadcom, Google, and TI. Disruptive innovation is difficult, but for us, the world's largest mobile phone manufacturing and sales country, disruptive innovation must be achieved, otherwise we will only be able to use the greatest resources to pay only the smallest profits in the industrial chain, and we will also have to depend on others.

Let's look at Meizu. For Meizu, a company once called "China's Apple", the saying "Huang Zhang is both its success and failure". Relying on the success of the digital walkman business, founder Huang Zhang saw the decline of the digital walkman market and the prospects of the smartphone industry, and was able to bring Meizu phones to where they are today. This is not easy, but it's a pity.

From not accepting Lei Jun's advice to introduce capital and talent at the beginning, to following Xiaomi's business model but not using the Qualcomm Snapdragon chips that consumers expect, resulting in weak products; after introducing Alibaba, it hesitated in technological innovation, channel construction, and advertising marketing. When technological advances make mobile phone designs more uniform, when Google changes the way it cooperates with operating systems or reduces the differentiation of mobile phone operating systems, when the business model of the mobile phone industry further evolves or changes, and low-end mobile phones in the post-5G era no longer rely on hardware sales to generate profits, where will small domestic smartphone manufacturers such as Meizu, Hammer, and OnePlus go?

Xiaomi, a smartphone manufacturer founded in 2010, has almost witnessed the development of China's smartphone industry. I believe that many technology and digital enthusiasts can witness how Xiaomi has developed step by step.

In 2010, global smartphone sales increased by 74%. When Xiaomi 1 was released in 2011, the Chinese smartphone market grew by 103.1% year-on-year. iResearch Consulting analyzed at the time that "there are more than 1 billion mobile phone users in China, but the penetration rate of smartphones is only 13%, and the market potential is huge; in addition, with the increasing popularity of thousand-yuan smartphones, it will further stimulate the increase in smartphone shipments. It is expected to maintain a growth rate of more than 30% in the next few years, and then the Chinese smartphone market will enter a stage of gradual and stable development."

There is no doubt that Xiaomi has caught up with the trend of the smartphone market. When Xiaomi was founded, the "China Cool Alliance" still relied heavily on operators. Nokia, SONY, Samsung, Apple and other brands were high up and expensive. The Chinese smartphone market lacked favorable mid-range mobile phone brands. The configurations of mid-range phones such as HTC and SONY were really terrible. Consumer purchasing power and demand for mobile phone software and hardware were completely unequal to the supply in the smartphone market. At this time, Xiaomi suddenly emerged. Xiaomi's success is the success of the Chinese smartphone market, the success of Xiaomi's business model, and the personal success of Mr. Lei Jun.

The importance of founders to the development of a company, such as Ren Zhengfei to Huawei, Hou Weigui to ZTE, Liu Chuanzhi to Lenovo, Duan Yongping to vivo, Huang Zhang to Meizu, the culture and genes of a company are mostly given by the founder, and the founder himself has the corporate culture and style shown by the company. If Xiaomi relied on Mr. Lei Jun's own financial advantages, investment experience and extensive connections in the Chinese Internet industry at the beginning of its establishment, then Xiaomi must have relied on Mr. Lei Jun's desire to establish an excellent company, his ultimate pursuit of products, and his strict personality requirements.

Before the emergence of Xiaomi's business model, no domestic mobile phone manufacturer had a model like Xiaomi's mobile phone, which relied on value-added services to make profits through low-profit hardware sales. Except for Xiaomi, most of the profits of all mobile phone manufacturers depended on hardware profits from mobile phone sales or operator subsidies to make profits. Xiaomi's model is successful, but looking to the future, with Xiaomi's current business scale of more than 100 billion yuan and annual R&D investment of more than 2 billion yuan, it is impossible to lead domestic mobile phones to success in the field of technology.

We can see that Xiaomi, OPPO, vivo, ZTE and other mobile phone manufacturers attach great importance to technical patents and their continuous efforts in mobile phone technology innovation. As of January 31, 2018, in China, Xiaomi submitted 10,188 patents, 1,158 inventions, 631 utility models and 555 designs. OPPO already has more than 27,000 patent technologies worldwide, and the number of OPPO's domestic patent applications published and authorized is 21,842. In 2017 and the first half of 2018, among domestic companies whose main business is the research and development and sales of smart terminals, OPPO has been ranked first in the number of invention patent authorizations.

At the beginning of last year, Vivo's senior management said at a media conference that it would establish seven R&D centers at home and abroad. The domestic ones include Shenzhen, Chang'an, Dongguan, Nanjing, Hangzhou and Beijing, and two R&D centers will be set up in Silicon Valley and San Diego, USA. From this deployment, it seems that Vivo will change from the original single-point technology breakthroughs of music and photography to the overall technological innovation of smartphones.

At the same time, OPPO has also formulated a project plan with a total investment of about 2 billion yuan for the construction of its R&D headquarters. According to its company's arrangement, it will build a R&D headquarters in Chang'an Town, including multiple R&D centers, in order to support the rapid development of the company's mobile Internet strategy. The project includes a dormitory for senior employees, a testing center, a mobile phone R&D center, a software R&D center, and a mobile Internet R&D center. The efforts of domestic mobile phone manufacturers in the field of technological innovation are obvious to all.

Let’s answer the question “Why have domestic mobile phones made a comeback?”

With China being the world's largest mobile phone manufacturer and consumer, domestic mobile phone manufacturers can quickly accumulate capital and gain the product research and development, manufacturing advantages, and market operation experience accumulated by the company in the mobile phone supply chain.

Domestic mobile phones are leading the development of industry technology and the market thanks to the continuous progress and expansion of technology R&D investment, patent reserves, and industrial investment by companies in the mobile phone industry chain, such as Huawei, ZTE, OPPO, BOE, Tsinghua Unigroup, Datang Telecom, TSMC, and Foxconn.

Domestic mobile phones continue to innovate based on their understanding of the mobile phone market and their understanding and pursuit of mobile phone software and hardware.

Domestic mobile phones rely on the company's unique corporate culture and product concept, its unremitting development of the global market, and its exploration of new fields, new technologies, and new models around the world to catch up with Samsung and Apple in the industry.

From the perspective of business development history, in the future mobile phone industry, only two domestic mobile phone manufacturers can become global mobile phone market giants, and Xiaomi and Huawei have the best chance at present. Huawei is the only domestic mobile phone company that has sufficient enterprise scale and profitability; sufficient technical R&D strength and R&D investment; key core technologies and patent reserves in the mobile phone industry; sufficient global mobile phone market position and globalization level; and sufficient scientific and complete corporate organization and system capabilities.

More importantly, Huawei founders and Huawei's entire company can deeply realize the importance of technological innovation and globalization to the company's development and have been firmly implementing it for decades. Xiaomi, its founder Lei Jun and management have given Xiaomi a vision to become a world giant company from the very beginning, from the founders and management, deep technology, management, capital accumulation, business vision and courage; talents from Xiaomi's globalization; scientific and complete corporate organization and system capabilities; and from Xiaomi's unique business model to promote Xiaomi's rapid development.

Finally, I hope that the giants in all fields of the mobile phone industry chain can continue to invest in exploration in high-barrier technology, high investment unknown areas, and basic science fields like Huawei.