Why is it that Changhong, which invests 2 billion yuan in R&D and 6 billion yuan in marketing expenses each year, always has no news about its products?

On the 25th, Sichuan Changhong, the former A-share leader, handed in its mid-year report, and the data performance did not meet investors' psychological expectations. In the first half of the year, with a turnover of nearly 50 billion, it only achieved a profit of 90 million, less than one-fifth of one percent, and after deducting non-operating expenses, it still lost more than 40 million.

It seems that Changhong has finally turned a profit on paper, but this does not mean that Changhong has restored its profitability. In fact, this report card can neither boost the confidence of long-disappointed old shareholders in Changhong, nor make new shareholders feel apprehensive after seeing such data.

In an interview, Changhong Chairman Zhao Yong once said: "For a company with a scale of 100 billion yuan to make a profit of more than 1 billion yuan, such data is not good-looking, let alone glorious."

This moment is worse than that moment. At that time, Changhong could at least have a decent profit performance. I wonder if Chairman Zhao has ever thought of bringing in a "more disgraceful data" in the annual report after seeing Changhong's current state.

I keep gambling and keep losing.

After nearly 30 years of rapid development, China's home appliance industry has entered a mature stage with price competition as the main means of competition. The incremental market has transformed into a stock market, domestic demand is seriously insufficient, and sales of traditional home appliances have begun to decline.

In this huge wave of the sand-sifting era, some people are swimming happily while others are feeling melancholy.

Haier, Midea, and Gree, which were once Changhong's "little brothers", have now become the kings of their respective home appliance markets. However, Changhong has been squeezed out of the top ten, and is "not even visible with a telescope."

Newly emerging brands such as Xiaomi, Huawei, and OPPO have also joined the TV market and taken a big share. Advanced smart technology has greatly expanded the functionality of home appliance products and satisfied users' sense of participation. Changhong, which has been complacent, has also seen its market position further decline.

Changhong started out as a military-industrial enterprise, and after transforming into a TV manufacturer, it was quite successful. However, former chairman Ni Runfeng bounced back and forth between success and failure. First, he gambled 1 billion yuan to hoard cathode ray tubes, becoming a "famous cathode ray tube collector", and then he implemented "big market and big foreign trade" to sell TV sets on credit to APEX in the United States, giving away 4 billion yuan for free, which greatly reduced his vitality.

After Zhao Yong, a top student from Tsinghua University with a technical background, took over, Changhong inherited its previous basic business philosophy of being fearless and believing that "only those who love to gamble can win", and once again invested 4 billion in the plasma project, easily becoming a "famous plasma screen enthusiast".

The times did not give Changhong any chance.

Despite repeated losses, Changhong's erratic and invisible strategic style has not been stopped. It is still obsessed with mergers and acquisitions, establishing a large number of subsidiaries of super large scale, and taking aimless expansion steps with the mentality of "raising children to provide for old age, and more children, more blessings".

According to the data disclosed in the mid-year financial report, Changhong Group has more than 150 subsidiaries and grandson companies, covering a wide range of fields. In addition to the main business of home appliances, it is also widely involved in automotive appliances, electronic products and spare parts, communication equipment, real estate development and operation, housing construction, consulting services, telecommunications services, and transportation services.

Judging from Changhong’s performance in the past few years of its gamble, it has only been seen placing bets but no recovery. It has basically completely handed over its position as the market leader. When it can no longer survive, it can only rely on the government to help it out. This truly illustrates what it means to “lose every time you gamble.”

Let imagination happen, but can’t break the “imagination dilemma”

1. Low profit from main business

In the 2020 annual report, Changhong claimed that it would promote the company's "transformation from scale-based to efficiency-based", optimize the industrial structure, reduce the proportion of scale-based businesses that do not generate actual benefits, focus on developing core industries and strategic emerging industries, and gradually withdraw from industries with low strategic relevance and inefficient industries with no significant development potential, and decisively withdraw from loss-making businesses that do not conform to the company's strategic direction.

This is the first time that Changhong has proposed "transformation to efficiency" in its report. As expected, the operating profit in the first half of this year was "really good" in an instant, and the loss of non-profit in the first half of the year was equivalent to 67% of last year. Looking at the non-profit net profit alone, the company made a profit of 108 million in 2018, lost 439 million in 2019, lost 60 million in 2020, and lost 40 million in the first half of this year. The continuous losses have caused the stock price to constantly test the bottom line of investors' mood.

In 2019, when Changhong celebrated its 60th anniversary, Chairman Zhao Yong also shouted out the slogan, "By 2025, the total profit will double from 2 billion in 2020." The words are still fresh in our ears, but people have changed and things have changed. The person is still the same person, but the thing is no longer the same thing, and the boasted 2 billion profit turned into a loss of 60 million that year.

The loss of its main business, color TVs, has become the key factor dragging down Changhong's performance. Its market retail price has fallen by nearly 9% year-on-year. Coupled with the general rise in global commodity raw material prices, this has brought greater cost pressure, resulting in greater price increase pressure for terminal products, further squeezing product gross profit margins and plunging Changhong into a quagmire of losses. The reasons for this are probably the following three points.

First, most of the color TV products it currently sells are mid- and low-end products, with a relatively small proportion of high-end products. The product appearance design is conservative and does not conform to the basic development trend of new consumption;

Secondly, in order to increase shipments, an intensive distribution method was adopted in terms of channels. Dealers had strong autonomy in pricing, which led to a chaotic price situation across the country. Due to poor channel management, dealers made no profit, so how could consumers pay for it?

Third, blindly suppressing costs has led to a decline in product quality. For televisions, picture quality and viewing experience are the core competitiveness of the product, but Changhong has deviated from the basics and promoted artificial intelligence, which it is not good at, directly overdrawing its brand image in the minds of consumers.

The new generation of young people pursue product appearance, texture and style, have certain consumption power, have a strong ability to accept premium and low switching costs, and are not interested in whether the brand used to be a big brother. Just like the former Hong Kong film big brother Wan Ziliang, no matter how hard he performed, he can only cut the ribbon for the opening of furniture malls in third- and fourth-tier cities.

Long-term losses and struggles, as well as involvement in too many fields, have led to the erratic and serious aging of its brand image. These have affected Changhong's image among consumers, which in turn fed back to the market and directly caused shipments and profit margins to collapse, forming a deteriorating reverse cycle.

What is even more bizarre is that Changhong spends nearly 6 billion yuan every year to expand the market and maintain its brand. With so much money spent every year, is this the end result?

2. High R&D costs but poor results

As an electronic technology manufacturing company, Changhong seems to have some kind of magic that allows it to cleverly avoid all technological booms.

In addition to sales expenses, Changhong's second largest expense is R&D expenses. Last year's R&D expenses were nearly 2 billion, and nearly 1 billion was invested in R&D expenses in the first half of this year. Compared with the realized net profit, Zhao Yong once said: "I am still a firm "technology faction". In Changhong, we have proposed that technological innovation does not require a budget, and we will give as much as needed."

The R&D budget of Changhong is indeed a testament to the high attention paid by Changhong's top management to technology R&D. However, this long-term high investment and low output makes people wonder where the R&D funds are going.

After winning the title of "Famous Plasma Enthusiast", Changhong was like a machine gun. After a burst of firing, it shifted its research direction to countless fields such as laser TV, smart projection, 8K ultra-definition, etc.

Despite the huge amount of R&D expenses invested over the years, Changhong has always been lukewarm in the market, never caused a strong response, and its product innovation has only been following market trends.

In other words, Changhong, which invests heavily in R&D every year, has never produced a market-leading product or technology. Over the years, even stones can bloom, but Changhong's R&D investment is still like a black hole, with no bottom.

Changhong, with its diversified layout, wants this and that, and more than 100 subsidiaries and grandson companies are working together to cope with the huge uncertainty of technological changes. However, the problem it brings is low efficiency and high R&D and management costs all year round.

Changhong's entry into AIOT and intelligence is not ideal. At present, Xiaomi's AIOT platform has connected more than 170 million devices, but Changhong's data is only 12 million, which shows the huge gap.

The huge R&D expenses cannot be transformed into real productivity. Changhong has fallen behind in realizing the Internet of Everything strategy. In the future, electronic products will inevitably move towards the trend of systematic product family consumption. Its weak product and brand power cannot support its grand technological vision. "Let imagination happen" can only remain at the "imagination" level. All good things have never happened to Changhong in the past ten years.

3. Diversified ecological construction leads to strategic dilemma

The current business difficulties and the lessons learned have all spurred Changhong to seek reform and breakthroughs. The strategic solution chosen by Changhong is diversification. Regardless of whether it is related to the original main industry or not, as long as it can make a profit, Changhong may extend its tentacles to it.

By expanding into new market areas such as mobile intelligence, supply chain, finance, real estate, and batteries, Changhong hopes to find new profit growth points, integrate resources across the entire industry, expand its own growth, and at the same time shape a more ambitious industrial landscape.

Almost crazy mergers and acquisitions and new construction have continuously increased Changhong's size and base. However, the body has become fatter, but the strength has not increased much. Diversification has never improved Changhong's performance. Instead, it has made Changhong lose its clear development direction in the course of operation. In the eager desire to make money again and again, it has missed more long-term market opportunities .

The rapid expansion of the capital map has gradually hollowed out Changhong as a holding company and turned it into a mere shell with nothing but a shell. Its ability to engage in business activities and create profits has become increasingly weak. In 2021, the 62-year-old Changhong has a market value of 13.4 billion, which is more than 40 billion away from its peak.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.