Lingsheng Technology, a chip company that was established less than half a month ago, has sparked a rare controversy in China's mobile phone chip industry. On May 26, Datang Telecom issued an announcement that its subsidiary Unigroup Technology Co., Ltd. and Qualcomm (China) Holdings Limited will jointly invest more than RMB 2.98 billion to establish a joint venture company, Lingsheng Technology (Guizhou) Co., Ltd., to jointly enter the mid- and low-end chip market. The news caused a stir. Ye Tianchun, director of the Institute of Microelectronics of the Chinese Academy of Sciences and chief engineer of the National Integrated Circuit Major Project, commented on his WeChat account: "The joint venture is positioned at the low end, which is like inviting a wolf into the house to disrupt the war. The target is probably not MediaTek but Spreadtrum. State-owned capital should not do this." Tsinghua Unigroup Chairman Zhao Weiguo was even more vocal, directly attacking Qualcomm CEO, saying, "Qualcomm China CEO Meng Pu is a comprador, and Unigroup's surrender to foreigners reminds him of Wang Jingwei's surrender to Japan." Lingsheng Technology was questioned from the beginning. Zhao Weiguo was so angry because the outside world unanimously believed that the newly established Lingsheng Technology was aimed directly at Spreadtrum, a subsidiary of Tsinghua Unigroup, and was detrimental to the long-term development of China's semiconductor industry. So, is this really the case? What impact will the cooperation between Datang and Qualcomm have on China's chip market? Datang Telecom's self-rescue Most people who know Datang Telecom were born in the 1980s or even the 1970s. Datang Telecom proposed and formulated TD-SCDMA, one of the communication standards in the 3G era, and became the main mobile phone chip supplier in China in the 3G era. The specific business operation company is one of the partners in this cooperation, Unichip Technology. Speaking of Leadcore Technology, it has been competing with Spreadtrum and MTK for the low-end smartphone and feature phone market in China. In 2014, Leadcore Technology launched the LC1860, a milestone chip platform, and has since become a core supplier for Xiaomi's Redmi series. The good times did not last long. Faced with competitive pressure and a slow product pace, Unigroup's mobile phone chip business began to decline. Therefore, at the end of 2014, Unigroup and Xiaomi established a joint venture and began to cooperate in the development of entry-level chips. Xiaomi naturally became one of the few mobile phone brands in the industry that can develop its own chips, and Unigroup, which was in a declining trend, achieved a phased transformation. For Datang Telecom, the integrated circuit business with chips as the core has become the core revenue of Datang Telecom. Specifically, it includes Unigroup Technology, which is engaged in mobile communications business (mobile phones), Datang Microelectronics, which is engaged in traditional smart card security chip business, and Datang NXP, an automotive electronic chip company established in a joint venture with foreign companies. According to the financial report, Datang Telecom achieved revenue of 7.23 billion yuan in 2016, a year-on-year decrease of 15.96%; net loss was 1.776 billion yuan. Specifically, in terms of product lines, the three main businesses all experienced declines of varying degrees. Among them, the gross profit margin of terminal design was -2.08%, a decrease of 6.47 percentage points; the gross profit margin of software and applications was 4.48%, a decrease of 10.02 percentage points. Only the gross profit margin of integrated circuit design was 19.16%, an increase of 7.92 percentage points year-on-year. Therefore, increasing chip layout is the way out for Datang Telecom in the future. Last year, Datang Telecom started cooperation with SMIC and launched the "4G+28nm" project, aiming to promote the positive interaction between chip design and chip manufacturing; in March this year, it invested 190 million yuan to register and establish Shanghai Likexin Semiconductor Technology Co., Ltd., focusing on consumer terminal chips. Industry analysts pointed out that it is reasonable for Leadcore to cooperate with its competitor Qualcomm to impact the mid- and low-end chip market. After 2014, Leadcore's mobile phone chip business was basically maintained by Xiaomi. After establishing a joint venture with Xiaomi, Leadcore's business was basically stagnant. This cooperation with Qualcomm is expected to revive its mobile phone chip business. But in reality it is far from that simple. Qualcomm wants to "take it all" In Qualcomm's view, this is a win-win for all parties. It enhances its own business capabilities in segmented markets, injects new vitality into the development of Datang's Unigroup Technology chip business, and adheres to the long-term vision of building a Chinese ecosystem. But in reality, Qualcomm is likely to be the one that benefits the most. Qualcomm's main business is chip and patent licensing. Its chip business is mainly aimed at the mid-to-high-end market. The low-end market has been constrained by Spreadtrum and MTK and has not made significant progress in the past few years. It is understood that by establishing a joint venture with Datang Telecom, Qualcomm can license its low-end chips to Lingsheng Technology, which will compete with Spreadtrum and MediaTek, even if it is a price war. Analysts pointed out that even if losses occur, the amount of losses that Qualcomm will bear will be limited as it only holds a 24.133% stake in the joint venture. It can even obtain support from national special funds by virtue of the Chinese side holding more than three-quarters of the shares in the joint venture to further intensify the price war. In this way, Qualcomm will be able to use Lingsheng Technology to impact the mid- and low-end markets of Spreadtrum and MediaTek without expending too many resources itself. Even after Lingsheng Technology grabs more market share from Spreadtrum and MediaTek, it can earn more profits by obtaining patent licensing fees, thus achieving the goal of killing two birds with one stone, not only hitting its opponents but also potentially obtaining more patent fees. It is not difficult to understand the aforementioned fierce words of Zhao Weiguo. It is clear that Qualcomm wants to dominate the mobile phone chip market. There have been signs of this before. In February this year, Qualcomm even launched a 4G chip for feature phones. In fact, judging from Qualcomm's previous practices, it has never relied solely on market means to compete. For example, the antitrust case against Qualcomm in Europe pointed out that it adopted unfair competition methods against European chip companies. That is, it relied on its patent advantages to give patent licensing fee discounts to companies that adopted its chips. This created an unfair competition environment for European chip companies. This time, Qualcomm may also use Lingsheng Technology to launch a chip price war while taking similar measures to put Spreadtrum and MediaTek in a disadvantageous competitive position. Spreadtrum was hit the hardest Nowadays, smartphones have become the mainstream of the market. With the upgrading of users' consumption, mid-to-high-end products have attracted widespread attention from users, but mid-to-low-end smartphones and even feature phones are still a huge market. According to data from the Ministry of Industry and Information Technology, China produced 2.1 billion mobile phones in 2016, a year-on-year increase of 13.6%, of which 1.5 billion were smartphones, up 9.9%, accounting for 71.4%, and 600 million were feature phones, accounting for 25.3%. This means that feature phones still account for more than a quarter of the current shipments. And most of these smartphones are still based on 2G/3G networks. According to the plan, Lingsheng Technology focuses on the mid- and low-end mobile phone market. It seems like we are back to the scene many years ago when Unigroup Technology competed with MTK and Spreadtrum. The difference is that Qualcomm is involved this time. Judging from the proportion of registered capital of Lingsheng Technology, Chinese capital is in a dominant position, but the technological dominance of the joint venture should be in the hands of Qualcomm. The reason is that most foreign technology companies only provide technology licenses to domestic companies, rather than completely transfer intellectual property rights. Moreover, the scope of technology licensing is only that domestic companies can legally use the intellectual property rights of foreign companies, but domestic companies do not actually own the intellectual property rights. Qian Guoliang, Vice President of Datang Telecom and General Manager of Leadcore Technology, said: In terms of product layout, Lingsheng Technology mainly focuses on the consumer mobile phone market. The business scope mainly includes design, packaging, testing, customer support and sales related to chipset solutions, as well as technology development, technology licensing, technology consulting, technology services and software development. Qian Guoliang added that this cooperation is mainly aimed at providing chip solutions for the mobile phone market. The company's initial positioning is in the field of mid- and low-end mobile phone chips, focusing on the mobile phone market segment with a price of around US$100. From this point of view, Lingsheng Technology is more like Qualcomm's low-end chip sales company in China, and its value is not high. "The only benefit is that Datang's mobile phone chip business is expected to return to the market, but the market positioning has no practical benefit for improving the quality of domestic chips." A mobile phone chip industry insider told Tencent Technology. On the contrary, it has intensified the competition with Spreadtrum and MTK under Tsinghua Unigroup, which are known as the "national team" of China's chip industry. Currently, Spreadtrum is the world's third largest baseband chip supplier. In 2016, Spreadtrum shipped about 700 million baseband chips, accounting for 27% of the world. In comparison, Qualcomm ranked first with a market share of 32%, and MediaTek ranked second with a share of 28%. At the end of 2013, Spreadtrum was acquired by Tsinghua Unigroup and returned to China from the overseas capital market. Judging from the performance in the past year, Spreadtrum has performed well in the mid-to-low-end market, especially in the 4G market. Benefiting from the explosion of the 4G market, Spreadtrum's 4G chip shipments exceeded 100 million sets in 2016, a year-on-year increase of nearly 6 times. Now, while Spreadtrum is marching into the mid-to-high-end market, it has also launched 4G feature phone chips to further consolidate the low-end market, which can be said to be a two-pronged approach. The emergence of Lingsheng Technology has undoubtedly given Spreadtrum an additional competitor. In addition, MediaTek previously encountered setbacks in its challenge to Qualcomm in the high-end mobile phone chip market and recently announced that it would shift its focus back to the mid- and low-end markets. The pressure on Spreadtrum can be imagined. According to Taiwan Electronic Times, citing industry sources, MediaTek's mobile phone chip deliveries in the first quarter of this year will fall below 100 million units. Last year, MediaTek sold 480 million mobile phone processors. Sources said that MediaTek's sales in the first half of this year will not be optimistic, which also highlights the growth bottleneck MediaTek faces after the saturation of smartphones. Dr. Li Liyou, Chairman and CEO of Spreadtrum Communications, recently said that the current general price increase of smartphones is "encouraging", mainly because in the past there were dozens of chip manufacturers participating in the competition, but they could not make money, but now there are only a few chip manufacturers left in the global market. Therefore, the price increase of chips is in line with market laws. "Many companies often use mergers and acquisitions and cooperation to accelerate development and narrow the gap with foreign counterparts, but they should also improve themselves through innovative products and continuous research and development," said the chip expert mentioned above. Now it seems that the addition of a "new competitor" is not a happy thing, whether it is Spreadtrum, Tsinghua Unigroup or MTK, and the one who may be secretly happy is Qualcomm. Intensified competition At present, Qualcomm has conquered the top 10 smartphone manufacturers in China through patent licensing. Thanks to this, Qualcomm's share of the Chinese smartphone application processor market will exceed 30% in the first quarter of this year, and Qualcomm's ambition is to reach 50% in the world. However, due to competitive pressure from Spreadtrum and MTK, as well as the impact of self-developed chips from mobile phone brands, Qualcomm is still some distance away from this goal, and the latter is very likely to become the biggest obstacle to Qualcomm's future development. In Qualcomm's main Android market, Huawei's chip layout has caused Qualcomm to lose a lot of orders. Huawei HiSilicon Kirin processors are mainly used in Huawei's flagship series Mate series and P series. Although Huawei also uses Qualcomm's chips, they are basically used in mid-range phones. Judging from Huawei's terminal strategic deployment, the purpose of using HiSilicon Kirin in high-end products is to ensure profits. As Huawei pursues higher profits, it will inevitably increase the use of its own chips. The impact on Qualcomm is self-evident, but the premise is that Huawei needs to strengthen the mass production capabilities of HiSilicon Kirin. In March this year, Xiaomi joined the ranks of self-developed chips after Apple, Samsung, and Huawei, launching the Surge S1 chip. Judging from the 28nm process and overall characteristics, this is a chip for entry-level smartphones. For Qualcomm and MediaTek, there is another competitor in the low-end and mid-range chip market. But in the long run, Xiaomi's chip deployment should be like Samsung and Huawei, because with the continuous iteration of chips, Xiaomi will inevitably use Surge in its own high-end products to increase profits. As larger mobile phone brands gradually get involved in chips, the pressure on Qualcomm can be imagined. On the other hand, as more mobile phone manufacturers join the ranks of self-developed chips, competition in the entire mobile phone chip industry will intensify, and the future pattern will inevitably change. If domestic chips want to achieve success, they must increase research and investment in technology. 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. |
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