Mobile phone supply chain crisis survey: low-end price war is an invisible killer

Recently, Shenzhen Fuchang Electronics, a first-tier supplier of mobile phone suppliers such as Huawei and ZTE, and a star enterprise in Longgang, Shenzhen, is facing bankruptcy, which has attracted widespread attention from all walks of life. What caused the crisis in the upstream supply chain? Price war or overcapacity, or is the winter of this industry coming? Sohu Technology's investigation shows that on the surface, overcapacity, fewer and fewer mobile phone models, and "loss-making price wars" are important reasons for its collapse.

Mobile phone manufacturers have been in arrears of payment for up to 9 months

On the evening of October 8, Shenzhen mobile phone supplier Fuchang collapsed. Huawei and ZTE were also victims of this "sudden bankruptcy". Because at that time "Huawei and ZTE both had thousands of molds for producing mobile phone cases installed in Fuchang's production workshop. In order to reduce losses, the two companies needed to move the molds and arrange production in other factories to resume supply as soon as possible."

However, in the eyes of suppliers, "the molds are Fuchang Electronics' assets, and Huawei and ZTE still have tens of millions of yuan in outstanding payments, so they cannot take the molds away." A "battle to defend the molds" was even staged in the three factories of Fuchang Electronics.

A supplier in Shenzhen told Sohu Technology that due to the lack of policy protection, large manufacturers like ZTE and Huawei usually owe payments to the supply chain for 6-9 months, while some small manufacturers owe payments for even longer periods of time.

A supplier specializing in mobile phone display cabinets told Sohu Technology that mobile phone manufacturers must at least pay 30% of the payment in advance before they can get the screen. Therefore, suppliers who supply screens can get money from mobile phone manufacturers, while many other upstream suppliers will be owed money by mobile phone manufacturers.

The supplier revealed that due to the lack of policy protection, many small businesses went bankrupt, and this risk is greater than the risk of stock speculation. Therefore, they prefer to stay under the shade of big trees and choose large manufacturers such as Huawei and ZTE to cooperate. However, large companies generally choose companies of the same scale as Fuchang Electronics, which are generally around 5-10, so the competition among suppliers is fierce. "When accepting orders, we try our best to lower the price, but the manufacturing cost is getting higher and higher." Due to the continuous increase in rent, water, electricity and raw materials, coupled with the lack of payment for goods and the bank's demand for loans, smaller companies can only choose to close down.

Coincidentally, on October 10, Dongguan Fenggang Jingchi Plastic Technology Co., Ltd. issued a debt liquidation "notice letter" to supply chain companies. As a result, hundreds of mobile phone case material suppliers were owed more than 30 million yuan in unpaid goods, and 80 temporary employees' wages of nearly 500,000 yuan have not yet been settled. This company, founded in 2013, mainly produces mobile phone cases, mobile phone molds and mobile phone peripheral accessories, and supplies accessories to mobile phone manufacturers such as TCL, Haier, Coolpad, and LA VA.

The electronics OEM industry has been developing for decades, but most of it still remains at the bottom of the industry chain, with meager profits. It can only rely on economies of scale to gain profits and maintain development. Nandu’s survey pointed out that “everyone rushed in at the beginning, but now it has become a low-profit industry with a rotten market. If there is a problem in any link of the capital chain, market environment, and the company’s own cost control, the company will easily go out of business.”

Mobile phone manufacturers: The whole machine factory is becoming more and more focused, and the number of models is decreasing.

"Because the whole machine factory is becoming more and more focused, the number of models is decreasing." Li Wang, president of Qihoo Technology, said in an interview with Sohu Technology that the closure of upstream companies in the mobile phone supply chain is not unique to the communications industry, but a problem faced by the entire industry. China's economy is undergoing transformation and adjustment, and the entire upstream production capacity is oversupplied.

Li Wang believes that this is the same as other industries, such as televisions, automobiles, and air conditioners. As the number of complete machine factories decreases, and the upstream supply chain has been developing rapidly in the past few years, a large amount of production capacity is prepared, so such an adjustment is a normal process of squeezing bubbles. This is market metabolism, and natural elimination is always a market law.

In fact, as Li Wang analyzed, some terminal bosses believe that "a few years ago, Taiwanese companies and Japanese and Korean companies living in coastal cities in China also faced this problem. It is impossible to allow some inefficient and repetitive labor companies to exist for a long time. This is not in line with the development rules of social progress."

Huawei Consumer Business CEO Richard Yu said that Huawei's models have been reduced by more than 80% in the past two years, from hundreds to dozens. In the future, except for Apple and Huawei, all other smartphone manufacturers will die in the smartphone market, including Samsung, which is still among the top three in global smartphone shipments. The main reason is that Huawei has never been a price war since the beginning, and has taken the route of high-quality products.

Price war is an invisible "killer"

The Daily Telegraph reported that in the second quarter of 2015, no smartphone manufacturer made as much money as Apple, which accounted for 90% of the industry's profits, with Samsung accounting for most of the rest. Although domestic mobile phone manufacturers are jubilant and are working hard to promote new products, they are also under great pressure to make profits. Some manufacturers have even lowered the prices of many products to almost no limit in order to increase sales.

An insider even revealed that "the lowest factory price of a certain brand of mobile phone is at least 360 yuan, but some mobile phone manufacturers sell it for 300 yuan each, which is obviously a loss of 60 yuan per unit. These losses can only be paid by upstream suppliers."

The price war that loses money but gains publicity has caused many tragedies. Previously, Shenzhen Hongkaixing Plastic Products Company also declared bankruptcy due to owing nearly 35 million yuan to 214 suppliers. In January this year, Gao Min, chairman of Zhaoxin Communication, a Dongguan company that specializes in OEM production of mobile phones for overseas manufacturers, committed suicide due to business pressure. According to industry insiders, Beijing Yunchen Technology Co., Ltd., the parent company of Da Kele Mobile, is facing bankruptcy liquidation, and its founder Ding Xiuhong has also left Yunchen Technology.

Communications industry observer Xiang Ligang believes that there are more and more domestic players participating in the competition. "There are no less than 20 well-known mobile phone brands in China, and if you add the less well-known ones, there are probably more than 100." With so many competitors gathered together and basically no core competitive advantage, price has become one of the few means of competition. However, due to the huge size of the Chinese market, although the profits of domestic manufacturers' low-priced products are very low, they can still make profits and survive with huge sales.

Regarding the price war, Huawei Chairman Ren Zhengfei poured cold water on the meager profits of mobile phones a few years ago. He said, "Making 30 yuan from a mobile phone, how can this be considered high-tech and high-level? Now people are so proud of making hundreds of millions of dollars, comparing their strengths with others' weaknesses, and being complacent. I hope that the Consumer BG (mobile phone business) will not become a bubble after the victory, and will not go astray."

However, a survey by Sohu Technology shows that many bigwigs are optimistic about price wars. They do not think that price wars are unprofitable, but instead shift their focus to the problem of overcapacity. A communications expert said in an interview with Sohu Technology that the media should look at the new changes in the mobile phone supply chain rationally. As long as the communications industry does not collapse and several brand manufacturers do not encounter major problems, the industry chain will not have major problems, because users do not care about the problems upstream of the industry chain, but hope that mobile phones are as cheap as possible.

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.