The bad problem of “playing monkeys” in the mobile phone circle is getting worse.

Let’s talk about this charger.

On the eve of Xiaomi’s release of Xiaomi Mi 11, Lei Jun accidentally revealed that the charger might not be sent, and he fryed for a while. However, in order to quell the “public anger”, Xiaomi obediently provided a package version option, adding an additional independent charging head, but from the perspective of packaging design, Xiaomi Mi 11 has long planned not to send a charging head. Otherwise, how can the charging head of the set version be independent?

Of course, Xiaomi can dump Apple and make Apple the bad guy, but it still can’t hide the desertedness of the entire mobile phone circle. Except that Xiaomi is actively promoting the Snapdragon 888, other mobile phone manufacturers seem to be absent-minded. Usually at this time, Xiaomi’s opponents will come to sneer, and Xiaomi will also reciprocate them. This script has been repeated many times. But this year is obviously different. Even Lu Weibing emphasized that “the first release of Xiaomi Mi 11 is very different from the first release”, with the intention to stimulate opponents.

For example, vivo focuses on the X60 using Samsung Exynos 1080; Honor, which often competes with Xiaomi, is undergoing a brand change, and is also busy with the release of the V40 recently. At the same time, OPPO has made a lot of gains in the European market. The data in the third quarter of this year shows that it has the fastest growth among the top five mobile phone brands, with a year-on-year increase of 396%. There are channels that OPPO is actively increasing orders and has no time to take it into account. As a result, the usual liveliness did not return.

Is the mobile phone industry going to change? Let’s start by looking at what industry leaders have been up to lately. On the one hand, Huawei was suppressed and began to develop the operating system under the circumstance of limited hardware expansion. At the Huawei Developer Conference on December 16, Hongmeng OS 2.0 Beta was announced, officially announcing that its own operating system will be stationed in mobile phones, and it is also compatible with Android apps. The most important thing is the connectivity capability of the expanded IoT, which can be seamlessly connected with a “touch”, which is a demonstration to Google’s Fuchsia in advance.

Just about a week before Huawei announced Hongmeng OS 2.0 Beta, Google also made Fuchsia open source. According to Google’s plan, Fuchsia is not used to replace Android, but it can cover Android. It is an operating system that tries to open up various smart devices. . At this level, it is similar to Huawei’s Hongmeng.

On the other hand, Google’s first open source Fuchsia also has deep meaning. Reports have long pointed out that the number and data volume of IoT devices in the future will greatly exceed the scale of current mobile phones, and mobile phones will serve as a super terminal in the future to undertake the heavy responsibility of connecting and controlling various IoT devices. To this end, Google has been preparing for 5 years, but contact Google is currently facing anti-monopoly investigations and the unsmooth development of AI and intelligent driving businesses. At this moment, increasing the popularity of Fuchsia is more like the setback of other new businesses rather than Fuchsia always put in the correct position.

Apple, which earns most of the profits from smartphones, has also begun to focus on other things. The car it is going to make is finally going to land, and it may be released as early as September next year, which is two years earlier than Guo Mingqi expected. Three companies that can change the world in the field of mobile phones have invariably set their sights beyond mobile phones, and began to ride a donkey to find a horse, weakening the status of mobile phones, and extending their tentacles into other industries. What happened in the mobile phone industry has made the leading manufacturers polarized. Does this mean that the inflection point of the industry has come ahead of schedule, and has Xiaomi’s “fighting monsters and upgrading” all the time changed?

Others are hoarding technology, Xiaomi is hoarding money

Google and Huawei are doing technical reserves (Huawei is also stocking up), Apple is doing cross-border exploration, Xiaomi is stocking up money, and the prelude to the rising smoke is indeed a little nervous.

Shortly after releasing its strong 2020 Q3 earnings report, Xiaomi quickly conducted a financing operation, which was the first refinancing after Xiaomi’s listing. It is reported that Xiaomi was seeking to raise up to 4 billion US dollars through a rights issue and sale of convertible bonds. . Some of them plan to place 1 billion shares on a top-up basis, with a price range of HK$23.7-24.5 per share. The other part is to sign a convertible bond subscription agreement after the market on December 1, and issue a seven-year zero-coupon convertible bond of US$855 million. The financing action also pulled Xiaomi’s stock price down by 7% at the time.

Despite the dissatisfaction caused by the secondary market, Xiaomi still pushed forward vigorously. According to Xiaomi’s introduction, this financing is mainly used to: increase operating capital to expand business; invest to increase market share in major markets, as for the strategic ecosystem and other general purposes of the company are covered, the first two are the key. Then, Xiaomi performed a series of quick operations.

Just on the afternoon of December 2, according to this financing, Xiaomi released an organizational adjustment document, involving key elements such as the Group General Office and the upgrading of the Mobile Phone Manufacturing Engineering Department to the Intelligent Manufacturing Department. Among them, the general office of the group established by Xiaomi is considered to have improved the status of public relations (this can easily be linked to the negative remarks of a Xiaomi executive). And to upgrade the status of the manufacturing sector again, it has the intention to meet new challenges. However, Xiaomi’s slightly impatient actions are not at all like the spring on his face after financing, but write anxiety on his face.

The situation may be more severe than expected. For example, 2 days before the release of Xiaomi Mi 11, Lei Jun revealed that the included charging head was cancelled. But this is more like a long-established decision, not a temporary initiative, because the upstream supply chain is really blowing cold winds. Even if Lei Jun is kind and wants to send a charger, he is afraid that he has more than enough strength to do so – the upstream components are starting to be out of stock.

Source: Internet

The factory is operating in advance. Huawei stockpiled goods on a large scale in advance, borrowing the banner of the US ban, and also caught up with the rising cycle of components. According to Huawei’s own information, in the first half of 2020, Huawei’s stockpiling quota was as high as more than 180 billion yuan, which also led to a substantial increase in global sales of flash memory by 9%. Xiaomi also followed suit and stockpiled goods, which on the surface meant Huawei’s withdrawal of market share, but it also accidentally hit the bullseye of this price hike. Therefore, before the release of Xiaomi Mi 11, Xiaomi showed a rare generosity, saying that the machine can be purchased quickly, and it will no longer be “playing monkeys”.

It is said that Xiaomi’s stocking up to 240 million units this time is not like simply following the trend of Huawei. In connection with Xiaomi’s precise financing of US$4 billion this time, there is a purpose to expand market share. From this point of view, Xiaomi’s stockpiling of goods in advance is sufficiently premeditated. This premise can also be confirmed by its 2019 Q4 financial report. The quarterly financial report shows that its inventory increased by 6.344 billion yuan in the fourth quarter, from 26.241 billion yuan in the third quarter to 32.585 billion yuan. . Considering that Xiaomi has already cleared the inventory of 4G mobile phones and other stocks, and 2019 is a period of low component prices, “playing monkeys” such as Xiaomi have been quietly stocking up for a long time.

Xiaomi still has to refine the supply chain

Without the 2016 slump, Xiaomi might not have been so calm in dealing with this year’s supply chain tensions. It is no coincidence that Lei Jun repeatedly mentioned the supply chain in public. For example, at the Xiaomi Core Supplier Conference on October 18, 2020, Lei Jun mentioned the supply chain again, but used the new word “three years of supplementary lessons” and used the reborn to describe the current Xiaomi supply chain. But not reborn, will be verified soon.

Because the current supply chain environment is very similar to the embarrassing 2016 for Xiaomi – the price of components is out of stock. Upstream suppliers have generally issued notices to implement new prices on January 1, 2021, and even ST has joined the price hike. And like MLCC (multilayer ceramic capacitors) that can be used on various platforms, LTCC (low temperature co-fired ceramic substrates) began to be largely out of stock. The LTCC supply cycle is as high as 20 weeks, and the shortage next year will reach more than 1 billion.

At the same time, affected by the continuous shortage of 8-inch wafer production capacity, there have been news of price increases for components such as MOSFETs, driver ICs, and power management ICs. After the iPhone 12 was launched, the supply of power chips was delayed in November due to the shortage of power chips. Immediately, the shortage of chips spread widely in the field of consumer power supplies. Huang Chongren, chairman of RSMC, said that the current wafer production capacity is unbelievably tight, and customer demand for production capacity has reached a panic level. It is estimated that from the second half of next year to the second half of 2022, the logic and DRAM markets will be out of stock to unimaginable levels. level. “International Electronic Business” also contained an article showing that the global wafer foundry capacity was in short supply, including TSMC, UMC, World Advanced, NSMC and other foundries were fully booked in the fourth quarter. Before that, Huawei’s defensive stockpiling and some small and medium-sized manufacturers followed suit, which also pushed up component prices and tension.

A price war is inevitable.

Source: Essence Securities Research Institute

The “Intelligent Theory of Relativity” sees that the production capacity of 5G mobile phones and new energy vehicles has climbed, contributing most of the driving force for price increases. The components used in 5G mobile phones are generally 30% to 40% more than those used in 4G. For example, LTCC even increases by 3-5 times year-on-year. On the other hand, the rapid growth of new energy vehicles has stimulated the penetration of components in the automotive field. For example, for MLCC components, the demand for new energy vehicles is more than 30% higher than that of traditional fuel vehicles, and the consumption of MLCC and LTCC in automobiles and 5G mobile phones is increasing simultaneously, resulting in a shortage. The automotive and mobile phone industries are starting to face competition on the supply chain side.

Source: Prospective Industry Research Institute

At the beginning of December, North and South Volkswagen were preparing to stop production for a period of time because they did not have ESP accessories. The recent news that Apple is going to make a car is also proof that the two major industries are competing with each other in the supply chain. However, no one could have imagined that the mobile phone industry was threatened by the automobile industry. Apple’s car manufacturing was like a “righteous act” to save the mobile phone industry.

But Apple’s “righteous deed”, Xiaomi will be a little worried. The same price increase has a far greater impact on Xiaomi than Apple. Because the unit price of Xiaomi is very low, its average selling price is only less than half of the average price of domestic mobile phones, and there are still a large number of mobile phones below 1,000 yuan; on the other hand, it is also to reduce the overall cost, and low-priced mobile phones can also be profitable. Get rid of cheap phones. Once the price of components increases on a large scale, it will be fatal to Xiaomi. With an overall net profit of no more than 5%, it is easy to be wiped out by a price increase. At that time, whether to respond to the price increase or to retreat will test Xiaomi’s marketing wisdom.

Source: Tianfeng Securities Research Institute

Moreover, its entry into the industry is precisely at the low tide of the electronics industry, and it has gained industry dividends, which is somewhat of a fluke. For example, in 2010, when it got involved in the industry, it was precisely the price reduction cycle of components that was approved. Then Xiaomi kept up with the rapid development period from 2012 to 2014, and in 2014, Xiaomi rushed to the third place in the world. Among them, 2012 to 2014 is also a cycle of component price increases, but Xiaomi seems to have stepped on the drum of development, and the journey has been smooth. Until 2016, Xiaomi plummeted and there were problems in the supply chain. However, Xiaomi did not announce the specific reason. The outside interpretation is that Xiaomi is “floating”, and the more likely reason is that Xiaomi’s supply chain is quite inadequately prepared for price increases.

Source: Gartner

We can ignore what happened in 2016. Xiaomi’s actions after 2016 seem to be more telling. After Lei Jun regained control of the supply chain, Xiaomi’s spending was much more generous. Then in 2017, Xiaomi became the 18th largest semiconductor purchaser in the world, and quickly rose to 10th in 2018, with an annual growth rate of 62.8%, making it the fastest growing among the top 10 semiconductor purchasers. In 2019, it became the only one that increased among the top ten buyers, and the ranking continued to rise to No. 8. In recent years, the more intensive the supply chain of Xiaomi has made up, which means that Xiaomi has been hurt more deeply in 2016. It is precisely because of the sting in 2016 that Lei Jun seems to be less worried about the outside world’s evaluation of not sending the charging head.

The soul is taking off, the body is landing hard

The mobile phone industry is indeed getting harder and harder. In the past, it was basically competition within the circle, but now new energy vehicles have unexpectedly joined the battle, gradually replacing those mobile phone manufacturers that failed in the previous competition. According to various data, the global mobile phone sales continued to shrink by 11% this year, with a total of only about 1.2 billion. These squeezed out supply chain capacity may also be acquired by other electronic equipment manufacturers. For example, Huawei will make efforts in the field of automotive electronics and launch a car smart screen. At the same time, Huawei will also introduce HMS into cars, and cooperate with Changan and other car companies to produce high-end electric vehicles. Huawei also released 96 lines of medium and long-distance Lidar, with an annual output of 100,000 sets (yes, Huawei is decisive and powerful). SAIC, Pudong New Area and Ali’s Zhiji Automobile are all entering the market, and the efforts of upstream manufacturers are gradually encroaching on the inherent boundaries of the previous industry.

In fact, Wingtech, an ODM of Xiaomi and Honor, also acquired Anshi semiconductor with a lot of money, taking the opportunity to cut into the field of automotive electronics. The supply chain is clear that the mobile phone world is about to be disrupted by the new direction. Of course, Xiaomi does not define itself as a mobile phone hardware manufacturer.

The capital market is very clear that Xiaomi can still be profitable by insisting on a cost-effective strategy. It is by no means as simple as a hardware company, but it has also been uncertain about its future. For example, the stock price of Xiaomi has been falling since its listing, and on August 25, 2019 and November 17, 2019, it recorded extremely low stock prices of HK$8.53 and HK$8.39, respectively. After experiencing low stock prices for a long time, , Xiaomi has only begun to climb slowly (now it has exceeded 32.5 Hong Kong dollars). The dark side of capital has always been the life and death of an enterprise.

This is a performance that neither recognizes its hardware nor is it interested in its hardware-based Internet gameplay. And expressed doubts about its walking on the boundary of the Internet and hardware, because if the benefits of both cannot be fully accounted for, it may amplify the disadvantages of both. The foundation of cost-effectiveness is also not solid, and it is difficult for users who pursue cost-effectiveness to have brand loyalty. Moreover, with the fierce competition, the definition of cost-effectiveness will be updated again and again. Can Xiaomi continue to play?

Especially last year, under the fierce offensive of Huawei, Xiaomi was weak online and weak offline, and superimposed OV also began to cost performance, and the loss was the largest. In the third quarter of last year, Xiaomi’s domestic market fell by as much as 35%. Xiaomi’s price-performance strategy has been questioned.

Xiaomi in 2019 is definitely not easy. Xiaomi’s Q3 financial report in 2020 also proved the difficulty of 2019. This financial report shows that Xiaomi mobile phones increased by 45.3% year-on-year, and the average selling price of Xiaomi mobile phones in China has also increased by 14.7%, including IoT, Internet Services and even games have seen massive growth. To put it poorly, the foreshadowing of 2019 may be one of the reasons for Xiaomi’s growth in 2020.

“Intelligent relativity” has to be said, another reason is that Xiaomi benefits from the ban of Huawei chips, grabbing the share of Honor mobile phones priced below 1000. A year ago, Huawei did something similar. Through aggressive marketing, it almost took Xiaomi’s price-performance ratio away. Therefore, after Huawei was affected, Xiaomi began to think of some offline distributors and accelerated the construction of offline channels. So far, Xiaomi Home has opened to 1,800 nationwide, and the number of offline terminals has exceeded 6,000. It seems a lot, but compared with OV’s 200,000 terminal stores, the strength and weakness are all present.

Xiaomi had to deviate from the original marketing track. Its offline gameplay began to imitate OV, not only spreading a large number of channels, but also engaging in offline marketing. Xiaomi’s prospectus also shows that since 2017, its advertising expenses have increased significantly, from 960 million in 2016 to 1.9 billion, nearly doubling. In terms of marketing and promotion, he began to focus on variety shows and content. In 2017, he invested 300 million US dollars in iQIYI. In that year, he named “Qi Hua Shuo” with 140 million yuan. He also participated in “The Law of Joy”, “Our Companion”, etc. programme. In addition, celebrities were invited, including Liu Haoran, Liu Shishi, Wu Xiubo, and Tony Leung, who were endorsed successively, and won the bid for the 30-second advertising space in the 2017 Spring Festival Gala at a high price of 44.57 million. As proud as millet.

Xiaomi’s mobile phone has gradually become a mascot that “diaosi” cannot afford. For example, after MIX, Xiaomi 9 and Xiaomi 10 continue to skyrocket, and the starting price of Xiaomi 10 Pro 4999 will make users feel that they have bought an iPhone. According to Xiaomi’s financial report, as of October 2020, Xiaomi Mi 10 has sold 8 million units, but I think this will also force some rice fans to become fruit fans. But Xiaomi’s trend of breaking the circle is unstoppable.

Just in the first three quarters of this year, the proportion of Xiaomi’s marketing is also much higher than that of R&D investment. Looking only at the R&D data in the first three quarters of 2020, its expenditures accounted for 3.8%, 3.7%, and 3.2% of revenue, showing a downward trend, while sales and promotion expenditures in the same period were R&D expenditures respectively. 1.4 times, 1.6 times and 1.6 times. It’s self-evident which one is more important.

Xiaomi is actually very reluctant to be a mobile phone company. In its prospectus, it has used Spring and Autumn brushstrokes many times to cover up its hardware attributes. We understand Xiaomi’s attitude towards the capital market, because it is difficult to gain favor with its hardware attributes, but Xiaomi’s recent market performance has fully revealed its true face – it can’t get rid of the label of cost performance and hardware. This reason was previously not recognized by the capital market, but Xiaomi has recently been re-recognized by the capital market, which means that the mobile phone market has undergone drastic changes. Xiaomi’s cost performance and hardware labels can help it continue to “fight monsters and upgrade.” For example, some giants have no choice but to give up market share, and Xiaomi is easy to cut in; there are other giants who want to expand the mobile phone plate, and Xiaomi also has the opportunity to break through. But as long as Xiaomi’s supply chain is not upgraded on a large scale, the two opportunities in front of Xiaomi will not be so easy to capture. After all, Xiaomi is enjoying the benefits of sticking a label, and now it will be very painful when it wants to tear it off.