Do today's enterprises still need to break through the boundaries of the capability circle?

Tech 2023-05-15 12:16:07 Source: Network

01Three years ago, OPPO had a budget of 50 billion yuan to develop its own chips, hoping to extend its core competitiveness from technology research and development to expand its products into a larger market.But today, three years later, OPPO, the brave warrior, terminated his business and stopped losing before the film was released

Three years ago, OPPO had a budget of 50 billion yuan to develop its own chips, hoping to extend its core competitiveness from technology research and development to expand its products into a larger market.

But today, three years later, OPPO, the brave warrior, terminated his business and stopped losing before the film was released. The team of thousands of people said they would be cut, and the three-year investment became a sunk cost.

Duan Yongping commented that correcting mistakes should be done as soon as possible, and the cost is always the smallest.

OPPO was initially full of confidence and had enough reasons and motivation to develop its own chips, like Huawei, using technology to enhance the hard power of its products. However, today it believes that working on self-developed chips for three years is a wrong decision, and no matter what the cost, it must be corrected regardless of how much investment was made before.

So, why are decisions made from the technological origin completely rejected? For enterprises, should we explore the limits of capability boundaries and try new directions?

Firstly, let's listen to the opinions of Dr. Shan Ren, Chairman of Danren Niushang and Commentator of CCTV Phoenix.

Regarding today's round table forum, I would like to explain from three points.

1 A treasure trove of untimely life.

In 2019, OPPO officially announced the establishment of its "core making" subsidiary, Shoupu Technology, and renamed it Zheku Technology in 2020.

Zheku was born during the high-tech competition between China and the United States, and then suffered from the pandemic for three years, which was a bit untimely.

In December 2021, OPPO Zheku released the world's first 6nm imaging dedicated NPU chip, Mariana X, and in December 2022, it released its self-developed flagship Bluetooth audio SoC Mariana Y.

From the perspective of time cycle, it is somewhat unreasonable to produce 6nm chips in just two years. This is either a product of early research and development or a result of external cooperation, which should not be the credit of Zheku.

2 Expected demand decline, self-developed chips are not economical

The fastest growing year for smartphones in China was 2013, with an annual growth rate of 167%. In terms of absolute quantity, the annual shipment volume of smartphones in 2016 reached a historic high of 522 million units.

Since 2016, mobile phone shipments have been declining year after year. According to data released by market research firm Canalys, the sales volume in the Chinese market in the first quarter of 2023 was 67.6 million units, setting a new low since 2013. The expected sales volume for the entire year of 2023 is less than 50% of that of 2016.

Private brand chips are generally for personal use, and other brands of the same level rarely adopt them. In the event of a decline in OPPO sales and a decrease in demand for private chips, the cost of self-developed chips will be very high.

Why?

Chips have a relatively high proportion in the cost of mobile phone accessories. If the self-developed price of chips is too high, the brand will lose competitiveness in the market.

3 Shrink the front line, seek stability and adaptability

In recent years, international competition and anti globalization have caused significant impacts on global supply chains.

From the basic logic of economic development, each enterprise focuses on its own field, from product research and development, brand building, sales to operational management.

The supply chain for supporting products should be the responsibility of third parties, not only with higher professionalism, but also with lower costs.

In the foreseeable future of 3-5 years, there will be limited innovation in mobile phones, hopeless intergenerational upgrades, weakened global market demand, and the suspension of Zheku's operations by OPPO. This is indeed a hemostatic action, and it is also an immediate execution by the company's board of directors, beyond everyone's expectations, in order to maintain the company's cash flow.

We can predict that closing Zheku was a choice made by OPPO under pressure for cash payments in the next six months.

For enterprises, sometimes it is a wise choice to appropriately shrink the front line and focus on their areas of expertise.

Even though international competition will continue, it is still the trend for global supporting facilities and enterprises to showcase their strengths in the future.

Moreover, constantly seeking opportunities for future growth, whether in terms of technological advancement or expanding market categories, is an important path for enterprises to seek growth.

Even if OPPO closes Zheku today, it does not mean that OPPO's previous decision was wrong. Many things can only be seen in a longer cycle to see the pros and cons.

Even if one day, mobile phone chips have great development prospects, but if such high investment and low output projects consume the cash flow of OPPO entities, making the entire company unsustainable, it is difficult for this project to see opportunities for future growth.

From the perspective of the internet, it is always right to integrate external resources and focus on the areas we excel in.

Next, the views of Professor Song Zi, a senior investor and columnist of Shan Renxing.

I wasn't surprised to hear OPPO closing the chip project, but I was quite sad.

It's not surprising that the path of chips is not necessarily a lifetime, but it's sad that the Chinese chip team has fallen a good teammate.

OPPO founder and CEO Chen Mingyong's bold words were still in his ears, "In 2019, we said we needed to have the courage to sharpen a sword for ten years and bravely step into the research and development of deep water areas. After three years, now I can say that the first step we took into deep water areas was this chip

I have been following the process of multiple domestic mobile phone manufacturers developing their own chips, from Huawei Qilin and Xiaomi's Pengbai to OPPO Mariana. Chips are a battleground in the mobile phone industry and one of the core competitiveness of mobile phone companies.

Corresponding to the technological research and development of enterprises, there are different strategies:

1. Outsourcing, all using external technology and not delving into things outside of the capability circle, is the most cost-effective, but it requires high supply chain capabilities and a large portion of profits to be distributed, as was the case with Xiaomi, OPPO, and VIVO back then.

2. Self research, targeting weaknesses, and breaking through the boundaries of the capability circle are the most difficult, but mastering core technologies oneself also yields the greatest rewards, such as Apple and Huawei.

3. Collaborative research and development, complementary advantages, resource integration, shared risks, and shared benefits and outcomes, just like the two major camps that emerged in LCD panels back then.

This is the R&D strategy adopted by different types of enterprises based on their own competitiveness and scope of capabilities.

We all know Buffett's famous ability circle theory: we must invest around the areas we are most familiar with, which first appeared in Buffett's 1996 letter to shareholders.

OPPO, for example, belongs to the hardware integration type, with core components basically outsourced. Self developed chips are not within the scope of one's own capability circle.

So, when OPPO shut down the chip company, Duan Yongping would evaluate his old subordinates like this: correcting mistakes as soon as possible, the cost is the smallest.

If according to the theory of capability circle, OPPO should not engage in the task of self-developed chips.

However, the capability circle is not fixed and fixed. For our company, there are three dimensions when considering major decisions:

(1) Able to do;

(2) Dare to do;

(3) There are still some things that must be done.

What does self-developed chips belong to?

I think it belongs to the third category and must be done.

Should we fight against the US and aid Korea, or should the Shuimen Bridge be bombed? Should Huawei develop its own switches when it earns its first pot of gold in switch trading? Should we develop our own chips later? Should BYD make cars in 2003?

When we look back at these projects, they are all necessary. The ability circle is not immutable. Your existing knowledge determines the scope of your ability circle, and some areas require more professional knowledge to evaluate. To expand your ability circle, you need to constantly improve your professional knowledge and abilities.

In Munger's words, breaking a circle requires improving your thinking model and adopting multiple thinking models, just like in the era of human technology from the Stone Age to the Firearms Age to the Electrical Age, we constantly improve our thinking model of energy to have the possibility of breaking a circle.

Of course, for projects with such high risks, I am also wondering why we did not collaborate on research and development with Huawei? Of course, there are issues of enterprise competition and technological roadmap here, so I won't delve into them much.

OPPO made a brave attempt, although it has come to an end temporarily, Chinese chips will definitely stand up.

Finally, let's take a look at the understanding of ERNIE Bot.

Responsible editor|Luo Yingfan

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