When Opponents Out Why Xiaomi Still In?

 

The opponent has gone ashore to watch, and Xiaomi is still in the same place to "kill monsters and upgrade"

"Monkey-playing" in the mobile phone circle is getting worse. Let's talk about this charging head. On the eve of Xiaomi's release of Mi 11, Lei Jun accidentally revealed that he might not send the charger, and it was fry for a while. However, in order to calm the "public anger", the globally popular company Xiaomi is very clever to provide a package version option, an additional independent charging head, but from the packaging design, Xiaomi Mi 11 has long planned not to send a charging head. 

Otherwise, how could the charging head of the set version be independent?

Of course Xiaomi can dump Apple and make Apple a bad guy, but it still can't hide the desertedness of the entire mobile phone circle. 

Except for Xiaomi's active promotion of Xiaolong 888, other mobile phone manufacturers seem to be absent-minded. 

Usually at this time, Xiaomi's opponents will ridicule them, and Xiaomi will also respond to them. This script has been repeated many times. But this year is obviously different. 

Even if Lu Weibing emphasized that “the first release of Mi 11 is very different from the first release”, in order to stimulate the opponents, Xiaomi's opponents seem to be "intellectual" and silent.

 

For example, vivo focuses on the X60 using Samsung Exynos 1080; Honor, which often interacts with Xiaomi, is undergoing a brand change and is also busy with the release of V40 recently. 

At the same time, OPPO has gained a lot in the European market. Data in the third quarter of this year showed that it had the fastest growth among the top five mobile phone brands, with a year-on-year growth of 396%. 

There was news that OPPO was actively increasing orders and had no time to take care of it. As a result, the usual excitement did not reappear.

 

Is the mobile phone industry going to change? 

Let's first look at what industry leaders are doing recently. On the one hand, Huawei has been suppressed and began to exert efforts to operate the operating system under the condition of limited hardware expansion. 

At the Huawei Developer Conference on December 16, Hongmeng OS2.0 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 extended connectivity of the 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 the Hongmeng OS2.0 Beta, Google also open sourced Fuchsia. According to Google’s plan, Fuchsia is not used to replace Android, but it can cover Android. 

It is an operating system that attempts 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. It has long been reported that the number of IoT devices and the amount of data in the future will greatly exceed the scale of current mobile phones. 

In the future, mobile phones will be used as a super terminal to take on the important task of connecting and controlling various IoT devices. 

To this end, Google has been preparing for 5 years, but contacting Google is currently facing antitrust investigations and factors such as the unsuccessful development of AI and smart driving business. 

At this moment, raising Fuchsia's popularity again is more like frustrating other new businesses rather than keeping Fuchsia always released. In the right place.

 

Apple, which has earned most of the profits of its smartphones, is also beginning to think that the car it is going to do will finally land, and it may be released as early as September next year, which is two years earlier than Guo Mingqi's expectation. 

The three companies that can change the world in the field of mobile phones have coincidentally looked beyond mobile phones and began to ride a donkey to find horses, weaken the status of mobile phones, and extend their tentacles into other industries. 

What has happened in the mobile phone industry has polarized the top manufacturers. 

Some of them seem to be wandering, and some of them continue to fight the defense of mobile phones. 

Does this mean that the turning point of the industry has come ahead of schedule, has Xiaomi's ongoing "fighting with monsters and upgrades" changed?

Others are hoarding technology, Xiaomi is hoarding money

 

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

 

Shortly after the release of the strong 2020 Q3 earnings report, Xiaomi quickly carried out a financing operation. This was the first refinancing of Xiaomi after its listing. 

It is reported that Xiaomi was seeking to raise up to US$4 billion through the allotment of shares and the sale of convertible bonds. 

Part of the plan is to place 1 billion shares of stocks on a first-to-new basis, with a price range of 23.7 to 24.5 Hong Kong dollars per share. 

The other part is the signing of a convertible bond subscription agreement after the market on December 1, and the issuance of a seven-year zero-coupon convertible bond of US$855 million. This financing action also lowered Xiaomi's share price by 7%.

 

Despite causing dissatisfaction in the secondary market, Xiaomi still pushes forward strongly. 

According to Xiaomi's introduction, this financing is mainly used for: increasing operating capital to expand business; investing to increase market share in major markets. 

As for the strategic ecosystem and other general purposes of the company, it is a cover. The first two are the key. Then, Xiaomi conducted a series of quick operations.

 

On the afternoon of December 2nd, based on this financing, Xiaomi issued an organizational adjustment document, involving key elements such as the group's 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 enhance the status of public relations (this is easy to associate with the negative comments of a certain Xiaomi executive). 

And once again to enhance the status of the manufacturing department, there are intentions to deal with new challenges. 

However, Xiaomi's slightly impatient action is not at all like a happy face after financing. Instead, it writes anxiety on his face.

 

The situation may be more severe than imagined. For example, two days before the release of Mi 11, Lei Jun revealed that the included charging head was cancelled. But this is more like an early decision, not a temporary intention, because the upstream supply chain is really cold. 

Even if Lei Jun is kind and wants to send the charger, I am afraid that he has more than one heart and is not enough-the upstream components are starting to be out of stock.

Large factories are operating ahead of schedule. Huawei stockpiled large-scale stocks 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 stockpile quota reached more than 180 billion yuan, which also led to a substantial increase in global sales of flash memory by 9%. 

Xiaomi also followed the trend and hoarded its goods. On the surface, it meant that Huawei had withdrawn its market share, but it also accidentally hit the bullseye of this price hike. 

So before the release of Xiaomi Mi 11, Xiaomi showed a rare generosity, saying that it could buy the machine soon, instead of "playing a monkey."

 

It is said that this time Xiaomi's stock of up to 240 million units is not like simply following Huawei. When it comes to Xiaomi’s precise financing of US$4 billion this time, it has the purpose of expanding its market share. 

From this point of view, it is sufficient for Xiaomi to stock up in advance. This premeditated plan can also be confirmed by its 2019 Q4 financial report. The quarterly financial report showed 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, "monkeys" such as Xiaomi have also been quietly hoarding stocks.

 

Xiaomi has to refine the supply chain

Without the experience of the sharp drop in 2016, Xiaomi may not be so calm in dealing with this year's supply chain tension. 

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 wording "three years of supplementary lessons" and used a reborn to describe the current Xiaomi supply chain. But it is not a reborn, will be verified soon.

 

Because the current supply chain environment is extremely embarrassing for Xiaomi in 2016-components have risen in price and are out of stock. Upstream suppliers generally announced the implementation of new prices on January 1, 2021, and even ST has joined the price increase army. 

As for the MLCC (Multilayer Ceramic Capacitors) and LTCC (Low Temperature Co-fired Ceramic Substrates) that can be used on various platforms, they are starting to be out of stock. 

The lead time of LTCC is as high as 20 weeks, and there will be more than 1 billion out of stock next year.

 

At the same time, affected by the continued tight production capacity of 8-inch wafers, MOSFETs, driver ICs, power management ICs and other components have heard news of price increases. 

After the iPhone 12 went on the market, it was delayed in November due to the shortage of power supply chips. Then, the shortage of chips spread widely in the consumer power supply field. 

Power Semiconductor’s Chairman Huang Chongren said that the current wafer production capacity has become unbelievably tight, and customers’ demand for production capacity has reached a level of panic. 

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 an unimaginable level. 

"International Electronic Business Information" also published an article showing that global foundry production capacity is in short supply, including TSMC, UMC, World Advanced, Power Semiconductor Manufacturing and other foundries with full orders in the fourth quarter. 

Prior to this, Huawei defensively stockpiled and some small and medium-sized manufacturers followed suit, which also pushed up component prices and tension.

A price increase war is inevitable.

Source: Essence Securities Research Institute

 

"Intelligent Relativity" sees that the production capacity of 5G mobile phones and new energy vehicles has climbed, contributing most of the price increase momentum. 

5G mobile phones generally use 30% to 40% more components than 4G. For example, LTCC will even increase 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, while the consumption of MLCC and LTCC in automobiles and 5G mobile phones is increasing simultaneously, leading to a shortage. 

The automotive and mobile phone industries have begun to compete head-to-head on the supply chain side.

Source: Prospective Industry Research Institute

 

In early December, North and South Volkswagen was preparing to suspend production for a period of time because it did not have ESP accessories, which visualized the situation in which the auto industry and the mobile phone industry compete for chip production capacity. 

Contacting Apple's recent news that it will build a car is also a clear proof of the competition between the two major industries on the supply chain side. However, no one would have imagined that the mobile phone industry is threatened by the auto industry. Apple's car building is like a "righteous act" to save the mobile phone industry.

 

But Apple's "righteous act", Xiaomi will be a little worried. The same is the price increase, which has a far greater impact on Xiaomi than Apple. 

Because the unit price of Xiaomi is very low, its average selling price is less than half of the average price of domestic mobile phones, and there are a large number of mobile phones less than 1,000 yuan.

On the other hand, to reduce the overall cost, low-priced mobile phones can also make a profit. Xiaomi cannot Get rid of low-priced mobile phones. 

Once the price of components increases on a large scale, it will be lethal to Xiaomi. With its 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 just to watch the slump of the electronics industry and obtain industry dividends, which is somewhat of a fluke. For example, in 2010, when it intervened in the industry, it was the card that allowed the price reduction cycle of components. 

Subsequently, 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 the cycle of component price increase, but Xiaomi seems to have stepped on the drum point 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 reasons. 

The outside interpretation is that Xiaomi is "floating". The more likely reason is that Xiaomi's supply chain is quite insufficiently prepared to deal with price increases.

Source: Gartner

 

We can ignore what happened in 2016. Xiaomi's actions after 2016 seem to be more illustrative. 

After Lei Jun regained control of the supply chain, Xiaomi spent much more generous. 

Then in 2017, Xiaomi became the 18th largest semiconductor purchaser in the world, and rapidly rose to the 10th place in 2018, with an annual growth rate of 62.8%, making it the fastest-growing top 10 semiconductor purchaser. 

In 2019, it became the only growth among the top ten buyers, and the ranking continued to rise to 8th. In recent years, Xiaomi's supply chain supplementary lessons have become more vigorous, which means that Xiaomi has been hurt more deeply in 2016. 

It is precisely because of the tingling in 2016 that Lei Jun now seems less worried about the outside world's evaluation of not sending charging heads.

 

Mobile phone industry getting more and more difficult

The mobile phone industry is indeed getting more and more difficult. In the past, it was basically competition within the circle. Now new energy vehicles have unexpectedly joined the battle, gradually replacing those mobile phone manufacturers that failed in the competition. 

According to various data, global mobile phone sales continue to shrink by 11% this year, and the total amount is only about 1.2 billion. 

These squeezed out supply chain capacity may also be acquired by other electronic equipment manufacturers. For example, Huawei will work hard in the field of automotive electronics and launch smart screens for vehicles. 

At the same time, Huawei will introduce HMS into automobiles and cooperate with Changan and other automobile companies to produce high-end electric vehicles. 

Huawei also released a 96-line medium and long-distance Lidar, with an annual output of 100,000 sets (yes, Huawei has a decisive and powerful march). 

SAIC, Pudong New Area, and Alibaba's Zhiji Auto are all entering the game, and the efforts of upstream manufacturers are gradually eroding the inherent boundaries of the previous industry.

 

In fact, Xiaomi and Honor's ODM Wingtech also acquired Nexperia with a large amount of money, taking the opportunity to enter the field of automotive electronics. 

The supply chain is very clear that the mobile phone circle will be broken by new directions. 

Of course, Xiaomi does not define itself as a mobile phone hardware manufacturer.

 

The capital market is very clear that Xiaomi's adherence to a cost-effective strategy can still be profitable. 

It is by no means as simple as a hardware company, but it has also been uncertain about its future. For example, Xiaomi’s stock price has been falling since its listing, and on August 25, 2019 and November 17, 2019, it recorded extremely low stock prices of 8.53 Hong Kong dollars and 8.39 Hong Kong dollars, respectively. 

After a long period of low stock prices, Xiaomi began to trade. Slowly climb up (now has broken through 32.5 Hong Kong dollars). The two sides of capital have always been the life and death of a company.

 

This is a sign that neither recognizes its hardware, nor does it feel cold about its hardware-based Internet gameplay. 

Also, he doubts that it is walking on the boundary between the Internet and hardware, because if the benefits of the two cannot be fully accounted for, the disadvantages of the two may be magnified. 

And the foundation of cost-effectiveness is not solid. It is difficult for users who pursue cost-effectiveness to have brand loyalty. 

Moreover, with fierce competition, the definition of cost-effectiveness will be updated repeatedly. 

Can Xiaomi continue to play?

Especially last year, under Huawei's fierce offensive, Xiaomi was weak online and weak offline, and then superimposed on OV also began to play cost-effective, the biggest loss. 

Online and offline attacks, in the third quarter of last year, Xiaomi's domestic market dropped as much as 35%. Xiaomi's cost-effective strategy has been questioned.

 

Xiaomi in 2019 has never had an easy time. Xiaomi’s 2020 Q3 financial report also proved that 2019 is not easy. 

This financial report shows that Xiaomi’s mobile phone has increased by 45.3% year-on-year, and the average selling price of Xiaomi’s mobile phone has also increased by 14.7% in China, including IoT, Internet services and even games. There is a substantial increase. 

To put it bluntly, the foreshadowing of 2019 may be one of the reasons why Xiaomi's growth in 2020 is dazzling.

 

"Intelligent Relativity" has to be said, another reason is that Xiaomi benefited from the ban of Huawei chips and grabbed the share of Honor phones with a price of less than 1,000. A year ago, Huawei did a similar thing. 

Through aggressive marketing, it almost ended Xiaomi's price-performance ratio. So after Huawei was affected, Xiaomi began to make some ideas for offline dealers.