Home appliance companies are flocking into the chip field. Are they following the trend or is it a premeditated plan?

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Recently, Konka Group's color TV business announced that it would be restructured into an independent subsidiary and proposed a new goal of achieving 30 billion yuan in operating revenue by 2020.

In May this year, Konka Group announced a strategic transformation to become an industrial investment and control platform, and its physical businesses will undergo mixed-ownership reform.

It is reported that in January this year, Shenzhen Konka Electronic Technology Co., Ltd. (Konka Electronic) was officially established. It incorporates Konka's color TV business, and in the future, Konka Electronics will be the main body to promote mixed-ownership reform.

At the press conference on the afternoon of July 9, Chang Dong, chairman and president of Konka Electronic Technology Co., Ltd., introduced that OCT is the largest shareholder of Konka Group, and OCT requires 80% of its secondary enterprises to undergo mixed ownership reform this year. He said that Konka Electronics is still 100% controlled by Konka, but is actively looking for strategic investment.

Chang Dong revealed that Konka Electronics has the possibility of capital cooperation with downstream channel providers, upstream content providers, panel manufacturers or non-public fund companies to promote vertical integration of the industrial chain. In addition, an employee stock ownership plan is also being designed.

Zhou Bin, president of Konka Group, said at the press conference that he hopes the color TV business can optimize its business model after independent operation, and actively promote mixed ownership reform. "Mixed ownership reform includes the introduction of strategic investors, employee shareholding, etc., and asset re-optimization. Mixed ownership reform will provide new impetus for the leapfrog development of Konka's color TV business."

Chang Dong introduced that in order to maintain the competitiveness of its color TV business, Konka Electronics will increase its R&D investment in the three major fields of semiconductors, the Internet of Things, and artificial intelligence. "The intelligent development of core technologies can realize the Internet of Things. The Internet of Things is a new technological field, which is different from the traditional ones. Konka Electronics will focus on the Internet of Things, and chip overtaking will also be its first choice for transformation."

Chang Dong revealed that Konka Group has established a semiconductor division, and Konka Electronics will provide cooperation. "We sell 10 million color TV sets a year, which requires a large number of chips, including main chips, storage chips, and IoT semiconductor devices. In the future, we will invest in some semiconductor design companies and also in Wi-Fi module and Bluetooth chip companies."

Since the beginning of this year, Konka Group has frequently carried out capital operations. On June 29, Konka Group won 100% equity of Henan Xinfei Electric Co., Ltd., Henan Xinfei Refrigeration Appliance Co., Ltd. and Henan Xinfei Home Appliance Co., Ltd. with 455 million yuan. Konka said that it would use the acquisition of Xinfei to expand its scale, create the dual brands of "Xinfei" and "Konka", and further expand and strengthen Konka's white appliance business.

From the fact that Dong Mingzhu, the chairman of Zhuhai Gree Electric Appliances Co., Ltd., said that she would invest 50 billion yuan in chip research, to Konka Group announcing that it would set up a semiconductor technology division, these are two more home appliance manufacturers that have embarked on the road of "chip manufacturing" after TCL, Changhong, Skyworth and other brands. In the eyes of industry insiders, the current layout of chips by home appliance companies is inevitably a bit of "following the trend". From the perspective of long-term development, whether "chip manufacturing" can be balanced with the main business remains to be discussed.

Konka said that its move into the chip field was not a "spur-of-the-moment decision". Looking back at this year's CES (International Consumer Electronics Show), Konka has already launched an 8K chip and won the CES Innovation Award. In addition, according to Li Hongtao, vice president of Konka Group, Konka itself has a large demand for semiconductors, and this market has great potential.

In this regard, Konka has also formulated a plan to join the ranks of excellent international semiconductor companies in 5-10 years and strive to become one of the top 10 semiconductor companies in China with annual revenue of over 10 billion yuan.

Policy support has also become an opportunity for enterprises to make layout. Faced with the huge demand in the chip market, my country established a large fund a few years ago to focus on supporting the integrated circuit industry. Data shows that by the end of 2017, the large fund had committed to invest 118.8 billion yuan in projects and actually invested 81.8 billion yuan. This year, the establishment of the second phase of the investment fund is also progressing, and the planned fundraising is 150 billion to 200 billion yuan.

However, regarding the "chip manufacturing" movement of home appliance companies, home appliance industry observer Hong Shibin frankly admitted that the status of chips in the home appliance industry is far less than that in the communications equipment industry. At present, after the ZTE incident, home appliance companies have been deploying chips, which is inevitably suspected of "following the trend" and lacks specific plans for future development.

The first thing that lies before us is the huge financial pressure. For Huawei, which has been laying out chips for a long time and has achieved some success, data shows that its turnover last year was 603.6 billion yuan, its net profit was 47.5 billion yuan, and its R&D expenses reached 89.7 billion yuan. R&D expenses that are nearly twice the net profit are astronomical figures, and looking back at Huawei's R&D expenses in recent years, they have also exceeded the net profit.

In comparison, Gree Electric Appliances achieved revenue of 148.286 billion yuan last year, a year-on-year increase of 36.92%, and net profit of 22.402 billion yuan, a year-on-year increase of 44.87%. Based on the average of the 50 billion yuan R&D expenses mentioned by Dong Mingzhu in three years, the investment accounts for half of the annual net profit, but it is still far from Huawei's investment ratio.

Konka is facing a more cruel reality. Even though it achieved a breakthrough last year, according to the financial report, Konka's operating income in 2017 was 31.228 billion yuan and its net profit was 5.057 billion yuan. Compared with the industry leader, the unsatisfactory financial data does not have an advantage, and for the company's investment and the high expenditure of "chip manufacturing", it may even be insolvent.

Hong Shibin said that for home appliance companies, entering the chip field requires huge investment costs and a very long process. From the overall development of the home appliance industry, last year's sales performance was not ideal, and this trend continued into the first quarter of this year. In the process of "chip manufacturing", how to ensure the steady development of the main business while investing a lot of money is also a problem.

Some industry insiders also pointed out that despite the support of huge amounts of funds, it is necessary to see that due to the long return cycle of the chip industry, even if the high initial expenditures are survived, the situation in the later stages is still uncontrollable, and conflicts can easily arise between the core business and the "chip-making" movement.

In addition, talent and technology have become the thresholds that home appliance companies must cross to "make chips", and it will take time to overcome these shortcomings. Some experts suggest that home appliance companies can "join hands" with chip manufacturers and enter this new field through equity participation, joint ventures, etc., which is also a safe move.

Source: The Paper, China High-Tech Industry Herald

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