Hu Liqiang: Strategic thinking on domestic chip entrepreneurship

Source: The content is reproduced from the official account "Central Intelligence", author: Xuan Chuang, thank you.

On the evening of May 25, 2021, the fifth "I Say IC" industry salon hosted by Zhangjiang Hi-Tech Park and Xinmou Research was held in Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai. During the salon, Hu Liqiang, founder and CEO of Jingfeng Mingyuan, gave a wonderful speech entitled "Strategic Discussion on Domestic Chip Entrepreneurship".

(Hu Liqiang, founder and CEO of Jingfeng Mingyuan)

Mr. Hu Liqiang is the founder and CEO of Shanghai Jingfeng Mingyuan, with more than 20 years of experience in chip design and team management. Mr. Hu received his bachelor's degree in electrical engineering from Zhejiang University and his master's degree in microelectronics from Shanghai Jiaotong University. He has served as a design engineer at Litong Microelectronics (Shanghai) Co., Ltd., a design engineer at ON Semiconductor (Shanghai) Co., Ltd., a design engineer at Longding Microelectronics (Shanghai) Co., Ltd., and a design manager at China Resources Siwei Technology (Shanghai) Co., Ltd. He founded Shanghai Jingfeng Mingyuan in 2008 and led Jingfeng Mingyuan to be listed on the Shanghai Science and Technology Innovation Board in 2019.

The following is the content of Mr. Hu Liqiang’s wonderful speech compiled by Strategy Analytics.

Hu Liqiang: In the wave of domestic substitution, chip startup opportunities seem to be everywhere, but it is not easy to succeed. Now there are more chip investors than entrepreneurs, which is a good thing, because any market will develop rapidly in a bubble, and even if only 1% or 2% of the companies survive in the end, they will contribute to the industry. In addition, I would like to remind entrepreneurs not to forget what they originally wanted to do because there is too much money chasing them.

Regarding the strategy of domestic chip entrepreneurship, today we will divide it into three elements: the right market, competitive advantages and sustainable strategy (reasonable profits) .

Take Zhuoshengwei, Shengbangwei, Hengxuan Technology and Jingfeng Mingyuan as examples. In the early days, these companies also encountered difficulties in revenue growth, but now they have developed into excellent companies in their respective fields. In terms of the market, these four companies can be divided into two categories: Zhuoshengwei and Shengbangwei have seized the opportunity of domestic chips replacing imported chips and achieved success. Similar companies include GalaxyCore, Awin, Goodix and other companies; Hengxuan Technology and Jingfeng Mingyuan seized the opportunity of early emerging markets in China. Hengxuan Technology developed with TWS headset chips and smart audio SOC chips. Jingfeng Mingyuan focused on the LED lighting driver chip market and grew rapidly with the development of the LED lighting market. Similar companies include Lexin Technology, which has achieved rapid growth in the field of Wi-Fi MCU chips and modules with the rise of the smart home market. The development of these companies is inseparable from these three elements, namely the right market, competitive advantages and sustainable strategies (reasonable profits).

First of all, it is the right market. Only in the right market can we further develop competitive advantages and grab market share. The market is huge, but it is not good for enterprises to not be able to take advantage of it. Companies that grab market share still think about how to have reasonable profits and survive.

In addition, a good strategy has a leverage effect, which can achieve twice the result with half the effort. Under normal circumstances, the corresponding market share can be leveraged with the ability, and the stronger the ability, the more leverage can be achieved. External dividends can make the serviceable market larger, which is an equal opportunity for all companies in the industry. With external dividends, the same ability can leverage greater core value. External dividends can also be the trend created by oneself, such as Steve Jobs created the trend of smartphones and Tesla created the trend of electric vehicles. Those who create the trend will definitely profit first.

The market is the foundation of enterprise development. If the market does not exist, no matter how capable the company is, it will be useless. Overall, imported chip substitution has a certain market and low risk, while early emerging markets have the risk of not being able to develop.

Every technology has its own technology adoption cycle, including the initial stage, growth stage, maturity stage, and decline stage. The choice of strategy often needs to match the technology development cycle.

Initial stage: It is recommended to adopt a product leadership strategy, because in the initial stage, customer needs are not very clear. You need to understand customer needs first and make products that can meet their needs to be successful. You don’t have to use very advanced technology. Even third-rate technology can make first-rate products. Many returnee entrepreneurs adopt technology leadership at this stage. They learned advanced technology abroad and directly introduced the technology when they were unfamiliar with the Chinese market. Sometimes the products they made were difficult to sell in the end. It can be seen that technology leadership in the initial stage is sometimes not useful.

Chasm: There is a chasm between the initial stage and the growth stage. It takes a killer application to cross this chasm, and those who cannot cross it will become martyrs.

Growth stage and mature stage: It requires technological leadership and excellent operational strategies. Technological leadership achieves self-iteration and builds competitive barriers, while excellent operations achieves cost reduction and efficiency improvement.

Decline: Before the decline, you need to consider transformation, otherwise you may end up in the tragedy of "winning against your competitors but losing to the times". This is the case with the digital camera and navigation market.

Strategic choices in the initial market phase:

Early emerging markets rely on leading products and are suitable for entrepreneurs. Generally speaking, entrepreneurs do not have leading technology and the cost of starting a business is low. However, due to the high risk, large companies generally do not pay attention to such markets, because they are emerging markets and have little accumulation in this regard. This gives entrepreneurs opportunities, but the entrepreneurial risk is high and they are likely to become martyrs, such as the smart hardware trend in 2015.

Opportunities in emerging markets are influenced by two major factors: user experience and experience cost. There are good opportunities in these three directions: low cost and good experience, low cost and moderate experience, and good experience and moderate cost.

There are several outstanding features of emerging markets: First, they are affected by national policies, such as the national ban on the sale of incandescent lamps. Second, user experience is greatly improved, such as the smartphone market. Third, costs are greatly reduced, such as LED lamps are more energy-efficient than fluorescent lamps. Fourth, whether the gap can be bridged.

Strategic choices in the market growth and maturity stages:

Domestic substitution: At this stage, the procurement cost and manufacturing cost of raw materials are relatively high, and the cost of sales channels is also high, so startups have no advantage. At this stage, import substitution brings opportunities. On the one hand, users want to use domestic chips, and on the other hand, domestic chip manufacturers can make up for their technological disadvantages by sacrificing prices.

China's imported chip market is huge. By leveraging three major dividend levers: domestic leading customers need high-end domestic chips, foreign talent and channels flow to domestic companies, and domestic suppliers upgrade their technology and quality management, more domestic chip replacement markets can be leveraged.

In the market dominated by foreigners, there are two major barriers: technology and quality. Under the Sino-US trade war, the threshold has been moderately lowered, and the threshold will be restored after domestic substitution is completed. Enterprises with high-quality products and leading or similar technologies have good opportunities.

Fellow countryman PK: In the market dominated by domestic customers, it is a competition between fellow countrymen, and the key factors are technical level and customer relationship. Having leading technology and customer channels is an opportunity; having leading technology but no customer relationship can still be expected to break through; having similar technology and customer channels has relatively small opportunities. In the growth and maturity stages, the chances of defeating "fellow countrymen" are small. This is already a big market for Chinese chip companies, and starting a business in this field has no technical advantages or operational advantages.

Regardless of whether the serviceable market is large or small, winning is the most important thing. When facing different markets, sometimes you can adopt a staggered competition method like Tian Ji's horse racing.

To form a differentiated advantage in products, we can sum it up in four words: fast (we have what others don’t), good (better performance), cheap (cheaper and lower cost), and scarce (we have what others lack). At the same time, we must also pursue differentiation in technology, that is, "magic", that is, to have better performance or lower cost than others through different practices, so that competitors need to spend more time to catch up.

After gaining a certain market share, it is necessary to find a path for sustained growth. The development path can be found from the four quadrants formed by the dimensions of new and old customers and new and old applications.

First, for old applications and old customers, we should protect them through continuous iteration and substitution with competitive products; second, for old applications and new customers, we should find new customers for old applications through marketing; third, for old customers and new applications, we should launch new applications to old users through new product research and development; fourth, for new customers and new application fields, we should recommend starting a business or transformation to find the next outlet. Generally speaking, transformation is more difficult than starting a business.

Finally, corporate culture is the beacon of strategy. Our values ​​are "integrity, altruism, win-win, growth and transcendence", which is the code of conduct for our company's employees. Our mission is to "create chips to help smart manufacturing", which is in business, "use heart to achieve partners", including internal employees, customers, and suppliers. We hope to achieve common success. "Forging the dream of the era core" is our vision. Indeed, we are working towards the set vision in strategic choices: promoting industry progress in the fields where Jingfeng Mingyuan leads, and striving to catch up in key areas where China lags behind.