Cutting prices to grab market share? Chinese chips should break out of this vicious circle of competition!

The chip industry has always been a very advanced industry in my opinion. Because if you want to start making products, you must first invest a large amount of money to purchase EDA tools, and then purchase IP, tape-out, packaging and testing. Each process costs a lot of money. I originally thought that these things that cost so much money in the early stage would be sold at a very high price, but I found that many times they are not too expensive. This can be explained by the theory that although the initial investment is large, the subsequent chip shipments will be very high and can share the cost.

But for many Chinese chip factories, after investing a lot of money in chip research and development, when the harvest is about to come, everyone is fighting over the price. This is hard for me to understand.

Chinese chips cannot escape the price-cutting cycle

In the few short years that I have been in the industry, I have witnessed several waves of price cuts by chip manufacturers. The first is the WIFI chip. With the involvement of Internet manufacturers, the price of WIFI chips has been "bloodbathed" for all to see.

The second is the fingerprint recognition chip.

The chip market, which became popular because of the iPhone 5S, has also experienced a period of rapid development from a flat market to a peak market and then to the current fierce competition in just a few years. FPC has also become the earliest harvester of this market by virtue of its early layout in this regard. However, Goodix, Silead, Xinwei, Feinger and a large number of Chinese chip manufacturers of all sizes have entered the market in a big way, not only quickly dethroning FPC, which had just taken the leading position in the supplier, but also even transferring the fingerprint recognition function that was originally dedicated to high-end mobile phones to low-end mobile phones of a few hundred yuan.

While FPC was still not aware of why it was defeated by Chinese manufacturers, Goodix was also in the process of price-cutting in the fingerprint recognition chip market. From the peak of the stock market, the price of fingerprint recognition chips in China has become very cheap. According to Taiwan's Digitimes, the price of fingerprint chips was still hovering around 5-6 US dollars at the beginning of 2016, but it dropped to around 2 US dollars (about 13.5 yuan) at the end of the year. Now, some fingerprint chips have dropped below one US dollar, and some manufacturers have even started to "fight" at cost prices or below cost prices.

Industry insiders told reporters that the reason for this situation is that these manufacturers have too high inventories. In addition, except for the leading players, many fingerprint chip manufacturers are facing the challenge of "overwintering", which has led to the current price of fingerprint chips falling all the way and cannot be measured by normal cost calculation methods. However, this cannot be completely attributed to the previous price cuts.

Then there is the NB-IoT chip; compared with the fingerprint chip, the NB-IoT chip is even more outrageous, and the price has been slashed before the market takes off.

Two years ago, when NB-IoT chips first came out, the issue that industry professionals including me were very worried about was the price of NB-IoT chips and modules. Because compared with 2G modules, it took more than ten years to drop from hundreds of yuan to 20 yuan. But for NB-IoT chips, this is not a problem at all. In early December 2018, China Mobile announced the results of its NB-IoT module centralized procurement bidding. The price of a single NB-IoT module has dropped to less than 20 yuan, so the price of the chip can be imagined. This was a surprise to industry professionals.

The same problem also occurs with the under-screen optical fingerprint solution that is just seeing the light of day.

According to Taiwan’s Economic Daily News yesterday, with the help of domestic manufacturers, the price of under-screen fingerprint solutions may drop by more than 70%. This "magic operation" makes many analysts incomprehensible.

"Short-sightedness" is not conducive to the overall development of China's chips

In the fingerprint chip part, we mentioned that the current chip manufacturers are forced to cut prices in that market because of inventory pressure. Take FPC as an example. Because they did not see the growth trend of related fields of Chinese chip manufacturers, they have a lot of inventory. If they do not deal with it, they may end up with nothing. For those non-head players, if they do not ship at a low price, they may also face the risk of bankruptcy.

But all of this is related to some "short-sighted" operations of some Chinese chip factories.

In the past few years when smartphones have become popular, many chip factories have emerged in China, and a considerable number of them are centered around the smartphone supply chain. In many cases, the products they make are directly pin 2 pin with their competitors. This means that customers can directly use their alternative solutions, without changing the PCB board or even the software, to complete the "new" design. If the chip manufacturer that aims to replace can lower the price, it will have greater new attraction.

According to some industry insiders, some new domestic manufacturers have designs that are highly similar to their former employers, which reduces their R&D costs and makes them have no "bottom line" in bargaining. This has led to a terrible market situation. Some manufacturers have even suffered a near-death blow, which has made them lose the courage to innovate. However, we rarely see the same problem in foreign companies.

This means that while domestic manufacturers are facing pressure from foreign manufacturers, they also have to guard against local manufacturers cutting off their financial support.

On the other hand, some manufacturers sometimes make products not for the sake of the product itself, but to deliberately compete for the market by cutting prices in order to cater to investors' needs and get financing. This short-sighted behavior sometimes backfires.

It is a consensus that China lags behind in the integrated circuit industry, especially in analog products, where the gap between China and the world is even more obvious. However, in the past few years, in order to avoid the potential risk of supply interruption and protect the safety of domestic products, a consensus has been reached from top to bottom in China, that is, to strive to achieve import substitution. For these diligent domestic manufacturers, every substitution they want to make will face the risk of price competition from leading foreign manufacturers. Because the latter has a great advantage over the former in terms of technology and experience accumulation, once they sell their products at the price of your domestically developed products in China, then local manufacturers will have no advantage at all in the competition. If manufacturers who are interested in research and development encounter those chip "short-term speculators" to disrupt the situation, the development of the entire industry will suffer an unexpected blow.

However, I also need to clarify that my original intention is not to oppose companies entering the same track to compete, nor to say that price competition is not allowed. After all, the market is large enough. Under market rules, of course, it is okay to allow capable people to use various means to obtain their own benefits. But for the entire Chinese integrated circuit industry, if all practitioners can make good plans carefully and use innovation as a magic weapon for corporate survival, rather than having no bottom line and learning from some Internet companies that hurt others with their own capital, and then do whatever they want after occupying the market, it may be better for the entire industry in the future. Moreover, due to its particularity, the chip industry cannot learn the Internet.

In addition, we must also affirm that many domestic manufacturers have already embarked on the road of innovation, helping to consolidate the foundation of China's chips step by step.

In my opinion, if Chinese chip manufacturers can raise competition to a new level, it will be a good thing for both Chinese and global integrated circuits. Strengthening intellectual property protection will be an important measure to achieve this goal.

Protect intellectual property rights.

Only Chinese chips can have a better future

For the integrated circuit industry, IP is their lifeblood. If this protection is not done well, there will be no more innovation competition in the future. In order to help Chinese chips move from low-end price competition to higher-end innovation competition, IP protection is essential, and it is also a key to a better future for Chinese chips.

Take Qualcomm as an example, ignoring their controversial charging method, we can see that the reason why they have been able to achieve such good development in the past few decades is that their IP has been fully protected. The same is true for Arm. It is precisely because of a better strategy to protect IP that they have achieved today's development.

In other words, if your innovation is not protected, who will innovate? Without innovation, how can there be progress? I hope that China's chips will have more innovations in the new year, competition will rise to a new level, and China's chips will go a better way!

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