Build cars or cores? Samsung and Huawei’s “critical moment”

On March 8, 2023, under the leadership of Yu Chengdong, Huawei's cooperative brand "AITO Wenjie" was changed to "HUAWEI Wenjie", and almost all AITO car bodies in Huawei's offline stores were labeled with the "HUAWEI Wenjie" logo. .

On March 31, Huawei founder Ren Zhengfei once again issued the "Resolution on Huawei not building cars", emphasizing that "Huawei does not build cars" and does not allow the "Huawei" and "HUAWEI" logos to appear on the vehicle's promotion and appearance. The document deadline for five years.

Since then, promotional materials related to Huawei in each Huawei Wenjie eco-store have been quickly removed, and the Wenjie official website no longer displays the "HUAWEI Wenjie" logo.

This is not the first time Huawei has been involved in controversy over whether it builds cars or not. When mobile phone shipments continue to decrease, giants are looking for the next trillion-level market, and automobile intelligence has become an ideal entry point.

At the same time, under US sanctions, chips are a problem that Huawei mobile phones cannot avoid.

When the mobile phone market enters a situation of stock competition, should Huawei, the industry leader, build cars or cores next?

History is always similar, and Samsung has also stood at such a fork in the road. This article will review the history of Samsung's car and core manufacturing and analyze the current strategic decisions that Huawei should take. This article is divided into the following two parts:

1. Samsung Motors: Failure in the middle of the entrepreneurial journey

2. Huawei builds cars: Should we attack Guanzhong first or attack Longxi first?

"The Chaebol's Younger Son" starring Song Joong-ki tells the story of Soon-Yang Group's insistence on developing semiconductors under the financial crisis. In the play, Soon-Yang Group's chairman Chen Yangzhe has a special liking for the automobile industry, but he has devoted all his efforts to it. The ups and downs.

In fact, Samsung Group, founded in 1938, is the prototype of Shunyang Group in the play.

After experiencing a period of rapid growth from the 1970s to the 1980s, Samsung Group decided to focus on the semiconductor industry as its future livelihood. At that time, the largest chaebol in South Korea was Hyundai Group, and Samsung could only compete with LG and Daewoo Group for second or third place. In order to achieve breakthroughs and catch up, the group reached a consensus on developing new industries.

Lee Kun-hee, then chairman of Samsung, believed that the automobile industry was the culmination of various industrial achievements and that building cars would help cooperate among Samsung's subsidiaries such as Samsung Heavy Industries and Samsung Electronics.

Behind the official statement, building a car is actually a risky move by this car enthusiast with "private goods".

Under Lee Kun-hee's support, Samsung Group established the Automotive Business Promotion Group in 1992.

Samsung's automobile factory is located in Gangseo-gu, Busan City. The factory site was formerly a landfill, which resulted in the group spending hundreds of billions of won just on land preparation and other basic projects. Even so, Samsung Group still chose to build a factory there due to its proximity to Busan Port, low transportation costs, and the government's emphasis on the development of the Busan area at that time.

In 1994, Samsung signed a contract with Japan's NISSAN to introduce various technologies and product manufacturing rights, thereby developing technology in a short period of time and trying to keep pace with Hyundai and other car manufacturers.

Samsung Motors, which spent a lot of effort and financial resources, was finally officially established in 1994. In 1998, the first mid-sized RV SM5 with the Samsung logo came to the market.

Then, Samsung launched various cars based on four-cylinder engines, six-cylinder engines and different displacements. The high-end model SM525V claimed to be superior to modern cars in terms of performance.

Samsung Motors officially launched its first mid-size sedan SM5 in March 1998.

But it was also in 1998 that South Korea was deeply caught up in the Asian financial crisis. The domestic automobile industry faced an unprecedented crisis, and the four major automobile manufacturers faced a major reshuffle in the industry. Hyundai and Kia have chosen to merge, and Daewoo and Ssangyong are also preparing to join forces for warmth.

Samsung had no foundation in the automotive industry, it started too late, and it faces a domestic consumer market with a population of less than 50 million that is crowded with large manufacturers. Even with aggressive marketing, it is difficult to make its products stand out.

Samsung Motors has invested an astronomical amount of money in the early stages of signing contracts with foreign companies to introduce technology and expand human resources. Under the financial crisis, it is difficult to recover the investment costs through activating the domestic demand market.

Untimely, Samsung Motors had to accept the fate of a flash in the pan, and became a "bad asset" that was forced to be ceded and sold by the Samsung Consortium to stop losses and protect itself. It was first tried to be sold to the Daewoo Group, but after the negotiation broke down, it was sold to the Daewoo Group in July 2000. Sold to French manufacturer Renault. Since then, Samsung Group has no longer been involved in "car manufacturing".

So, what was the result of Samsung, which failed to build cars, in core manufacturing during the same period?

In 1974, Samsung built its first semiconductor factory, making Samsung Electronics the first company in South Korea to produce DRAM chips.

Subsequently, Samsung continued to invest a lot of resources in chip research and development and continued to expand its product line of memory chips and other memory technologies.

In 1999, Samsung launched the world's first NAND flash memory chip. At this time, Samsung Electronics has become a semiconductor manufacturer that can compete with established companies such as Intel and Texas Instruments.

In 2008, when the financial crisis broke out, the price of DRAM plummeted from US$2.25 to US$0.31. At a time when storage manufacturers are in dire straits, Samsung Electronics has chosen to use all of its profits from the previous year to expand production capacity.

Foresighted early deployment, persistent R&D investment, and business courage to assess the situation have achieved Samsung Electronics' global monopoly in DRAM today.

Samsung's car manufacturing and core manufacturing have completely opposite results. Let us turn our attention back to the present. What choice should Huawei make between the two?

During the Three Kingdoms period, the Shu Han Dynasty was located in the Hanzhong Basin, which was easy to defend but difficult to attack. In order to demonstrate the orthodox ideology of "there is no conflict between Han and traitors" and to avoid being besieged and perished, Zhuge Liang decided to send troops to the Northern Expedition.

In this regard, Wei Yan advocated attacking Chang'an to capture Guanzhong. Some people in later generations advocated capturing the three eastern counties first, and Zhuge Liang's final strategy was to attack Longxi from Qishan. There are three reasons:

1. Longxi is located on a plateau, and you can have a panoramic view of the wind and grass in the Guanzhong area. The road out of Qishan Mountain is flat and easy to march;

2. If you attack Guanzhong, the risk is too high and there is no response. If you attack the three eastern counties, it will destroy the Wu-Shu alliance and cause the Shu Han to be attacked from both sides;

3. The Longxi region has a lot of land and horses, which is the basis for expanding the army and has long-term strategic significance for conquering the world.

Judging from history and the present, this strategic decision is very similar to the problem Huawei faces today: "Build cars or build cores".

First, the technical and ecological environment faced by car manufacturing is complex.

General electronic components account for a high proportion in the mobile phone industry chain, but the automobile industry chain is more closed. The parameters, performance, and specifications of different models match different special parts, and the supply chain is more complex; compared with consumer grade, the standard It is much more stringent; the scale of investment in automobile product development can easily reach tens of billions of yuan, and the capital threshold is very high.

Nowadays, it has become a trend for mobile phone manufacturers to build cars, but no one has succeeded yet. If Huawei wants to build its own cars, it will inevitably invest a lot of resources to cross a high threshold.

Second, building cars will disturb the "chain of suspicion" between car companies and suppliers and create too many enemies.

Most of Tesla's brakes are supplied by Germany's Bosch. Bosch does not sell cars, only parts, and is firmly positioned as the world's largest automotive technology supplier.

Huawei Rotating Chairman Xu Zhijun emphasized that Huawei is determined not to build cars, but to help car companies build good cars. The "Resolution on Huawei Not Making Cars" is valid for five years. Xu Zhijun said that this is because "our document is only valid for five years. We will issue another document before expiration and continue not to build cars."

This resolution can be seen as a "safety statement" issued by Huawei to car companies. At present, Huawei's new energy vehicle business mainly consists of traditional components, smart solutions and smart car selection. It hopes to establish a cooperation ecosystem with several car companies and develop Huawei into a first-tier supplier.

But if Huawei builds cars, how can car companies that use Huawei's solutions compete fairly with Huawei's car brands? Will Huawei be stuck in technology and supply at any time?

The closer Huawei's actions are to building cars, the greater the car companies' suspicions will be, the more people in the industry will choose not to cooperate, and the fewer options Huawei will have to retreat.

Third, building cars can make money, but in the long run, chips are the ultimate weapon that Huawei must win.

At present, the United States still monopolizes many key semiconductor links, and domestic third-party chip foundries such as SMIC and Huahong are still unable to provide foundry services for chips designed by Huawei or HiSilicon.

Isolated and helpless, relying on one's own efforts to build an independent and non-glorified chip industry chain may be Huawei's only way out of the shackles of chips.

It is interesting to note that in March, Huawei released the content of Xu Zhijun's speech on "localization of the EDA industry chain" at the end of February, which was at the same time as the massive "Huawei builds cars" clamor at the time. The mystery of the release time is fascinating. And EDA involves a wide range of chip industry chains, and it affects the whole body.

It can be said that chips are currently Huawei's "Longxi" and must be conquered with all efforts. From a God's perspective, Huawei's internal and external environment no longer allows for division of troops to take risks, let alone for someone to "carelessly lose a street pavilion."

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