China has been making traditional home appliance chips for 20 years: Why has nothing been achieved?

What surprises most people is that traditional home appliance companies have been developing their own chips for 20 years.

At the beginning of this year, Midea stated that the annual shipments of its self-developed MCU control chips were about 10 million. Earlier, Gree also announced that the annual shipments of its self-developed MCUs exceeded 10 million, which attracted widespread attention in the industry.

Chip shipments in the tens of millions are good data if they are monthly sales of mobile phone SoCs, but if they are low-priced MCUs, they are not worth mentioning at all, let alone annual shipments.

"The unit price of an MCU is about 2 yuan. Ten million MCUs mean an output value of 20 million yuan, which may not be enough to support a team." Xie Zhixin, a hardware expert in the home appliance industry, told Leifeng.com.

On the one hand, developing chips in-house is a considerable expense. On the other hand, the developed chips are only for self-use and the quantity is not large enough to save costs.

Why are traditional home appliance companies so active in the chip market? Are they trying to raise their own stock prices by developing their own chips, or are they taking advantage of the policy dividends amid the domestic substitution boom? How did Chinese home appliance companies manage to achieve no success after 20 years of involvement in semiconductors?

Self-developed chips are not for making money

During the communication with many industry players, most people believed that ensuring the security of the supply chain is the main goal of these home appliance companies.

There were two peaks in the self-developed chips by traditional home appliance companies. The first was after the state issued Document No. 18 in 1999, when TCL, Hisense and Haier successively entered the chip research and development; the second was after ZTE was sanctioned, when more traditional home appliance companies awakened their collective consciousness and began to form their own semiconductor legions.

Compared with mobile phone SoC, the technical difficulty of MCU required for home appliances is relatively low and the R&D investment is less.

It is very difficult to reduce costs by developing self-developed chips, because there are already many chip companies in China that have strong strength in the field of mid- and low-end MCUs. They have established their own teams and invested in research and development. Not to mention whether they can make a profit, it is a blessing to be able to remain self-sufficient.

"They don't want to make money by developing their own chips, but are following the example of a certain mobile phone manufacturer and stockpiling spare parts," said a semiconductor practitioner.

The story of all the spare tires becoming regular overnight is still moving, but the undeniable fact is that only having chip design capabilities but not chip manufacturing capabilities still cannot guarantee the security of the supply chain. Even if there is a strong chip design team, it is difficult to resist sanctions from upstream and downstream of the industry chain. Chip manufacturing requires a large investment, and building a wafer fab is not in the plan of traditional home appliance companies.

However, home appliance companies are not completely without advantages in developing their own chips. If they encounter a chip shortage, home appliance companies with chip research and development capabilities will be more resistant to risks.

The founder of a chip design company explained the logic behind this: "After adding the chip design link, home appliance manufacturers can skip the chip design manufacturers and directly connect with the wafer fabs and deal with the packaging and testing factories, shortening the supply cycle and nodes, and having a certain vertical supply chain to guarantee production."

But this advantage also has its limitations. "The reality is that the market needs to look at the actual business situation. If the home appliance companies have a single product and the quantity is not large enough, they may not be welcomed by the wafer fab. The effectiveness of investment is more reflected in building their own chip moat."

The founder also admitted that in fact, home appliance companies that have the ability to develop their own chips are also easily at a disadvantage.

Xie Zhixin also said that business is about profit, and the demand from newcomers in the industry is far behind that of traditional platforms. In the end, only the party with greater demand can get orders more easily.

Neither profitable nor able to guarantee supply chain security, do traditional home appliance companies really just want to seize the opportunity and get a piece of the pie?

Some people are "exploring" the chip industry chain, while others are speculating in real estate

Wei Wuxian, the R&D director of a home appliance company, told Leifeng.com that when a product company reaches a certain stage of development, it will pursue the ultimate cost-effectiveness, so going deep into the supply chain to look for opportunities has become an inevitable development trend.

Especially now that home appliance companies are embarking on the road of intelligent transformation, relying solely on the existing market cannot meet the intelligentization of products and the personalized needs of users. "Either you can't find products that meet the specifications, or you can piece together and add additional chips yourself, which will eventually cost a lot." Wei Wuxian said.

Another semiconductor company founder expressed a similar view. In his opinion, it is not a new proposition for traditional home appliances to develop their own chips.

"If we define it this way, today's semiconductor companies like Renesas and Philips all started out as home appliances, and Samsung is also a very successful example."

In other words, although it seems that traditional home appliance companies' self-developed chips are neither safe nor profitable, we cannot deny the original intention and determination of some companies to enter the chip market.

In Wei Wuxian's opinion, there are indeed some home appliance companies that want to do a good job in the chip business, and their ultimate goal may be to compete in the market.

These home appliance companies usually have three stages of development: the first stage is to cooperate with chip companies and put their own labels on the chips developed by partners; the second stage begins to add their own understanding and let partners develop chips according to their own specifications; the last step is to have an independent chip team and design chips themselves.

"Hisense has been promoting its self-developed picture quality chips for many years. In fact, before 2021, Hisense did not have its own tape-out and relied entirely on the core technology of its partners. This is the normal development logic," said Wei Wuxian.

Public data shows that Hisense is one of the earliest companies to start chip R&D projects among many traditional home appliance companies, and is the only one that has persisted to this day. TCL and Haier, which started in the chip field at the same time as Hisense, did not follow this development logic and failed to achieve results.

In 1999, TCL and the state-owned policy investment institution SDIC Electronics jointly invested in the construction of Aisco Microelectronics as one of the 909 Project, but the operation was discontinued soon after.

In 2000, Haier established an integrated circuit company in Shanghai and achieved mass production of MCU five years later. However, the good times did not last long. After a seven-year patent lawsuit with the international MCU giant Microchip, Haier Integrated Circuit Company was severely damaged. It was sold to Neusoft and eventually lost in the market competition.

Industry insiders who have witnessed this period of history say that whether it is TCL or Haier's MCU, there is no defect in the product performance itself, and the problem lies in the construction of the ecosystem. Due to competitive relations, the MCUs designed by home appliance companies themselves have low acceptance among other home appliance companies, making it difficult to form economies of scale. This is the main reason why it is difficult to achieve success.

Unlike TCL and Haier, Hisense is developing chips to make its TVs more differentiated in picture quality. This is more difficult than MCU and has a similar function to the ISP chips currently developed by mobile phone manufacturers. It serves as an auxiliary chip to bring better visual effects.

Looking at Hisense's development, it cooperated with Loongson in 2015, acquired Toshiba in 2017 and integrated the image quality chip design team, and released its first 8K AI image quality chip in 2022.

Obviously, after 20 years of development, Hisense has entered the third stage. However, there are also views that Hisense hopes to achieve TV differentiation through self-developed picture quality chips, but in fact the effect is not obvious. Hisense's competitor TCL does not have picture quality chips, but it can eventually bring users a similar viewing experience.

"If you don't develop your own chips according to the three-step plan, there is a high probability that problems will occur, or your focus may not be on the chips," Wei Wuxian added.

If we classify these home appliance companies that have entered the chip market, we can find that while relying on their own products, white appliance companies mainly develop their own MCUs, black appliance companies mainly develop their own picture quality chips or video SoCs, and Konka, which has entered the storage chip and optoelectronics markets, seems out of place.

Zhou Bin, president of Konka Group, even once made a high-profile public statement: He hopes to join the ranks of excellent international semiconductor companies in 5 to 10 years and strive to become one of the top ten semiconductor companies in China, with annual revenue of over 100 million yuan.