Rebirth 08: Rise from copycat phones

Chapter 555 Wang Lintu's Year-End Exam!
As January arrived, various business units within the Zhiyun Group reported their achievements over the past year to Xu Shenxue.

First is the group's core business – the smart terminal business.

The smart terminal business is the cash cow of Zhuyun Group, and its revenue and profits support a series of R&D and expansions of Zhuyun Group, including the expansion of its semiconductor manufacturing business.

After all, this is a massive business with annual revenue exceeding three hundred billion US dollars and gross profit exceeding one hundred billion US dollars!

Internally, its huge profits directly drive numerous R&D projects and investments within the Zhuyun Group.

Externally, with a massive revenue of over three hundred billion US dollars, the company purchases a huge amount of various spare parts from various supply chain manufacturers every year, which in turn drives the development of a large number of industrial chains!
This massive industrial chain directly provides more than one million jobs, and indirectly provides even more!
Meanwhile, with a series of smart terminal products from Zhiyun Group serving as the driving force, competing in the global market, it in turn promotes the development of the entire domestic industry chain, from mobile phone SOC, to storage chips, to screens, batteries, acoustic components, cameras, glass panels, vibration motors and other components, achieving localization and high-end development!

Then it goes to the mid-to-downstream semiconductor design and manufacturing, such as Zhiyun Semiconductor, Zhiyun Storage, Zhiyun Microelectronics, and chip design software under Zhiyun Software.

Further upstream are semiconductor equipment and consumables, high-precision CNC machine tools, and other manufacturing equipment.

The series of smart terminal products centered around Zhiyun smartphones are backed by an enormous industrial chain... and it is of world-class standard, with some components even surpassing the top-tier level of foreign counterparts.

Then this huge industrial chain, in turn, can be used by other domestic smart terminal manufacturers, such as Vcool Electronics, and support their development.

Currently, most domestically produced smart terminal products, including mobile phones, tablets, laptops, and other miscellaneous items, use, but not 100%, but over 80% of them, W-series SOCs from Zhiyun Semiconductor, LPDDR or DDR memory from Zhiyun Storage, and 3D NAND flash memory from Zhiyun Storage.

High cost-performance ratio and no tariffs, lower procurement costs for enterprises, and most importantly, sufficient supply, no need to worry about being held back... As long as you pay, you can use it as you please... Zhiyun Group has never held back its competitors in these core components, even when purchasing from overseas manufacturers.

It's worth noting that Samsung and LG are among Zhiyun Semiconductor's customers... Both of them also use Zhiyun Semiconductor's W-series SoCs. They can't put all their eggs in one basket with Qualcomm. If they did, Qualcomm would relentlessly exploit them... Continuously purchasing Zhiyun Semiconductor's SoCs is a strategy they use to put pressure on Qualcomm and lower prices.

Just like domestic manufacturers don't all use Zhiyun Semiconductor's SOCs, Zhiyun Storage also uses a small amount of Qualcomm's SOCs and memory and flash memory from manufacturers such as Samsung or Micron.

Supply chain diversification is a basic strategy for companies to mitigate risks and avoid a single supplier becoming dominant.

Even fruits cannot avoid relying heavily on China's supply chain... Although its smart terminal business and Zhiyun's smart terminal products are direct competitors, it does not prevent them from cooperating with Zhiyun Group on the supply chain.

Apple's mobile phones also use some screens from CSOT... CSOT is controlled by Zhiyun Group.

Many other spare parts are also sourced from domestic suppliers, who also supply Zhuyun Group.

The supply chains of Fruit and Zhiyun overlap considerably... This is why Fruit's efforts to shift its supply chain over the years have consistently failed.

Fruit production relies heavily on domestic supply chains, and Xu Shenxue has prohibited the transfer of these chains overseas… He hasn't publicly stated anything, but his stance has always been very clear:
I've supported you all along, not so you could go abroad to build factories and bring jobs and tax revenue to other countries.

If you dare to run away, I dare to cancel the order, and then put all kinds of pressure on you, such as banks withdrawing loans, equipment suppliers and raw material suppliers stopping supply and demanding payment, etc... I won't stop until I drive you into bankruptcy!
These supply chain manufacturers that go overseas to build factories also need a lot of industrial equipment, and many of them are production line equipment specially developed in China. They can block you from the source of equipment and see how you can transfer the industrial chain!
In the early years, there were still some fools who couldn't see the bigger picture and went overseas to build factories to supply companies like Fruit and Four Star!
Xu Shenxue took drastic measures, canceling orders and cutting off supplies, inciting creditors to pursue outstanding payments, and adding various patent infringement lawsuits.

Furthermore, they sent people to contact local bullies overseas, fining them and attempting to acquire them through unconventional business competition tactics.

Then, those companies that ran away either went bankrupt or closed down!

As a result, numerous news reports emerged of domestic companies setting up factories overseas, only to be ripped off and lose everything...

Some people knew some of the inside story, while others didn't, but regardless, very few people brought up the matter of the sea afterward.

Xu Shenxue was very satisfied with this... That's right, stay at home and develop industries, create jobs. More domestic jobs mean a better economy, which in turn increases domestic demand, allowing the market to grow bigger and stronger.

Only with a market can businesses thrive!
I've supported you for so many years, providing all sorts of financial and technical support to help you get started. Now you see that labor costs are low abroad, and that large foreign companies are putting pressure on you so you want to run away... taking jobs with you. What a wonderful thing!
Having built his business to such an extent, Xu Shenxue is now more concerned with a broader perspective: expanding the overall market. Only when the market is large can the business be effectively managed.
If the overall economic environment is bad, employment won't improve, and wages won't rise either, what's the point of Zhiyun Group? They make high-end products!
If people don't have money in their pockets, how can they afford Zhiyun's various high-end products?

As for the idea that rising domestic wages lead to higher costs and a decline in the competitiveness of products exported overseas, that's completely unnecessary.

In the high-tech industry, the proportion of labor costs in the manufacturing stage is actually very low: for a smartphone priced at $1,000, the manufacturer, Vcool Electronics, only earns a dozen dollars, which is a very small percentage!
A slight increase or decrease in labor costs is unlikely to significantly affect the product's selling price... What truly influences the price are various chips and screens, but these are controlled by the Zhiyun Group, and they won't be sold to you cheaper just because you've gone abroad... On the contrary, due to tariffs, the price is even higher.

Besides, China has already achieved a global monopoly on the smart terminal supply chain. Whether it's cheaper or more expensive, overseas consumers will still have to buy it... because they have no other choice.

Because in modern times, only China has a complete smart terminal industry chain, and other countries do not... For monopolized things, whether they are a little more expensive or a little cheaper doesn't really make a difference, since they all have to buy them anyway!
However, there are always some people who like to act foolishly and run away in order to save a tiny bit of so-called labor costs... Xu Shenxue can't control other industries, but in the smart terminal industry, he will kill anyone who dares to run away!

Because the country needs a massive number of low- and mid-level jobs in this huge industrial chain!
Although Xu Shenxue enjoys playing with all sorts of high-tech products, such as artificial intelligence, smart terminals, semiconductors, L4-level intelligent electric vehicles, low-altitude aircraft, virtual equipment industry, robots, interstellar spaceships, large rockets, lunar bases, etc., the employees of his Zhiyun Group are all earning extremely high incomes.

But that doesn’t mean he doesn’t value low-end employment… Weiku Industry and Hailan Automobile are also his businesses.

For Weiku Industry, a company operating in a labor-intensive industry, the median monthly income of its more than one million workers across its various production bases is only a few thousand yuan.

Hailan Auto's various car factories also employ hundreds of thousands of workers, who earn several thousand yuan a month!

Xu Shenxue also attaches great importance to these low-end jobs in the manufacturing industry!
Every year, there are over ten million new college and university graduates, and then there are also a huge number of high school or vocational school graduates who need jobs... How can we absorb them without a massive number of job openings?
It's unrealistic for everyone to become a research and development engineer at Zhiyun Group!
A healthy economy needs not only a large number of high-end jobs, but also a massive number of low-end jobs...

Only with a large number of manufacturing jobs can various service industry jobs be created, thus forming a virtuous cycle.

This creates a virtuous cycle, which is why the various cutting-edge technology products developed by Zhiyun Group can be sold domestically... Otherwise, without economic development and consumer demand, how many products could be sold domestically!
If the domestic market doesn't work out, Zhiyun can't rely entirely on the overseas market. The overseas market is too uncertain and subject to external control... In order to avoid business difficulties caused by changes in the overseas market, Zhiyun Group has been trying its best to increase the revenue share of the domestic market.

However, Zhuyun Group is too large. The domestic market alone is enough to support such a behemoth as Zhuyun Group. Therefore, despite so many years of efforts, the domestic revenue share has only remained at a scale of more than 50%.

After years of hard work, the revenue share of Zhuyun Group has only reached over 50%. The senior management of Zhuyun Group is hoping to further increase the revenue share to over 65% in the next few years... which requires the continued growth of the domestic consumer market.

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

The importance of the smart terminal business is beyond doubt, and Xu Shen has always attached great importance to it!
However, despite the importance attached to it, it is a fact that the smart terminal market has already entered a saturated market... Two years ago, it became quite difficult for Zhiyun Group to achieve growth in the smart terminal field. Not to mention increasing overall sales, it would take a lot of continuous effort to maintain them.

The reason why revenue and profit continue to grow is that the average price of products has increased, and the gross profit has also increased.

Last year's business situation was similar to the year before, mainly driven by a low increase in average selling price and an increase in the sales volume of high-priced products, which boosted overall revenue and profit.

When Wang Lintu, Senior Vice President of Zhiyun Group and President of the Smart Terminal Business Unit, reported to Xu Shenxue, he mentioned: "In the past year, the sales share of our various product lines under the Smart Terminal Business Unit has increased slightly. Among them, the sales share of the core product S series mobile phones, the Max series and Max Pro series, has further expanded to 65%, an increase of 5 percentage points from 60% in 2018!"

When Zhiyun Group released the S15 Max, it featured 3D face recognition, a full-screen display, and various other new technologies, and the phone sold extremely well!
The phone started at 7999 yuan, but it accounted for 52% of the total sales of the S15 series, which is quite astonishing... With just one model, Zhiyun Group created an ultra-high-end market in the smartphone industry.

This ultra-high-end market is not like those luxury mobile phones that target the luxury market, which look expensive but sell very few units.

The Zhiyun Group's S15 Max has sold over 100 million units, making it a super single product... Don't be fooled by its high price; it's a high-volume product, unlike luxury items!
With the S15 Max pioneering the market, Zhiyun Group subsequently released the S16 Max and introduced the larger-screen S16 Max Pro... The Max and Max Pro series continued for the next few years, until today.

Meanwhile, with the rise in economic levels... or rather, inflation, people's consumption power has continued to increase, so the sales proportion of ultra-high-end phones in the Zhiyun S series has also continued to increase.

It has now reached 65%!

Wang Lintu continued, "The total sales of the S series last year, including the newly released S19 series, the older S18 series and S17 series, totaled 232 million units. Compared with the previous year, the overall sales were flat, with only a slight increase of more than 3 million units."

"In addition to the S series phones, our SX./SXL series phones have seen significant sales growth. Last year, we sold a total of 45 million units of the new and old models in this series. The sales growth mainly came from emerging markets. We launched lower-spec versions of this series, such as the S17X 16GB version, for some emerging markets, mainly India and the ASEAN region. Because of the lower cost, the price is also lower, so the sales increase is very significant!"

Xu Shenxue said: "Targeting emerging markets with specific low-cost phones and leveraging the huge brand appeal of the S series to sell older models is a good idea, and it has been very successful. You have done the right thing, but you must also pay attention to maintaining brand value. The Zhiyun brand does not make low-priced phones, and in particular, it cannot affect the brand value of the S series!"

Wang Lintu said, "Chairman Xu, rest assured that after releasing the S19 series phones this year, we also simultaneously discontinued the S17 standard version and S17 Pro to maintain the price of the entire S series, which will not be lower than four thousand yuan!"

"The cheapest model currently on sale is the S18 standard edition with 64GB, which is priced at 4,600 on the official website."

Wang Lintu said, "This effectively stabilized the pricing structure of the S series, while also leaving some room for the SX series!"

"At the same time, in the design of the SX/SXL series, we did not adopt the design of the S series in recent years, including 3D face recognition and full screen. Instead, we continued to use the classic design of front-mounted fingerprint module, aluminum alloy frame, wireless charging module, and glass back cover!" "And after years of word of mouth, the market now knows that the SX and SXL series are just us taking older S series phones and selling them at a lower price. Many consumers know this... The main consumer group for the SX series now is people who want to use our Zhiyun S series phones, but cannot afford the expensive new models, and at the same time have some concerns about using second-hand S series phones."

"The S18X and S18XL, which we launched last spring, have sold quite well!"

"This way, we can leverage the brand appeal of the S series without affecting the sales of new S series models."

"With the discontinuation of the S16 series and the standard and Pro versions of the S17, we have also begun to utilize the large supply chain of spare parts and assembly lines of the standard and Pro versions of the S16 and S17 to create the S19X and S19XL. In this series, we will be using 3D face recognition and full-screen design for the first time on the SX/SXL series."

"Our 3D face recognition and full-screen modules have been mass-produced for many years and are now very mature. The cost has also been significantly reduced. By using mature technologies, we have been able to control the cost of these core components at a relatively low level!"

"Of course, in order to differentiate itself from the new S series, the S19X/XL series will not continue to use the capsule design, but will instead adopt the small notch design... After all, the SX and SXL series are positioned in the lower-end market of older models, so they will continue to use the small notch design of the S16 series!"

"The 'Agile Capsule' will only be available on the flagship S series in the short term!"

Regardless of what other manufacturers do, the various mobile phone series within the Zhiyun Group must be clearly differentiated!

The early SX series used an aluminum alloy body, which distinguished it from the S series, which began to use a glass back cover.

Later, after the S series adopted 3D face recognition, the SX series also began to use an aluminum alloy frame with a glass cover.

Now that the S series has used the full-screen design with the capsule mode for more than two years, the SX series has started to adopt a 3D face design with a small notch!
The appearance has remained consistently different every two to three years...

"We will continue to use the S803 chip from the S17 series in the S19X/XL. This chip, which uses a 10-nanometer process, still has very good performance and is considered a mid-to-high-end configuration in the current mobile phone SOC market!"

"Although 7-nanometer chips have become the mainstream for high-end phones, currently only our and Apple's new models are using them!"

"Other manufacturers' 7-nanometer chips will not be released until this spring at the earliest, but they will only be used in a small number of high-end flagship models. The majority of phones, including other manufacturers' high-end models released last fall, are still using 10-nanometer chips."

"We used the S803 chip in the S19X series phones, which still makes us competitive in the market; the performance is already more than sufficient!"

"The SX series phones will probably have to wait until next year to use chips made with a 7-nanometer process!"

As for why we don't use chips made with a 7-nanometer process... naturally, it's because they're expensive.

Although Zhiyun has been working on 7nm for two years, the cost remains high and the production capacity is relatively limited. In order to meet the production capacity demand, Zhiyun Microelectronics is still operating at full capacity even for its first-generation 7nm process using DUV immersion lithography machines.

The W1106 chip, as well as the mobile phone SOCs manufactured for Huawei, such as the S1003A, all use this first-generation 7-nanometer process... This first-generation 7-nanometer process has a relatively large production capacity. The 25th factory, which is responsible for this process, initially built two production lines, with a combined monthly production capacity of 80,000 wafers.

Subsequently, due to tight production capacity and limited supply of EUV lithography machines, Zhiyun Microelectronics simply added a large number of additional equipment to this factory, especially the HDUV-600E, which further expanded the production capacity of this process to 100,000 wafers per month.

The core limitation on the production capacity of the 7-nanometer process is not other equipment, but the top-of-the-line lithography machine. Once the top-of-the-line lithography machine is in place, everything else becomes easier.

As for the HDUV-600 series lithography machines, Gulf Technology has been producing them for several years. The technology is mature and the output is large, so it is easy to procure them... Unlike EUV lithography machines, the output is so small, and they have to be shared with memory chip semiconductor factories, so it is simply not enough!
EUV lithography machines are not just used to manufacture logic chips with 7-nanometer and 5-nanometer processes... The next-generation memory chips and flash memory chips designed by Zhiyun Storage, especially the next-generation high-bandwidth video memory, also need to be produced using EUV lithography machines... And this stuff is paired with the APO5000 graphics card. Without this high-bandwidth video memory produced by EUV lithography machines, it would be impossible to produce the APO5000 graphics card.

Therefore, Zhiyun Microelectronics cannot use all EUV lithography machines to produce logic chips. It also needs to allocate some EUV lithography machines to memory chip manufacturing plants to produce top-of-the-line memory and flash memory!
Compared to EUV lithography machines, which have a very small production capacity, the HDUV-600 series DUV immersion lithography machines have a much larger production capacity, making them easier to procure and faster to deliver!
This also made it easier to expand the first-generation 7nm process... Although this process was initially just a transitional process, due to the low short-term capacity of EUV lithography machines and the high market demand for 7nm technology, Zhiyun Microelectronics had no choice but to continue expanding the first-generation 7nm process... Lower cost-effectiveness is better than no capacity at all!

The second-generation 7nm process was previously only used in the S1003B chip, and it was only gradually used to produce their own AI6000B graphics card and ZY38B chip last winter... because the production capacity was simply too low...

In the spring of 2019, the production capacity was only 20,000 wafers per month. Then the production capacity was gradually expanded, and by winter, the production capacity was increased to 50,000 wafers per month. Currently, it is only used to produce S1003B chips and some AI6000B graphics cards for internal use. The AI6000B graphics card also uses the same GPU core as the I6000 graphics card, but the manufacturing process is better, so the performance is also better.

In the future, once the production capacity of the second-generation 7nm process is more sufficient and the cost drops rapidly, Zhiyun Semiconductor will also develop graphics cards like the APO5000B and ZY38B... Anyway, the core architecture doesn't need to be changed; it's just that the manufacturing process is more advanced, resulting in better performance.

However, this summer and autumn, one semiconductor manufacturing plant using EUV lithography machines went into operation one after another... The plant that went into operation in the summer was built according to the five-nanometer process from the beginning.

This is also the first 5-nanometer process factory of Zhiyun Group, which is expected to produce the more advanced S1103 chip... The S1103 chip will also become the world's first 5-nanometer chip, barring any unforeseen circumstances.

Another factory, expected to begin production this fall, was initially designed and built using second-generation 7nm process technology as part of a 7nm process capacity expansion plan. It has a large designed capacity, employing a three-line simultaneous production mode, with a capacity of 80,000 wafers per month. This is the reason for the factory's slower construction progress and its delayed start-up this fall.

As a result, Zhiyun Microelectronics will increase its 5-nanometer process capacity by 50,000 wafers this year, and its second-generation 7-nanometer process capacity by 80,000 wafers!

Needless to say, the 5-nanometer process will definitely continue to be in short supply. When each new generation of process technology is first introduced, the production capacity is extremely scarce, and it takes time to gradually expand the production capacity.

However, the 7-nanometer process will greatly alleviate the supply shortage problem!

The first-generation 7nm process at Factory 25 has a capacity of 100,000 wafers… Although its performance is slightly inferior to the second-generation 7nm process, and its yield is also slightly lower, resulting in a lower overall cost-effectiveness!
But no matter what, it's still a 7-nanometer process. The chips produced are not made with 10-nanometer or 12-nanometer processes, so they can't be used for this kind of thing!
Therefore, the monthly production capacity of 100,000 wafers of the first-generation 7nm process is still very important. It is estimated that it will continue to be used on a large scale for the next few years until the production capacity of the second-generation 7nm process is sufficient to meet the production demand of the first-generation 7nm process. Then, when the 25th factory can no longer receive orders for the first-generation 7nm process, it will gradually switch to producing chips using the 10nm and 12nm processes!

In short, Factory 25 produces first-generation 7nm chips when it has orders, and 10nm and 12nm chips when it doesn't have orders... Anyway, we've already recovered most of the costs, so everything after that is pure profit!

Although advanced technology requires a huge investment, as long as you maintain a leading technological position, the cost recovery is actually very fast. You can basically break even within two or three years of production, and then it's all pure profit... As for operating expenses, they are very low and can be ignored compared to the huge investment in building the factory!
So even though Factory No. 25 is a typical product of transitional technology, with an expected peak lifespan of only three or four years, it's already enough...

Then there's the second-generation 7nm process. Last year, the 28th factory went into production with a capacity of 50,000 wafers. This fall, the 36th factory will go into production with a capacity of 80,000 wafers, for a total of 130,000 wafers!
The combined capacity of the three factories, with two generations of 7-nanometer process technology, will reach 230,000 wafers per month!

This is already an incredibly staggering number... Only Zhiyun Microelectronics would dare to expand its production capacity so massively in such a short period of time. TSMC, Samsung, and Intel wouldn't dare to do it...

Because only Zhiyun Microelectronics can receive such a massive number of orders for 7-nanometer process chips... Zhiyun Semiconductor, together with Weizhi Technology and some external customer orders, is enough to absorb this production capacity.

The production capacity of just one S-series and W-series mobile SoC chip is considerable. Then there are also a large number of computing power chips such as AI/APO series GPUs, ZY series, EYQ series, and LC series, all of which are major consumers of advanced process technology production capacity.

230,000 wafers are still not enough, and we need to continue to expand. At present, Zhiyun Microelectronics has planned a total 7-nanometer production capacity of 350,000 wafers per month.

The main reason is the booming virtual equipment market, which has led to a much larger demand for 7-nanometer process capacity...

Then, the short-term production capacity plan for the 5-nanometer process has been further expanded to 150,000 wafers per month... Currently, there are three 5-nanometer process factories under construction. The first one will start production this summer, the second one next spring, and the third one next fall!
Gradually ramp up production capacity to meet market demand!
The fact that Zhiyun Group has increased its production capacity for 7nm and 5nm processes shows the huge demand for advanced computing chips brought about by its virtual equipment business, robotics business, as well as the rapidly expanding smart electric vehicle market and artificial intelligence market in the past two years!
Each of these businesses is a major consumer of computing power chips!
Such a massive production of computing chips naturally requires a huge production capacity of logic chips with advanced processes!

Terminal business drives chip demand, chip demand drives semiconductor manufacturing, semiconductor manufacturing drives demand for semiconductor design software, equipment and consumables, etc., thus forming a complete semiconductor industry chain.

Xu Shenxue spent many years developing this system... He was actually quite proud of it.

This is all thanks to his years of hard work and effort... System, am I right?

However, in the eyes of Wang Lintu and even those outside, this was truly the result of Xu Shenxue's hard work and dedication... Xu Shenxue played a core role in the establishment and development of this series of high-tech industries.

A strategic vision far beyond that of ordinary people, coupled with a persistent pursuit of high technology, and then a massive investment of money... that's what led to these achievements.

So when Wang Lintu reported to Xu Shenxue, although he appeared normal on the surface, he was actually very nervous inside... He was the successor to Xie Jianyong as the president of the second-generation intelligent terminal business unit.

This was already overshadowed by Xie Jianyong's tremendous past achievements. Whether it was inside the company, outside investors, or even some ordinary netizens, the expectations for him were actually very high, and they were constantly comparing him to Xie Jianyong...

People always talk about how Xie Jianyong created some classic models, built the iconic S series phones, and brought Zhiyun phones to an annual sales volume of 300 million units... Even if you, Wang Lintu, are not as good as Xie Jianyong, you can't be too bad, right?

You should at least come up with a few hit products for us!
But creating a hit product isn't that easy.

Under such circumstances, Wang Lintu really hoped to gain the recognition of others, especially Xu Shenxue!

Now, he has submitted his report card for the entire year and is just waiting for Xu Shenxue to grade it!

Was it done exceptionally well? Or did it do well? Or was it barely acceptable... or even failed?
All of this requires Xu Shenxue to provide the answers!

(End of this chapter)