Those Years When I Was Forced to Top the Forbes List

Chapter 241 My life is settled

Spreadtrum's technology and lifeline are all contained in this TD-SCDMA (hereinafter referred to as TD), which is China's domestic 3G.

The sooner the government issues TD licenses, the greater the technological advantage their newly developed flagship products will have.

Conversely, it is also quite fitting: the sooner Spreadtrum's 3G chips capture the market, the sooner the Ministry of Information Industry can issue licenses.

What does one million units mean?
This year, Romania built its first TD test network to conduct large-scale communication test network testing, with only 20,000 mobile phones participating.

—We already have millions of users, and you're not going to build a test network for them?
If there are really several million users, issuing licenses and building networks will be much easier to negotiate, and the three major operators might even fight over the TD license.

However, 3G baseband chips are expensive, and the radio frequency front-end requires specialized 3G accessories. If these are installed in a mobile phone, users cannot use it and will not buy it. Without a premium, manufacturers will lose money.

Even those who planned ahead for 3G still used WCDMA baseband chips.

For example, Huawei used its self-developed WCDMA baseband chip and technology to reduce costs, and launched China's first commercial 3G mobile phone, the U626, in 04, betting heavily on 3G.

Some manufacturers have left a 3G interface in their phones, claiming them to be 3G phones.

These companies are all betting on the operators, negotiating in advance that if the operators get the license, this phone will be made exclusively for them, and they will upgrade the 3G components before releasing it, and so on.

But these were all doomed gambles, because they had no idea when China's 3G would be launched, or which operator would get which license; it was all just wild guessing.

"The subsidies will cost a lot of money."

Chen Datong, sitting opposite him, remained silent for a while, still feeling it was unreliable.

Chen Xuebing was unsure about this question, so he asked, "How much would it cost to modify a 2G phone?"

"Our SC8800A chip costs 180 yuan, radio frequency modification costs at least 75 yuan, and the labor cost for protocol stack cracking and installation is 50 yuan per unit. Adding it all up, it exceeds 300 yuan."

Spreadtrum did consider this idea, but the cost was too high and the practical difficulty was too great.

"Moreover, many of those phones from Huaqiangbei can't even connect to the internet. What's the point of making them? Isn't that just deceiving people?" Chen Datong continued to question.

Chen Xuebing was also taken aback when he heard about the cost.

Even MediaTek's high-end kits are only around four or five hundred now, right?

Mid-to-low end models are available in the one or two hundred range.

Their "Turnkey" system, including the CPU chip, baseband chip, software, and protocol stack, doesn't even cost as much as your 3G baseband.

"Your price is outrageous. If we increase the volume to millions, how much less money would we save?"

Chen Datong pondered for a moment: "The cost is more than that. The process of getting a mobile phone registered on the network is very complicated. Mr. Chen, let's discuss this in person."

"I've said it before, we definitely need to meet in person."

After Chen Xuebing finished speaking, both sides fell silent for a moment.

Where should we talk?
"I think Professor Chen might have some misunderstandings about mobile phones in Huaqiangbei. Why don't you come over here? I'll take you to Huaqiangbei to check it out, and then we can go to Shanghai together to discuss it. How about that?"

"Ok."

"What about tomorrow?"

"Tomorrow? I have a meeting tomorrow."

"Teacher Chen, which is more important, Spreadtrum's future or this conference? Let's postpone it."

Chen Xuebing noticed it was already 4 PM. If it weren't so late, he would have booked a plane ticket for Chen Datong right now.

3G can generate hundreds of millions in revenue per day.

Every single day is a bargaining chip for him.

"Alright, I haven't been to Shenzhen in a long time either."

"See you tomorrow."

Chen Xuebing hung up the phone, clenched his fist and rested it on his chin, let out a long sigh, and typed "TD, 3G technology" on the keyboard with his other hand.

Time to study again.

The next day.

When the first rays of sunlight shone through the glass curtain wall of SEG Plaza, the capillaries of Huaqiangbei were already boiling.

Around 11 o'clock, Chen Xuebing led a group of people into Yuanwang Digital City.

"Hey handsome! Brand new high-quality replica N95, triple SIM, triple standby, scrolling LED light! 680!"

A woman was selling two mobile phones right at the door, and the competition here was clearly much fiercer than it had been a year ago.

The Nokia N95 hasn't even been released yet, we don't even know the official specifications, but there are already physical units in Huaqiangbei selling for 680 yuan. That's insane!

The Chaozhou shop owner, wearing flip-flops and sipping a Double Happiness cigarette, pulled a chrome-plated mobile phone from under the counter. He pressed a button, and a colorful LED display exploded like a disco ball. The girl at the next stall didn't even look up, her fingers flying across a batch of "Sony Ericsson W800" phones, labeling them with practiced ease.

—This batch of goods was just brought from a mold factory in Dongguan last night, and by noon it will be transformed into the "Malaysian version" and flow to Luohu Port.

The air was filled with the burnt smell of solder.

On the third floor, chip expert A-Qiang was using a toothpick to fly wires on an MTK motherboard. Behind him was a mountain of motherboard debris. He wiped his sweat, casually stuck the soldering iron into a Coke bottle, and with a hiss, white smoke shot up.

The Universal Coin counter on the corner was crowded with African merchants.

"More loudspeaker! More battery!"

The boss, Old Chen, grinned and poured out a batch of large bricks with an extra-long standby time of 30 days from a snakeskin bag.

When these people see Huo Xiaowen, they all greet him with a smile.

"Brother Wen!"

"Mr. Huo!"

Chen Xuebing walked behind and couldn't help but laugh.

That son of a bitch, he's become a local tyrant.

“Oh, about our stall, you said you only needed it for a year. A while ago, Lao Zhao came to me for it. I discussed it with Boss Lu and we signed a new agreement with him. We transferred his three-year slot for 60 yuan per year.”

Chen Xuebing raised his eyebrows upon hearing this and still said, "Okay."

60 yuan for a counter that's over three meters long; you could rent a shop of two or three hundred square meters outside.

But that three-meter counter is a signboard built with the technological background of Qidian, a wholesale center, where several batches of distributors come to purchase goods every day.

They have two more counters like this in Feiyang Digital City and one in Cyber ​​Park.

In essence, everyone here is indirectly working for MediaTek.

"Teacher Chen, I didn't expect that Spreadtrum was actually funded by MediaTek. How could you not know about the situation in Huaqiangbei?"

Chen Datong was adjusting his glasses, looking at the dazzling array of mobile phones on the third-floor counter, shaking his head in amazement. "It's precisely because MediaTek invested in us that we can't compete with them for this market. We can only do some peripheral business, and provide chips for a few small manufacturers. We can also do this turnkey solution! Now it seems we were too lenient with this market; it's too big."

Upon hearing this, Chen Xuebing smiled.

Mercy? You think you can just steal someone else's business?
At this moment, Huo Xiaowen pointed ahead: "The ones sold here are all over a thousand yuan. You want machines that can access the internet, right? We have them all here!"

After saying that, he casually walked to a counter and said to the proprietress, "Sister Hua, can I take a look at a few sample machines?"

"We've got a big customer! Please take care of us!" The proprietress smiled and took out several sample machines when she saw that the group was well-dressed.

Huo Xiaowen quickly categorized the machines.

"This is a grey market Nokia N70. It has a reserved 3G expansion interface, Symbian S60 V2 system, which can not only access the Internet, but also play the latest JAVA games, and has QQ. Look."

"These computers can all access the internet! They have Java browsers!"

He turned on each machine one by one to show Chen Xuebing and Chen Datong's team. The smoothness of the new machines amazed Chen Datong once again.

Chen Xuebing stared at the N70 and asked, "Does this machine sell well?"

"Okay, it's a Hong Kong version, not sold in mainland China. Several thousand units have been shipped in the last few days, and I heard another batch is being modified and will be delivered soon. I know Mr. Liu who handles these shipments, do you want to stock some?"

Chen Xuebing shook his head and smiled at Chen Datong, "Isn't that enough for tens of thousands of units?"

Chen Datong understood what he meant: the N70 has a 3G interface and can directly connect to an external TD chip.

But he still casually remarked, hands behind his back, "Chips aren't cheap either."

Chen Xuebing chuckled and led them on a tour, giving them a glimpse into the sheer volume of goods shipped from Huaqiangbei.

Only after they left did he say, "This is a battle for survival for Spreadtrum. If the TD licenses cannot be issued as soon as possible, or if they are issued at the same time as WCDMA, it will be a disaster for Spreadtrum. Mr. Chen, you should understand this. Spreadtrum is rewriting its destiny by spending some money to subsidize TD users at this time. How about 100 yuan per chip for your chips?"

Without licenses, Spreadtrum's 2.5G chips cannot compete with MediaTek and can only get scraps.

If TD and WCDMA are launched at the same time, TD will definitely not be able to compete with WCDMA, and Spreadtrum will have no future.

There is only one way: first, seal the door on WCDMA, let TD be launched first, seize the market, and then Spreadtrum can reap the rewards.

From this point of view, Chen Xuebing and Spreadtrum share a highly consistent demand.

He is eager to bypass Qualcomm's dominance in WCDMA and expedite the issuance of TD 3G licenses so that his first-generation phone can gain a decisive advantage over Apple.

The first generation of Apple phones was a 2G phone.

Even with a poor foundation, TD is still 3G, which leaped over network speeds of tens and even hundreds of kilobytes, officially entering the MB/s era of mobile internet.

With the Kirin processor and TD technology, it became the world's first truly internet-connected smartphone.

"The 3G licenses will be issued soon, at the latest next year. The host and co-host cities of the Olympic Games must use 3G networks. According to the 'China 3G Development Plan White Paper' released this year, China's 3G licenses must include TD licenses. Spreadtrum will not lack business if we spend more money on technology research and development."

Chen Datong said something else entirely.

100 yuan only covers the chip manufacturing and transportation costs. What about the initial R&D investment? What to do?
Spreadtrum doesn't want to spend money and take risks. They're willing to ride the wave of a trend, but they're not willing to sell chips at a loss.

This is a newly developed TD baseband tri-network chip, the only one of its kind in China.

Chen Xuebing gave a half-smile.

"You really think so? Then why rush to go public next year? Wouldn't you raise more money if you waited until the benefits of 3G rollout were realized before going public?"

The initial public offering (IPO) of shares is the money that the listed company can get. Whether the price goes up or down afterward has nothing to do with the company itself. If they were truly confident, they wouldn't have started preparing for an IPO before even seeing 3G roll out.

Chen Datong paused for a moment and said, "We have more than one shareholder, MediaTek. Investors are all waiting for the company to go public and cash out their shares."

"Heh, Spreadtrum has a one-year lock-up period for US stocks. Can it last two years?"

Spreadtrum's IPO was a success, with a share price of over ten dollars and a market capitalization of 20 billion dollars. However, it soon plummeted to a few cents, and shareholders only received sufficient returns later through Tsinghua Unigroup's acquisition and delisting.

As Chen Xuebing spoke, he glanced at the market behind him and added, "However, if you cooperate with me, I might be able to help you capture a portion of the counterfeit phone market, and you can also make profits from another aspect."

These words truly resonated with Chen Datong.

MediaTek shipped 4300 million chips in mainland China in the first quarter, accounting for 14% of the global market share. Who wouldn't be envious of the profits in Huaqiangbei!
MediaTek simply has a first-mover advantage. In terms of technology, Spreadtrum is not inferior to them. They are also making integrated chips, but they lack orders and have difficulty negotiating with foundries, resulting in higher costs and making it difficult for them to compete.

"Mr. Chen, what is your annual shipment volume?"

"A year? About 200,000. But it's easy for us to expand our channels. The merchants we're in contact with have a combined shipment volume of at least two to three million, and we're also in contact with hundreds of manufacturers."

Qidian has been selling all kinds of machines this year, and even exporting them. It has already established a huge network of relationships in Huaqiangbei.

Lu Weibing was unwilling to give up this lifeline and had been secretly expanding his business in Huaqiangbei. He was even trying to expand his Taobao channel. However, Chen Xuebing kept him in check and told him to keep a low profile. But if he had a chip manufacturer in the upstream of counterfeit products and did upstream business, Chen Xuebing would not mind expanding this network of relationships to cover the entire Huaqiangbei.

"Mr. Chen, how much of a stake would you like to invest?" Chen Datong asked tentatively.

Chen Xuebing originally wanted 20%.

But considering that Spreadtrum might be able to compete head-to-head with MediaTek, his thinking changed.

“34%, I want veto power.” Chen Xuebing turned his head and said firmly, “Otherwise, I can’t control these two matters, and I won’t get involved.”

Chen Datong wanted to say too much, but after calming down, he remembered that an investor was not very supportive of their TD project and kept asking them to develop WCDMA.

"How much is Mr. Chen willing to pay for 34%?"

"Two hundred million," Chen Xuebing quoted a figure he could afford.

"Two hundred million." Chen Datong was taken aback, and his tone became less friendly: "Last year, the investors we brought in valued our company at 1.5 million US dollars! This year, we've also developed a three-network chip!"

He said last time that the valuation should be increased now.

Chen Xuebing, however, did not follow his wishes.

“1.5 million US dollars, that’s 12 billion, right? 34%, that’s less than 4.5 million. So I’ll add a 2.5 million performance-based agreement. Wu Ping’s team will continue to be responsible for technology development, but I will make the market decisions. Next year, I will make Spreadtrum’s annual profit exceed 10 billion. If it doesn’t reach that, I will compensate the other shareholders with 2.5 million. How about that?”

Investing 2.5 million in the company and compensating other shareholders are completely different things.

If the shareholders receive this money, the founding team will have already earned ten times their initial investment, proportionally.

If the annual profit exceeds one billion, then even more so.
With its US listing prospects uncertain, this is certainly a solid safety net.

"Mr. Chen, can you really come up with 2.5 million in cash? That's no small sum."

Chen Xuebing grinned: "It seems Mr. Chen doesn't know me very well. I won't go into the other investments, but we hold 800 million yuan worth of BOE stock, 3.26 million shares, you should know that, right? We bought in at 2.45 yuan, and now the stock price is 4.3 yuan, worth 14 billion yuan. And it will continue to rise in the next year. By the way, BOE's new production line specializes in mobile phone screens. Once it goes into production, it will become the largest mobile phone screen manufacturer in China, and we'll probably have no shortage of major customers. Hefei and I are the major shareholders. Maybe, besides Huaqiangbei, you'll have some unexpected surprises."

Chen Datong swallowed hard.

Investors with resources always give people a feeling that "this life is all set".

Mr. Chen, standing before me, is just like that.

"President Chen, let me discuss this with Wu Ping!"

(End of this chapter)