Don't be fooled, OPPO is suspending core making, it's true that there's no money!

The closure of Zheku and the failure of OPPO core making resulted in a significant loss of manpower, material resources, and financial resources invested in the past three years. More seriously, the ultimate outcome of the highly competitive OPPO chip making journey may pour cold water on the booming chip industry in China.

Some people say that OPPO's failure in chip manufacturing is due to concerns about being sanctioned by the United States, while others say it is because chip manufacturing is too expensive and OPPO's main business is shrinking, which is no longer sufficient to support chip research and development, a business that requires a lot of money.

What is the reason that led OPPO to make a heroic decision?

The Road of Core Making for 01OPPO

In 2020, OPPO proposed three major plans of Mariana, Pantanal and Andes, which correspond to chips, software engineering and cloud services respectively.

Starting from 2020, OPPO's core making plan was officially launched. By 2022, OPPO has launched the first mobile phone equipped with Mariana X self-developed chips on its flagship model FindX5. By the end of 2022, the second self-developed chip and OPPO's first SoC: Mariana Y. Although Mariana Y is still only a Bluetooth SoC, it has been rumored in the technology industry that OPPO is already developing its first mobile phone SoC.

It should be said that OPPO has been producing cores for 3 years and has achieved very good results. Compared to the achievements of Huawei, Xiaomi, and OPPO, the three major domestic mobile phone manufacturers, in terms of chip manufacturing, OPPO is definitely outstanding.

Xiaomi has invested billions to develop the surging series of chips, but due to limited investment and weak technological foundation, the surging chips did not receive market recognition due to poor technology and performance compared to Qualcomm. Although Xiaomi did not acknowledge the failure of the surging chip, it has actually been marginalized, and Xiaomi does not use it much on its own products, making it even more impossible to make money from exporting.

02 Zheku shutdown

At the staff meeting of Zheku on May 12th, CEO Liu Jun announced with a heavy heart: "After careful discussion, the company has decided to shut down Zheku and terminate its self-developed chip business

At the staff meeting on May 12th, CEO Liu Jun of Zheku announced a difficult decision to all employees with a heavy heart. "After careful discussion, the company has decided to shut down Zheku and terminate its chip research business.

According to insiders, the dissolution of Zheku was very sudden, and even many director level personnel only learned about the company's closure on the day of the dissolution meeting. But in the face of around 3000 employees, Zheku's compensation of N+3 for formal employees is quite conscientious. After all, as the CEO of Zheku stated at the staff meeting, Zheku's employees were not at fault in the dissolution of the company, but made a last-minute decision due to the company's strategic adjustment.

Are you worried about US sanctions?

So, is OPPO's core making failure really a concern for US sanctions?

In my opinion, this possibility is very small.

One is that if OPPO has already faced pressure from the US government, it will immediately seek help from the government. It is almost impossible for a company, no matter how powerful, to confront a country. When ZTE, Huawei, and Xiaomi were suppressed by the United States before, they were all the first to seek protection and assistance from the Chinese government. OPPO did not seek help from the Chinese government, indicating that it has not yet faced pressure from the US government, at least so far.

Secondly, based on the precedent of US sanctions against Chinese enterprises, there will be no prior sanctions. In other words, the current achievements of OPPO in chip manufacturing are not enough to attract the attention of the United States, nor do they deserve sanctions from the United States. According to the habit of the Americans, even if sanctions are imposed, they will only be imposed when OPPO has invested a huge amount of funds and has achieved a threat to the status of domestic enterprises in a certain field.

Post sanctions are often more severe than pre sanctions. After all, a large amount of capital investment may be lost due to sanctions! For sanctioned targets, the blow is even greater. So, the suppression of Chinese technology enterprises by the United States often does not involve "strangling them in the cradle", but rather coldly inflicts a blow on them as they mature.

Thirdly, if American companies want to cut off supply to OPPO, it is even less likely to happen. You should know that OPPO is a huge customer of Qualcomm, and Qualcomm cannot afford the blow of losing OPPO. Everyone knows the relationship between OPPO and VIVO. If Qualcomm wants to cut off the supply of OPPO, it must first consider the consequences of losing customers of the five brands: OnePlus, OPPO, VIVO, Realme, and IQOO? You should know that these five brands together account for over 20% of the global mobile phone market.

So, overall, OPPO's decision to shut down Zheku has little to do with concerns about US sanctions.

Is 04OPPO out of money?

OPPO's lack of money is definitely true. Moreover, in the three years since the epidemic, not only OPPO has been short of money, but it should be said that all mobile phone manufacturing enterprises are short of money.

Mobile phone manufacturing is a low profit industry. In 2022, Xiaomi's annual revenue was 280 billion yuan, with a net profit of only 8.5 billion yuan and a net profit margin of 3%. As a non listed company, OPPO will not release financial reports, but based on the global profit margin of mobile phones, OPPO is not much better than Xiaomi.

Moreover, by the end of 2022, a large number of OPPO employees had reported a decrease in year-end bonuses.

In terms of shipment volume and market share, OPPO experienced a serious decline in 2022. According to IDC's data for the third quarter of 2022, OPPO's global market shipment volume has decreased by 22%. In terms of performance in the domestic market, it was even less satisfactory, with the largest overall decline among the top 5 domestic manufacturers, reaching 27.9%. In last year's Double Eleven, OPPO was also the one with the largest decline among all manufacturers, with sales of 250000 units on Tmall (including OnePlus) and 400000 units on JD.com, a total decrease of 550000 units compared to 2021, almost halving.

According to the Counterpoint Research report, OPPO sales in 2022 decreased by as much as 27% year-on-year, much higher than Apple's 3%, Vivo's 23%, Xiaomi's 19%, and the industry's average decline of 13.2%

The decline in sales and profits of Oppo has put the company under financial pressure. In response to this situation, Oppo has taken a series of measures, including reducing employee year-end bonuses, layoffs, and reducing marketing expenses.

So, from the sales data, it is highly likely that the year-end bonus shrinkage event that was exploded at the end of last year.

The manufacturing industry attaches great importance to the capital chain and has a great demand for working capital. Once the supplier's payment cannot be redeemed on time, there will be a thunderstorm immediately. Jinli Thunder is the best warning from the past. Faced with the global downturn in the mobile phone industry, OPPO dare not make an uncertain gamble. Otherwise, it is likely that LeEco's yesterday will be OPPO's tomorrow.