How can Huawei save its mobile phone business in the past two years?

With the release of a new flagship mobile phone equipped with Qualcomm chips by Honor on June 16, Huawei has become the only mobile phone manufacturer in China that does not have Qualcomm chips available. This hard fact can't help but recall two years ago-on May 15, 2019, Huawei was included in the "Entity List" by the US Department of Commerce and prohibited US companies from selling related technologies and products to it. This "stop supply ban" has not only prevented Huawei from purchasing US-based chips for the past two years, but even the self-developed "Kirin" chips have also been restricted and cannot be produced normally. This has led to a significant reduction in the supply of mobile phones. The volume ranking ranks third in China, and the global shipment ranking has fallen out of the top five.

"Anyone who can't kill me will make me stronger." Also in these difficult two years, Huawei tried to turn the tide and was not defeated by the "cut confession prohibition" in terms of financial performance! The 2020 annual report shows that Huawei’s annual sales revenue was 891.4 billion yuan (the same currency as below), a year-on-year increase of 3.8%, and its net profit was 64.6 billion yuan, a year-on-year increase of 3.2%. Among them, the most hit consumer business revenue was 482.9 billion yuan, a year-on-year increase of 3.3%, which shows that Huawei's response strategy to the plight of broken cores has worked.

So how did Huawei stop the loss and save itself the mobile phone business in the past two years when the core was broken? "International Electronic Business" observes and summarizes four strategies:

First, make chips to achieve autonomous control.

Huawei's self-developed chips can be traced back to 2003. After the failure of the first self-developed mobile phone chip code-named "Meri" in 2007, Huawei decided to divide its forces into three groups: the 3G Modem Baron team, the AP processor team, and the 4G LTE team, each performing their duties and giving full play to their expertise. In 2013, Huawei decided to combine Modem and PA and take the road of SoC. Subsequently, Huawei's first-generation mobile phone SoC chip Kirin 910 came out.

It can be seen that Huawei's self-developed chips are spontaneous, not self-help behavior. However, the rare counterattack story of "spare tyre turning to normal" would be difficult to achieve without certain accidents. Therefore, Huawei founder Ren Zhengfei expressed his gratitude in the face of the repeated suppression by the United States regardless of the previous complaints. This is a logic of thinking starting from "result-oriented". ( Click to review : Huawei sent two internal letters in a row, and all chips "spare tires" turned positive today! )

Of course, you can't get stuck in your neck forever. The realization of the whole process of chip independent and controllable manufacturing is the most direct and effective means for Huawei to alleviate the plight of broken cores. In response to this, Huawei has made large-scale reserves in 2020 in order to cope with the outage of chips. For example, in 2020, its cash flow from operating activities was only RMB 35.2 billion, which was a sharp drop. For another example, despite the sanctions that HiSilicon cannot produce, Huawei is still developing world-leading semiconductor components internally.

"Huawei has not given up the HiSilicon team, nor will it make any reorganization or layoff decisions." Recently, Huawei director Chen Lifang firmly stated in an interview with foreign media. It is reported that Huawei HiSilicon’s Q1 revenue in 2021 was only US$385 million, a decrease of 87% from the same period last year.

Second, light up the burden and sell the Honor brand.

On November 17, 2020, the prolonged rumor that "Huawei sold Glory at a price of 100 billion yuan" was confirmed by Huawei, but the sale price was not announced. The Honor brand and its related business assets were fully acquired by Shenzhen Zhixin New Information Technology Co., Ltd. After the sale, Huawei no longer holds any shares in the new glory company.

A related Huawei statement pointed out that the acquisition is not only a self-help and market-oriented investment initiated by the Honor-related industry chain, it can maximize the protection of the interests of consumers, channels, suppliers, partners, and employees; it is also an industry complementarity. , All shareholders will fully support New Glory, so that New Glory can draw on the advantages of all parties in terms of resources, brand, production, channels, and services, and participate in market competition more efficiently. ( Click to review : Huawei's "Break Arm to Help Yourself", Honor Change Owner! )

For this sale, the industry's general analysis is to avoid the impact of the "stop supply ban". However, at the first new product launch conference held on January 22, 2021 after Honor became independent, the V40 series of mobile phones were equipped with Kirin and MediaTek Dimensity processors. At that time, Zhao Ming, CEO of Honor Terminal Co., Ltd., emphasized that after Honor officially announced its independence, almost all supply partners have resumed supply, including AMD, Intel, Samsung, Micron, Qualcomm, Microsoft, MTK (MediaTek) and other suppliers. Until June 16 this year, the strong return of the first Honor 50 series equipped with Qualcomm Snapdragon 778G chip is enough to show that the darkness of Honor has passed.

From the results, the sale of the Honor brand is indeed one of the important means for China to stop the loss of its mobile phone business. On the one hand, it has kept the independent brand of Honor, and the "US core-breaking ban" seems to be aimed at Huawei itself; on the other hand, it can also allow Huawei to lighten its own packaging and make it more mindful on the road of chip self-research.

It was also a speech from the director of Huawei Chen Lifang. She firmly believes that after two to three years of research and development, she will be able to deal with chip problems. In addition, there are reports that Huawei's HiSilicon department is designing and developing 3nm chips, and the final name may be Kirin 9010.

Third, expand the ecology, 1+8+N integration strategy, and Hongmeng OS is fully open.

It is undeniable that due to the supply of chips, the revenue capacity of mobile phone products in Huawei's consumer business has been severely weakened, but the revenue of smart equipment and terminals has risen sharply (in the consumer business in 2020, sales of other products except mobile phones will increase by 65 %), thus driving the positive growth of overall consumer business revenue.

So, what kind of terminal products can successfully take over Huawei smartphones? This is Huawei's early layout of the hardware ecology-1+8+N integration strategy. Among them, 1 is a smart phone, 8 is a tablet, PC (personal computer), wearable, smart screen, AI speaker, headset, VR, car machine, then N refers to everything.

Some readers may have questions, don’t Huawei’s tablets, smart screens, and wearable products need chips? Why has it become Huawei's key business?

First, the global smartphone market is becoming fierce, but the eight major industries are incremental markets, which are relatively less saturated. In terms of PC, 302.6 million units will be shipped globally in 2020, which is less than a quarter of smartphone shipments. Moreover, the global TOP5 competition for PCs is not as fierce as smartphones. Huawei is ranked fifth (Acer 2098.9) Wantai) did not enter, there is a lot of room for growth in the future. Second, the chips required by the eight major industries generally have lower requirements on the manufacturing process, more sufficient production capacity, and more OEMs to choose from. Like Huawei's wireless headset, in addition to its own Kirin A1 chip, it also has Hengxuan's main control chip. Third, the problem of profit. So far, the development of smart phones can only do "addition" and "multiplication". With the unit price unchanged, it will inevitably increase hardware and software costs and reduce the original profit margin. However, the hardware and software costs of products such as smart screens are much lower than that of smart phones, and their unit prices are not low, so they naturally have ample profit margins. Therefore, it is believed that Huawei will also consider this when considering chip inventory, and will definitely prioritize stocking for high-unit-price and high-profit fusion products.

In fact, 1+8+N is just the "pre-tune" of Huawei's ecology. On June 2, 2021, the comprehensive open source of the Hongmeng OS system is the "criminal horn" of Huawei's ecological expansion!

From the 73 Huawei Hongmeng OS partners compiled by "International Electronic Business Information", it is found that their partners include software development and services, chips and modules, network communications, artificial intelligence and other upstream suppliers, mainly providing technical support and functions Development; also includes downstream manufacturers of home appliances, security, education, travel, sports and health, VR video, etc., mainly for the 2C consumer market; in addition, three banks announced the access to Hongmeng OS. ( Click to review : Who are Huawei's Hongmeng OS partners? The list of 73 companies are fully disclosed! ) This shows that Huawei's positioning of the Hongmeng OS ecosystem is not only smart hardware, AIoT, but also aimed at the human life of "food, clothing, shelter, living and work, birth, old age, sickness and death" The main elements in, provide a unified language for the intelligence, interconnection and collaboration of different devices, so as to build a huge business map.

Of course, whether the Hongmeng OS ecological territory can be successful and whether it can become a new driving force for Huawei's revenue growth, it seems that it still needs time to test.

Fourth, make more changes and adjust consumer business distribution strategies.

It is not difficult to find that the above three methods are deployed from the perspective of the long-term development of the enterprise. After all, cutting off the chip supply is an urgent matter, and Huawei must have a short-term emergency strategy. After observation, the emergency strategy is mainly reflected in the adjustment of the distribution strategy of the consumer business.

For physical dealers, Huawei’s current distribution model is a national contract model, that is, after the mobile phone is produced, it is given to a national contractor, and the national contractor distributes the contract to various provinces, and then the provincial contract is directly supplied to the distributors in the province. . As a result, because the current spot supply is very small, Huawei mainly distributes high-end models of more than 5,000 yuan to "experience stores" and "authorized stores" in super first-tier/first-tier cities; "specialty stores" in the sinking market mainly sell 3,000 yuan The following low-end models. The purpose is to accurately put a small amount of spot stock into the demand market.

Nevertheless, the stock of Huawei's offline stores is still pitiful. According to the person in charge of an offline store in Huaqiangbei, Shenzhen, there are currently no more than 5 models in stock, and there is no memory version, and the color of the body can be selected. Basically, one is sold and one is less.

In addition, due to the long-term instability of the distribution of goods, some dealers have planned to switch to other domestic brands. It is known that in March 2021, Huawei’s mobile phone stocks were suddenly sufficient. At least more than 100 new phones came that month, causing some dealers to shelve the idea of reselling. "Looking back now, this may be one of Huawei's methods to stabilize its distribution channels." The person in charge of the aforementioned store smiled bitterly.

There are reports in China that from Huawei's edge business to the domestic smart phone giant, offline stores have played a decisive role in the development of Huawei's mobile phones. Therefore, how to save offline channels may be a top priority for Huawei's consumer business.

For online sales channels, Huawei has not always been a key sales channel, so the supply of goods is even less. Yu Chengdong once said that in the field of e-commerce, Huawei's terminal sales strategy accounts for 20% to 30%. The entire offline sales are still the mainstay, and you cannot give up offline for the sake of online. Therefore, consumers grabbing orders online are basically sold out in less than a second.

In terms of consumer strategy, starting from October 2020, Huawei has added a new rigid condition for the distribution of mobile phones in offline stores-smart phones + integrated products. At first it was 1:1, that is, if you want to allocate a mobile phone, you need to add a hardware product, including but not limited to Bluetooth headsets, AI speakers, desk lamps, body fat scales, backpacks and other products. Later, while some stores were allocated 6 Huawei mobile phones, they also bought more than a dozen hardware products. Of course, Huawei has also increased the commission for fusion products to promote the sales enthusiasm of fusion products in offline stores.

"Although the commission for these hardware products is higher than that of mobile phones, consumers do not pay, and stores have to sell them at discounts. They can't be rotten in the warehouse, right?" said another store manager.

At the same time, in order to stop the "scalper party" from selling goods, Huawei requires offline stores to direct consumers to immediately unpack and activate it on the spot. According to a store manager recalled, some customers came in to scan the goods, not picking the memory version, the color of the body, and were willing to buy two more smart watches, but they were always reluctant to unpack and activate them on site. The store manager judged him to be a "scalper" and rejected the "big order." “Because once Huawei finds out that there is a suspicion of collateral goods, it will cut off the supply and other punishment measures in offline stores, we can't make a big mistake because of small mistakes!” The store manager explained.

It is not difficult to see that in the past two years, Huawei has tried many coping strategies, with successes and failures, and many detours. At present, the “out of stock” situation of Huawei mobile phones is still serious. Searching for "out of stock" in the "Pollen Club" found that since June, consumers have frequently complained about the "out of stock" of Huawei phones, watches, tablets, and routers. Some netizens even ridiculed: "The official website will never be out of stock, and Tmall supermarkets will increase prices. "1000 will never be out of stock" "If you don't want to increase the price, go to the offline store, don't choose the model, don't choose the memory, don't choose the color, and the test is available!"...

Although dealers and consumers have mixed praises and criticisms for Huawei’s above-mentioned measures, according to the "white cat and black cat theory", no mobile phone manufacturer has ever fallen into a situation of "no core available". Huawei is the first one, and naturally only Can cross the river by feeling the stones, "A good cat can catch a mouse." As a "veteran pollen" said: "The gate of life is pinched, there is no way. Only when the design and production are fully localized will the current situation no longer occur. Huawei, come on!"

Source from International e-commerce