Back to the teenage years

Chapter 537: The Lifeline of China's DVD Player Market
The day is getting brighter.

There is morning light shining over the green hills.

It was an early spring in 1996.

The Waking of Insects, which symbolizes the birth of all things, is no longer far away, but the biting cold in the vast land of China is far from gone.

The thousands of miles of Qilian Mountains in the northwest are still covered with wind and snow, but in the misty little town at the foot of the Hengduan Mountains in the southeast, between the mountains and waters of Jiangchuan Ziyun Town, the fertile soil has been thawing amid the noisy magpies. On both sides of the road, the increasingly lush green grass and the production base of Aiwa Electronics, the largest private enterprise in Jiangchuan City, are looming in the gauze-like mist.

It is full of life.

Hidden among the green mountains in the morning light!
Zhang Yunqi walked through the gauze-like mist of the early morning, and together with his secretary Yang Jin and Aihua Electronic Components Company General Manager Liu Ming, they drove through the mountains and fields of Ziyun Town and headed for the Aihua Electronics base, which was changing with each passing day.

Zhang Yunqi came here so early because he wanted to learn about the production situation of the base in advance and then negotiate with Liu Jinshi about Aiwa Electronics purchasing Philips core components.

Last year, the two sides reached an agreement that Aiwa Electronics purchased 12 sets of Philips chips in three months. This time, Liu Jinshi is aiming to reach an annual purchase order of more than one million sets of Philips CDM series movements with Aiwa Electronics.

The value of this order will reach three to four hundred million!
This is definitely the largest order in the Chinese DVD player market so far. Both parties naturally attach great importance to it. Liu Ming, as the leader of this matter, directly reported to Zhang Yunqi by phone. In the car, he introduced yesterday's situation to Zhang Yunqi again.

Liu Ming had already received Liu Jinshi once last night. Since Zhang Yunqi was not there, the core issues of this huge contract worth hundreds of millions of dollars would naturally not be involved, so the talks between the two sides were relatively harmonious.

At present, Philips headquarters has made it clear that it will expand its component production base in Shanghai and increase the production capacity of its movement. However, he is not sure to what extent this capacity will increase. Perhaps Philips also wants to match the specific needs of Aiwa Electronics first. But one thing is clear, expanding production capacity means that Philips is optimistic about the Chinese market, and it also means that they are extremely eager to convert large target orders into production orders to avoid unknown market risks.

At a time when DVD player movements are not yet in short supply, Philips wants to expand its production capacity to cope with the promising market in the future. As a movement purchaser, Aiwa Electronics is making huge purchases and, in a sense, has taken a dominant position in the negotiations, rather than being controlled by others and requesting Philips to increase its supply.

"What's the situation at Sony?" After listening to Liu Ming's introduction, Zhang Yunqi naturally thought of Sony.

When Aiwa Electronics was first established, Sony was its component supplier and technical partner. The servo system and error correction function of Aiwa's VCD products were comprehensively improved based on Sony's ROM format. The two parties have deep cooperation in the technical field, and Sony has a more important identity. It is a competitor of C-CUbe in the decoding chip supply chain, and poses the greatest threat to Philips in the movement field.

Zhang Yunqi still vaguely remembered that in his previous life, Philips and Sony were fighting to the death for Shinko's DVD player component orders.

Liu Ming said: "We are currently working with Sony to develop the "Lingxi No. 1" control software to overcome the freezing problem in the use of VCD players. We hope to catch up with the progress and install it on Aiwa Electronics' new generation of video players. In addition, there is cooperation in the research and development of digital audio technology and digital video technology. Sony's laser heads and optical components are known for their high precision and high reliability, and we have been purchasing them. Of course, Sony also wants to sell movements to us, but their movements have certain defects, and their error correction capabilities are worse than those of the Philips CDM12 series version, but they are willing to provide us with the underlying technology. Philips is much more domineering. The CDM12 series is only willing to provide standardized models for our Chinese market, without technical support, which makes it impossible for us to optimize the error correction function independently."

Zhang Yunqi nodded. From Liu Ming's words, he could feel the difference between the competition between Philips and Sony. The competition between the two was a confrontation between "scale" and "technology premium": Philips hoped to occupy market share through low-priced movements and localized production, becoming the "invisible overlord" of the industry; Sony maintained its market position with high-precision components and technology bundling. The competition between the two did accelerate the outbreak of China's VCD industry, but it also caused local companies to fall into a deep "assembly dependence", laying hidden dangers for subsequent industrial upgrades. This competition model continued to be repeated in China's consumer electronics field for many years to come.

Zhang Yunqi said, "There is a problem. Philips is unwilling to provide technical support, which means we cannot optimize the error correction function of the DVD player independently. Is there any solution?" Liu Ming thought for a while and said, "The strategy I can think of now is to optimize the error correction function by patching the external decoding chip, but this will greatly increase the cost and failure rate, resulting in a shortened life of the movement. Another hidden danger is that the external decoding chip will inevitably be strongly suppressed by Philips, and the other party is likely to implement a warranty policy. So if it is just for the advantage of error correction, wouldn't it be a bit of a loss to create so many negative hidden dangers?"

Zhang Yunqi nodded.

He did not refute Liu Ming's opinion, but that did not mean he agreed with Liu Ming's opinion.

Currently, the price of genuine VCD discs is very high. At the beginning of 1996, the price was about 100 yuan per disc, which is equivalent to 1/3 of the monthly salary of ordinary employees. However, pirated VCD discs are on the eve of explosive development. The production lines of smuggled second-hand discs from Hong Kong and Taiwan have entered the mainland. One production line can easily produce 2 sets a day. But Zhang Yunqi learned that pirated discs still cost 30-50 yuan per disc. This price is a luxury for ordinary people and they cannot afford it. As a result, the importance of the error correction function of the VCD player movement has not been truly highlighted and has not been really taken seriously by domestic disc player manufacturers.

When the price of pirated films fell further, especially after 1997, the cost of the CD dropped to 1.5 yuan per disc, the wholesale price was 3-5 yuan, and the retail price was 8-10 yuan. The market exploded as a result, and those manufacturers realized a very fatal problem: Chinese pirated discs were cheap and popular among ordinary people, but they generally had problems such as scratches and eccentricity, which meant that consumers required VCDs to have "super error correction" functions.

This is the most core demand of the Chinese DVD player market in the future.

There is no doubt that since mid-to-late 1996, the error correction capability of VCDs will determine which manufacturer can lead the Chinese video disc player market. However, as the main supplier of movements for China's video disc player industry, Philips' movement error correction algorithm is designed based on genuine discs. There is no problem in supplying foreign markets, but it is difficult to meet the demand for pirated films in China. What's more, Philips refuses to provide technical support to Chinese manufacturers.

Under such circumstances, in order to cater to the special conditions of the Chinese market, manufacturers who were late to the party could only use external decoding chips, such as the ES3207 chip from the American company ESS, to forcibly modify the error correction logic of the original Philips movement and enhance the error correction performance. However, this also led to an increase in the cost and failure rate of the DVD player, and a shortened life of the movement.

On the other hand, Philips was also extremely dissatisfied with this, accusing Chinese manufacturers of abusing technology and refusing to provide warranty services on the grounds of violating technical specifications. The relationship between Chinese DVD player merchants and Philips has further deteriorated.

For Zhang Yunqi, the lesson was right in front of him, and he did not want to repeat the mistakes of the Chinese DVD player manufacturers in the past. The success or failure of the negotiation with Philips this time, whether this issue can be resolved is the core factor.

With these in mind, Mercedes arrived at the Aiwa production base.

After Zhang Yunqi got off the car, it was still early and the sun was about to rise. He raised his hand to check the time: "When will Liu Jinshi arrive?"

Liu Ming replied: "Nine o'clock."

Zhang Yunqi said: "Today we need to make Liu Jinshi aware of Sony's presence."

After thinking for a while, he added: "The key point is that this matter needs to be done more deliberately."

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PS: Will continue to update tomorrow.