Rebirth 08: Rise from copycat phones

Chapter 295 S14 mass production and reciprocal sanctions
Walking in the Shenzhen production base of Zhiyun Microelectronics, Ding Chengjun, CEO of Zhiyun Microelectronics, said as he led Xu Shenxue forward:

"We, Zhiyun Microelectronics, are not only the largest semiconductor wafer manufacturer in China, but also the third largest semiconductor wafer manufacturer in the world, second only to TSMC and Intel."

“Not the third in the chip foundry industry, but the third in the entire chip manufacturing industry!”

"If we are talking purely about the chip foundry industry, our Zhiyun Microelectronics is still the second in the world!"

"After all, Intel does not take on foundry business, and its chip factories are all self-sufficient. Therefore, if we want to talk about foundry, we have to exclude Intel."

Xu Shenxue naturally knew this. The overall chip manufacturing industry and the chip foundry industry are not the same thing. The former includes the latter.

In the chip manufacturing industry, the current leader is actually Intel, which has very powerful technology and a large scale. In areas such as PCs and servers, it occupies almost 70% of the global market share.

To exaggerate a little, most of the modern social systems are built on Intel.

Computers for work and entertainment, various servers in the industrial field, etc. are all supported by various chips produced by Intel's chip factories.

The second is TSMC, a professional chip foundry. However, about 50% of their chip foundry business comes from the communications industry, that is, mobile phone SOC.

Its influence and scale cannot be compared with Intel... Modern human society will not have any major problems without mobile phone SOC, but without Intel's X86 chips, there will be big problems.

Ji Chenghe, who was watching the chip factory nearby, said: "Some time ago, I read a report that said the chip foundry market size this year is about 37 billion US dollars. This foundry market is not small!"

Ding Chengjun said: "It is not small. Our internal estimate of the foundry market size is similar to the data from external analysis agencies, which is about US$35 billion to US$37 billion. However, the majority of it has been taken by TSMC. We estimate that they should have a revenue of about US$17 to 8 billion this year, which will probably account for more than half of the foundry market."

"After all, they are a professional chip foundry with good technology, and those big customers don't have too many concerns. It's relatively more troublesome for us to compete with them!"

Ding Chengjun smiled and said, "After all, companies like Apple and Qualcomm are unlikely to choose us as their OEM at this stage!"

"After all, our company Zhiyun Microelectronics is mainly for the group. We cannot abandon our own products and give advanced production capacity to outsiders. This will naturally make it more difficult for us to compete for advanced chip foundry."

"In this regard, Four Star Semiconductor even has an advantage over us, because their own self-developed mobile phone SOC is now half-dead, and there is no situation of preempting advanced technology!"

The contemporary chip foundry market is also a very competitive and complex market. You can't get orders just by having good technology.

For example, TSMC, the leader in the chip foundry market, has Apple and Qualcomm as its main customers. It is not easy to grab chip foundry orders from these two companies. If Sixin Semiconductor has enough technology, it can still be pulled over, but it will be difficult for Zhiyun Microelectronics under the same conditions.

No one would be willing to give a large order to their competitor...

At this time, Ding Chengjun said: "In the chip foundry business, that is, if we don't count the internal orders of the group, but only count the orders from external customers, our foundry revenue last year was 28 billion US dollars. This year, it has increased thanks to the NLP process. At the same time, we will free up some -nanometer process capacity in the second half of this year to take foundry orders. The revenue in the first half of the year has reached billion US dollars. This year, the whole year, we expect to have a foundry revenue of about billion US dollars."

"Our main foundry customers are domestic Huawei, Qianding Technology, Spreadtrum and a series of other domestic chip design companies; we also have some orders from international customers, such as AMD, Synaptics, Texas Instruments and other companies."

"We have already started cooperation with AMD, using our 28NLP process to manufacture several of their chips. We have also reached a preliminary agreement to use our -nanometer process to manufacture a new generation of CPU chips for them. However, this -nanometer process foundry cooperation will not be available until next spring."

"Overall, although we have both domestic and international orders, our Zhiyun Microelectronics' main OEM orders still come from the domestic market."

"In recent years, with the rapid rise and growth of the consumer electronics industry, the domestic chip design industry has also been stimulated to develop rapidly. Many companies focusing on chip design in various fields have emerged, which has contributed a large amount of foundry order revenue to our Zhiyun Microelectronics."

Xu Shenxue said: "We must strive for orders from the international market, but we must also keep domestic chip orders. This is our basic base. We still need to work harder in the future to keep domestic chip orders, especially those with advanced technology, and prevent them from flowing out to TSMC, UMC and Four Star!"

"The domestic chip design market is developing rapidly nowadays. We must seize this historical opportunity!"

Although currently only Zhiyun Semiconductor and Huawei are making advanced chips in China, it does not mean that there are no other chip design companies.

Because chips include not only the most advanced and conspicuous CPUs and GPUs, memory, flash memory and mobile phone SOCs, but also a whole host of miscellaneous chips.

In terms of classification, there are logic chips such as CPU and GUP; then there are storage chips such as RAM and ROM; then there are various sensor chips used in fingerprint recognition, cameras, etc.; there are also various communication chips, such as Bluetooth chips, WIFI chips, and various interface chips, such as the small chips in the plugs of data cables. Finally, there are various energy chips, such as mobile phone battery management chips, mobile phone power management chips, etc.

In terms of usage, chips can be seen in almost all industries, including consumer electronics, industrial equipment, automobiles, airplanes, and even rockets and satellites.

In terms of technology, there are chips that use the most advanced 18-nanometer and 20-nanometer processes.

There are also a lot of chips that use 28-nanometer, 32-nanometer and even 45-nanometer processes...all of the above are advanced processes.

In fact, there are still a lot of them that use outdated processes, such as 65 nanometers, 90 nanometers, and even 130 nanometers and 150 nanometers.

For example, many chips that cost only a few dollars each use outdated technology, and these seemingly backward chips are used in all walks of life and have a huge market demand.

This also means that in the chip design industry, if some small vertical tracks can be done well, it can be very profitable.

You don't have to compete with Zhiyun Semiconductor, Intel, AMD, Qualcomm, Fruit, and Four Star to make money by pursuing top-notch CPUs, GPUs, advanced memory and flash memory.

Many inconspicuous small chips are also very profitable.

Today, there are top chip foundry companies like Zhiyun Microelectronics in China, as well as a series of mobile phone manufacturers such as Zhiyun and Weiku, as well as various traditional electrical appliance manufacturers that drive demand, resulting in a huge demand for various types of chips. This market is very large.

With market demand and foundry companies in China, it is only natural for the chip design industry to develop.

Not only have a large number of chip design companies emerged that are engaged in small vertical categories, but there are also some chip design companies with greater ambitions that are involved in CPU, GPU, RAM, ROM and mobile phone SOC.

Among them, Warwick has developed relatively rapidly. Their new generation of mobile phone SOC chips adopts Zhiyun Microelectronics' 28NLP process.

At the same time, they are also designing a new generation of chips based on Zhiyun Microelectronics' 18-nanometer process, but the design has not been completed yet and it is estimated that it will take until next year.

However, even if the design is completed now, Zhiyun Microelectronics does not have the production capacity for them to use. In any case, they have to wait until the first quarter of next year to start production.

Currently, Zhiyun Microelectronics' 503-nanometer process production capacity is too tight. Currently, only Factory No. can produce it, which is not enough for the production of S chips.

The two chip factories that are being modified and upgraded to produce 18-nanometer process are not expected to be put into production until the end of the year. That is to say, it will be after next year that Zhiyun Microelectronics' 18-nanometer production capacity will be greatly increased. It will probably be able to increase to a monthly output of 150,000 pieces in the second quarter of next year, thereby meeting the mass production needs of various advanced chips.

As for now, not only do we have to wait for the next-generation flagship chips of big customers like Warwick, but we also have to wait for our own Zhiyun Semiconductor's W series SOC, AI chips, OPA, and high-performance graphics card chips such as NVIDIA.

In addition, the next generation flagship chip from AMD, a major customer that was just attracted, will have to wait until next year.

The above-mentioned major customers such as Warwick and AMD, together with some small and medium-sized customers, especially orders from a large number of various domestic chip design companies, have made Zhiyun Microelectronics the world's second-generation chip foundry company.

The reason why Zhiyun Microelectronics has been able to win a large number of domestic orders as well as some international orders is not due to any special background or Zhiyun brand, but rather to its real technological and cost advantages.

In terms of technological advantages, Zhiyun Microelectronics' low-power process is quite outstanding. Its typical 28NLP process is known as the best low-power -nanometer process in contemporary times. Zhiyun Microelectronics has relied on this process to snatch some -nanometer process orders from AMD and other foreign chip companies from TSMC.

Several CPU and GPU chips that AMD plans to launch this year will all use Zhiyun Microelectronics' 28NLP process.

In addition to the 40-nanometer process node, Zhiyun Microelectronics has also gradually applied its own low-power technology to other process nodes since last year. After further improving the -nanometer process, it launched the low-power -nanometer process, namely the NLP process; at the same time, there are also low-power -nanometer process, low-power -nanometer process, and low-power -nanometer process in the field of storage chips.

Among the above-mentioned process nodes, Zhiyun Microelectronics' low-power technology has a relatively large advantage, which can enable chip design companies to achieve lower power consumption, which is very important for many chips that require power consumption control.

In addition to its outstanding low-power technology, Zhiyun Microelectronics' quotations are also relatively cheap, but they are not dirt cheap. It can only be said that they have a certain cost-effectiveness, especially in the two advanced low-power logic chip processes, the 28-nanometer process and the 40-nanometer process. The cost-effectiveness is relatively outstanding, which has also contributed more than 50% of Zhiyun Microelectronics' foundry revenue.

With outstanding low-power technology and a relatively high cost-effectiveness, as well as sufficient production capacity and mature processes that do not require various waiting queues, Zhiyun Microelectronics has earned quite good chip foundry income.

But...despite this, the chip foundry business in Zhiyun Microelectronics is just their non-core business.

In fact, from the beginning to the end, Zhiyun Microelectronics’ most core task has been to meet the chip production needs of the group and its partner manufacturers.

This is also why Zhiyun Microelectronics' foundry orders seem small, estimated to be around US$4 billion a year, but the company's actual scale is comparable to that of TSMC.

Because most of Zhiyun Microelectronics' production capacity, especially the capacity of advanced processes, is used for internal orders of the group.

If these internal orders of the group are also included, Zhiyun Microelectronics' foundry revenue will exceed 20 billion US dollars, which is basically the same scale as TSMC.

Just one S-series chip can bring Zhiyun Microelectronics billions of dollars in foundry revenue every year.

Then there is the W series, which brings in billions of dollars in foundry revenue.

Then there are the equally huge quantities of memory and flash memory chips.

This is also why the factory that produces 18-nanometer process chips is Shenzhen Factory No. 17, because there are 16 chip factories ahead of it.

Zhiyun Microelectronics has production bases in Tongcheng, Jiangcheng, Shenzhen, Hucheng, Ningcheng and other places. Most of the eight-inch factories with backward technology were acquired, and a few were self-built, while a few of the twelve-inch factories were acquired, and most were self-built.

The core factories are two advanced storage chip factories in Jiangcheng, which can produce 3-nanometer memory chips and D NAND flash memory chips.

Then there are Tongcheng and Shencheng. The chip factories in these two production bases are both logic chip factories.

Among them, the production base in Shenzhen is the largest, with five factories currently built, including two eight-inch factories focusing on mature technology and three twelve-inch factories focusing on advanced technology.

Among them is Factory No. 17, which is currently the most advanced and has the largest investment in the country and is capable of producing only 18-nanometer process logic chips.

It was also the main place inspected by Xu Shenxue and others during this trip.

During the visit, Ding Chengjun of Zhiyun Microelectronics also introduced Xu Shenxue to a construction site in front, which was a little far away: "Mr. Xu, the one in front is our No. 16 factory which is still under construction. The factory started construction in April this year. It was designed for -nanometer process from the beginning. In the future, it can be upgraded and transformed into a top-level chip factory for -nanometer process. The estimated investment is more than billion US dollars, and it is expected to be mass-produced in the second quarter of ."

"Of course, whether we can mass-produce 10-nanometer chips on time depends not only on the construction of the factory and subsequent adjustments and testing progress, but also on the vigorous promotion of the advanced process research and development team. However, Professor Liang Song has repeatedly stated that there is no problem!"

"After all, even the subsequent 10-nanometer process or even the 7-nanometer process has considerable technical continuity with our current 18-nanometer process. We should not encounter too many technical problems before we encounter physical limits and equipment limits, that is, before the 7-nanometer process."

“Before the process is smaller than seven nanometers, we still have hope of achieving one process node per year!”

Xu Shenxue looked at a construction site in the distance, then nodded and said, "Hope everything goes smoothly. I'll come back to see Factory No. 21 in two years."

Ding Chengjun took Xu Shenxue to visit the No. 17 plant carefully. A group of people wore dust-proof clothing and entered the clean room to look at the lithography machines. However, these lithography machines were all DUV immersion lithography machines from ASML of the Netherlands. Although the technology was advanced, Xu Shenxue was not very interested in it.

It’s not our own product, so it’s not that good-looking... It’s fine as long as it can be used.

If this was the DUV immersion lithography machine developed by Gulf Technology, Xu Shenxue's opinion would be different. He would look at the lithography machine three times left and three times right, and would even bring a large group of bigwigs to see it.

But now this is someone else's thing, and to be honest I'm not very interested in it, so I just took a quick look at it and learned about the production efficiency and technical indicators, and that was it.

After a brief tour, Xu Shenxue also saw the main target of this trip, the S503 chip.

Xu Shenxue picked up a manufactured S503 chip. The chip was very small, only the size of a fingernail, but it contained billion transistors.

This is the most advanced industrial product that humans can produce!
The most terrifying thing is that this represents the most advanced technology of mankind, an industrial product that is so complex that it is unimaginable, and it is also a large-scale mass-produced product.

Now that Factory No. 17 has entered large-scale mass production, it can produce 25 million of these chips every month, which is quite exaggerated.

Every time he visits a chip factory, Xu Shenxue is amazed at how quickly and massively the lithography machines and other equipment produce these tiny chips.

Chips are absolutely the most advanced industrial products invented by mankind, no doubt about it!

------

During the inspection of the 503th factory, Xu Shenxue was generally very satisfied. The mass production of the 503-nanometer process was progressing steadily. The S502 chips and the defective product S of S were being produced in large quantities in the chip factory and then sent to Weiku Industrial and several production bases of BYD for large-scale assembly and production.

This year's S14 mobile phone, like previous years, is mainly manufactured by Weiku Industrial and BYD, while Luxshare mainly manufactures A series and C series mobile phones.

Currently, these three companies are the main ones providing large-scale OEM production for Zhiyun Group.

Among them, Weiku Industry is naturally the core of the core. It not only undertakes a large amount of OEM business, but also coordinates the research and development of production lines for various smart terminals under the group.

For example, after the S14 mobile phone is designed and developed, how to assemble and mass-produce it on a large scale with controllable costs will require Weiku Industrial to cooperate with Zhiyun Group's technical department to solve a large number of technical problems.

When the S503 chip entered mass production, the foundry that had been waiting for a long time also began mass production of the S14 mobile phone.

Every day, a large number of sealed and packaged S14 mobile phones are produced in OEM factories, then packaged and sent to designated warehouses, and then wait for the scheduled time to be sent to various parts of the world by cargo planes to stock up and make final preparations for listing.

Due to the delay in mass production of the 503-nanometer process, the S14 chip only started trial production in June and large-scale mass production in July, which resulted in the real large-scale mass production of the S mobile phone not starting until after July.

This means that the advance stock of S14 mobile phones is not as good as last year.

Ji Chenghe is quite worried about this:

"This year's S14 mobile phone inventory is about million units, but the subsequent production capacity will gradually increase. From now until the end of August, we expect to produce about million mobile phones to meet the market demand in the initial stage of listing!"

"This quantity is not enough, and the shortage this year will be more serious!"

Xu Shenxue said: "It's better to have fewer phones than less. There's nothing we can do about it. Besides, since we don't have the US market this year, we can allocate more phones to other markets!"

Ji Chenghe said: "That's true!"

Due to the recent sanctions, although no bill has been passed to formally ban the sale of Zhiyun's smart terminal products in the United States, the impact is still very large.

The sales of a series of products represented by the S13 that have been launched in the US market have dropped sharply, and the market share of high-end mobile phones has dropped to a mere three percentage points... It's terrible.

The S14 mobile phone has not passed the FCC certification so far... The other party did not say that the sale of the S14 mobile phone was explicitly banned, but found a lot of reasons to refuse to pass the certification. If it cannot pass the FCC certification, it cannot be sold in the United States!
So it's stuck here. In this case, Zhiyun Group hasn't even produced the US version of the S14 phone.

Whether the US version of the S14 mobile phone will be produced in the future depends on the evolution of the conflict between the two sides.

Of course, the fruit industry is not having an easy time either. The market share of their products in China has fallen to three or four percentage points. The new Fruit 6 has yet to obtain a network access license.

Now both sides are wasting time, you block me, I block you...

Anyway, both sides have lost their market share in each other's hometown. Under such circumstances, it is even more impossible for them to admit defeat. They just have to continue to waste time like this...

As for Zhiyun Group, it has simply abandoned the US market strategically. In terms of R&D, production, and even marketing, it no longer considers the needs of the US market. Instead, it focuses on the domestic market, the European market, and the Japanese market, while also focusing on emerging markets such as Russia, ASEAN, India, and South America.

On July 23, Xu Shenxue held another strategic meeting at Zhiyun’s headquarters, focusing on the issue of business contraction in the United States.

At the beginning of the meeting, Xu Shenxue said: "Based on the current situation and future development, the market for smart terminal products in the United States is likely to disappear. Although the semiconductor market is still there, we must remain vigilant!"

"Because the market for smart terminal products in the United States is shrinking and there are uncertainties in semiconductor products, the group is no longer suitable to continue to carry out large-scale business and investment in the United States!"

Gu Zhiming said, "This is simple. We don't have any large-scale physical investment in the United States. We don't have any factories. We only have R&D centers, sales and after-sales departments, and software and data center departments. We can just phase them out!"

Xie Jianyong said, "We don't have many R&D departments in the United States, and we don't have any core R&D projects. Our previous R&D centers were mainly focused on system and semiconductor design. But since the first half of this year, we have gradually moved the chip design R&D department back to China, and the foreign core R&D employees have also been transferred to the headquarters to work."

"In the next six months, we will gradually transfer other software design and semiconductor design projects, some to China and some to Europe."

"According to our plan, the future North American R&D center will only retain some surface projects to recruit top local talents, and then gradually transfer them to China."

"The main technical department is mainly responsible for data center, after-sales technical support, especially technical support for corporate customers!"

"We still have a large number of corporate customers in the United States. Our enterprise-level flash memory, memory, and computing chips have a large number of enterprise-level customers in the local area. We still need to retain an after-sales technical support department!"

"At the same time, we will also retain some technical support departments for our partner companies. We have a lot of cooperation with Google, Microsoft and other American Internet companies, so we also need to keep some technical staff to provide technical support in this regard!"

"The last ones are the data center operation and maintenance personnel. Although our new products cannot enter their market, there are still a large number of our existing smart terminal products that have been sold in the local area, and we will need to provide data service support for them in the future."

"According to our plan, our R&D center and technical department will only provide after-sales technical support and technical support to partner companies."

"Other R&D projects were partially withdrawn back to China, partially transferred to Europe, and some to Singapore, Japan, and Brazil."

"Administrative and sales departments and personnel will also be evacuated on a large scale, some will be transferred back to China, some will be transferred to other overseas markets, and some non-important management and non-core local employees will be laid off!"

"After the adjustment, all our R&D projects in Midea will be withdrawn, all core engineers will be withdrawn, and the domestic mid- and high-level management will also be withdrawn. The remaining management team will be mainly foreign management."

"The total number of employees in the U.S. branch is expected to be reduced from 13,000 to 3,000. It is estimated that 2,000 employees will be evacuated to China or other countries, and 8,000 employees will be laid off. Whether there will be further reductions in the future depends on the situation, mainly on whether our semiconductor business and enterprise-level business will be affected!"

"If affected, we will further reduce staff!"

After hearing this, Xu Shenxue said, "Well, the overall plan is still feasible, let's do it!"

Since the local business volume has dropped significantly and there are still many uncertain risks, Zhiyun Group naturally needs to control risks in advance and then carry out large-scale evacuation.

Not long after this meeting, a group of new employees at Zhiyun America received an email from the HR department, informing them that because the company's business in the U.S. has shrunk significantly due to force majeure, the U.S. branch's revenue and expenditure are no longer proportional, and the company has decided to eliminate your department.

Some of the management, technical backbones, and core employees will receive emails about the adjustment of their work locations. Will the work location be adjusted to China, Europe, Japan, Brazil, etc.? Some employees can choose to go to the new work location, and the company will arrange everything.

If you don’t want to... forget it, just lay off the employees!

But more people did not receive emails about adjusting their work locations, but instead received layoff notices.

Zhiyun's large-scale withdrawal from the US market and layoffs of thousands of employees also attracted some news reports.

It was generally believed that this was an obvious signal of intensified conflicts between Zhiyun and major US companies, and then Zhiyun's stock price fell again.

No matter what the outside world says, even if the stock price falls every day, Zhiyun Group is steadily advancing its group strategy.

As August arrived, the proposal to ban the sale of Zhiyun smart terminal products, which had been a hot topic for two months, was finally approved and is expected to take effect in September.

According to the proposal, all smart terminal products under Zhiyun, mainly the six categories of products: mobile phones, tablets, smart watches, Bluetooth headsets, notebooks, and smart homes, are prohibited from being listed and sold in the United States because Zhiyun Group cannot ensure data security and there are serious data security risks.

As for other products under Zhiyun Group, such as computing power cards, AI chips and other semiconductor products, these have not been included in the banned sales list.

As soon as the ban was issued, Zhiyun Group did not even bother to defend itself and directly announced that its smart terminal products would be completely withdrawn from the local market.

Just a few days later, Zhiyun Group won the lawsuit against Fruit for patent infringement. The court ruled that Fruit had infringed on several key patents of Zhiyun Group and banned all Fruit products using the above patents, including mobile phones, laptops, tablets and other products from sale.

Other fruits have also quickly withdrawn from the Chinese market... Anyway, there is only a few points of market share, so it doesn’t really matter whether they withdraw or not.

Then the more interesting thing comes, the fruit is still assembled in the country...

As for why they don’t leave now, it’s because they can’t find a cheaper and more suitable OEM, so they can’t leave... and the domestic side naturally won’t drive people away... They want to make money, so they wish it could continue to stay in the country.

Although the Apple supply chain does not have any core high-tech industries in China, everyone earns money through hard work. However, this is still a huge number of jobs, which is better than nothing!

Of course, leaving won’t have much impact. Compared with the huge development of an entire high-tech industrial chain brought about by Zhiyun, the hard-earned money from fruit assembly is not worth mentioning.

Of course, the fruit industry has no choice but to evacuate now. They are still taking positive measures and preparing to relocate their OEM factories to Vietnam and India.

Not only fruits, in fact, Four Star has already started to expand into Vietnam.

Both Zhiyun and Fruit were banned from selling products, which is a result of the sanctions storm that lasted for two months.

But everyone knows that this is just the beginning!

It’s still hard to say what will happen next!

(End of this chapter)