Tech giants start by disassembling systems

At 2 p.m., Su Chen arrived at Hongyuan Industrial Park in Longhua District.

Despite being called an "industrial park," it's actually just a three-story old factory building. The first floor houses production workshops and warehouses, the second floor contains offices and meeting rooms, and the third floor is still empty and unfinished.

Outside the factory, there is a small sign with white background and blue lettering that reads "Shenzhen Hongyuan Intelligent Technology Co., Ltd." The sign has faded a bit from being exposed to the wind and sun.

Su Chen stood at the factory entrance for a while, looking around, before pushing the door open and going inside.

Zhou Ming was already waiting in the conference room on the second floor. Several stacks of documents and two open laptops were neatly arranged on the table.

"President Su, everything is here." Zhou Ming stood up to greet her. "The financial statements are the complete version from the company's establishment to the end of last month, the supplier and distributor list is up-to-date, and I've also exported the product information and sales data."

"You've worked hard. Make yourself a cup of tea and sit down. I'll take my time reading."

Su Chen sat down in the main seat and picked up the first document—the company's financial statement.

Judging from the numbers, Hongyuan Intelligent's operating situation can only be described as "dismal".

Established for a year and a half, the company has accumulated sales revenue of approximately 12 million, with product costs of approximately 8 million and a gross profit margin of less than 34%.

After deducting operating expenses such as rent, labor, utilities, and logistics, the company not only failed to make a profit but also accumulated a loss of nearly four million yuan.

The reason it hasn't gone bankrupt yet is entirely due to the 20 million yuan that Su Jianguo invested in it at the beginning.

But after a year and a half of spending, only 1.2 million in cash and a bunch of machinery and equipment remain of the original 20 million.

"At the current rate of spending, this 1.2 million will only last for three more months at most." Su Chen quickly did the math in his mind.

He put down the financial statements and picked up the product brochures.

The Hongyuan Flyer F1 is a quadcopter consumer drone equipped with a 1080P camera, a flight time of approximately 18 minutes, a remote control distance of 500 meters, and a weight of 780 grams.

This parameter was average in the 2016 market; it wasn't particularly outstanding, but it wasn't too bad either.

Competitors in the same category are priced from 1999 to 4999, while Hongyuan's 2999 yuan is positioned in the lower middle range, taking a cost-effective approach.

Su Chen then opened the customer feedback summary—

"Good flight stability, decent image quality." "Very cost-effective, suitable for beginners." "Battery life is a bit short; it would be better if it could last up to 25 minutes." "Image transmission occasionally lags." "After-sales service is responsive and helpful."

Overall, the reviews were mostly positive. Although the product didn't have any outstanding strengths, Su Jianguo did put a lot of effort into quality control, and the customer complaint rate regarding product quality was very low.

This is related to the quality awareness his father developed when he worked in a mold factory—the biggest fear for mold makers is that the precision is not up to standard, and he brought this professional habit to the production management of drones.

Upon seeing this, Su Chen's lips curled up slightly.

Although the product itself is mediocre, its fundamentals are healthy—good quality control, positive reputation, and a certain customer base.

If this company can achieve a technological breakthrough, it may not be without a chance to turn things around.

Next, he looked at industry information.

Zhou Ming had clearly done his homework beforehand, compiling a fairly detailed industry overview.

In 2013, DJI launched the Phantom 1, marking the official explosion of the consumer drone market. That year, global shipments of consumer drones reached approximately 100 million units, with a market size of about 30 billion yuan.

In 2014, the Phantom 2 was released, and the market expanded rapidly, with global shipments exceeding 300 million units. A large amount of capital poured into the drone industry, and more than 200 new drone-related companies were registered in Shenzhen and the Pearl River Delta region within a year.

In 2015, DJI launched the Phantom 3 series, and its market share in the consumer market exceeded 70%. At the same time, foreign brands such as Parrot and 3D Robotics were also accelerating their expansion, making industry competition increasingly fierce.

In early 2016, DJI released the Phantom 4, equipped with binocular vision obstacle avoidance technology, further widening the gap with its competitors. The Phantom 4 sold over 10 units in its first month on the market.

Upon seeing this, Su Chen put down the document.

His memories from his past life told him that the rest of the story would unfold like this—

From the second half of 2016 to 2017, DJI will launch a devastating price war in the low-to-mid-range market through continuous price reductions and product iterations. Consumer drones that originally sold for 2000 to 5000 yuan will have no room to survive under DJI's pressure.

Meanwhile, various regions have successively introduced drone regulatory policies, and the frequent occurrence of unauthorized drone flights has led to a sharp deterioration in the public opinion environment, which will significantly slow down the growth of the consumer drone market.

Under this double blow, the more than 300 small and medium-sized drone companies in Shenzhen will face a massacre.

The window of opportunity left for Hongyuan Intelligent is at most one year.

"I need to think of a way to break this deadlock..." Just as Su Chen was thinking, the conference room door was suddenly pushed open from the outside.

Zhou Ming strode in, his face grim.

"President Su, something's happened."

Su Chen noticed the stack of printed emails in his hand and asked, "What's up?"

"Our channel partners—a total of forty-seven distributors and eight online retail stores—sent emails and faxes this afternoon..."

Zhou Ming took a deep breath and lowered his voice: "They have all announced that, effective immediately, they are suspending all purchases from Hongyuan and demanding the return of the two most recent shipments."

Su Chen's brows furrowed sharply.

"What's the reason?"

"Quality issues." Zhou Ming handed over the stack of emails. "After these two batches of goods were shipped, the distributors received a large number of customer complaints—drones crashing, image transmission interruptions, abnormal motor noises, flight control malfunctions… all sorts of problems, with a return rate exceeding 35%."

35%?!

Su Chen practically jumped up from his chair.

35%的退货率是什幺概念？正常情况下消费电子产品的退货率在3%到5%之间，超过10%就属于严重质量事故了。35%意味着每三台里面就有一台出了问题！

This doesn't match the customer feedback he just saw at all!

"When were these two batches of goods produced?" Su Chen immediately asked.

"It's been in the last twenty days, since General Manager Su was hospitalized, that Manager Zhao has been in charge of the shipments during the production period." Zhou Ming's voice grew increasingly low.

Su Chen narrowed his eyes.

"I checked," Zhou Ming continued, his face turning ashen. "After Manager Zhao took over production, he privately changed the suppliers of the flight control board and motors. We were originally using flight control boards from Shenzhen Hengxinda and motors from Dongguan Jingwei. These were both long-term suppliers we'd had for over a year, and their quality was stable."

"Manager Zhao switched the supplier to a company called 'Hualida,' claiming the price was 40% cheaper. But in reality... the quality of that company's products is completely different."

"Didn't he perform incoming material inspection when he replaced it?"

"It was just for show," Zhou Ming said with a hint of bitterness. "The quality control manager is Manager Zhao's man; all the incoming inspection reports are 'qualified.'"

Su Chen remained silent for a few seconds.

With 1.2 million yuan in cash on hand, and approximately 800 drones in two batches of problematic products, the direct loss, including returns, logistics costs, and after-sales compensation, is at least 600,000 yuan.

Even more fatal is that these 47 distributors are the sales network that Hongyuan Intelligent has painstakingly built up over a year and a half. Once they lose the trust of the company, the company's products will be completely unsellable.

Without sales revenue, the 600,000 in the account won't last a month.

"Zhao Guoqiang is hollowing out the company," Su Chen said coldly.

Zhou Ming didn't speak, but his expression showed that he thought so too.

The purchase price was 40% cheaper, but Zhao Guoqiang only reported a 10% reduction in the price on the purchase approval form—the 30% difference went entirely into his own pocket.

Based on the purchase volume of the two most recent batches, Zhao Guoqiang's kickbacks would be no less than 800,000 yuan.

This figure is almost equal to all of the company's current available cash.