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Analysis EO
Analysis · 2
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Analysis EO
Updated 6 hours ago ·

China's Data Center Industry: Set to Take Off

In the past 20 years, the cloud sector saw several critical technology developments, including virtualization, container, microservice architecture and serverless architecture. These innovations, combined with final customers' demand, have been bolstering the thriving industry in the United States. By comparison, China's cloud market is still at the early stage, which is indicated by the sector’s small share in the country’s GDP. Recently, Alibaba published its three-year CNY 200 billion plan, Tencent also disclosed a five-year CNY 500 billion investment in the 'New Infrastructure.' At a glance ► Unlike the western markets that are primarily driven by the demand, the Chinese data center industry, like many other sectors here, is likely to be pushed forward first by the government-designed roadmaps and large companies' business strategies. ► The main catalysts include cloud computing, 5G and Artificial Intelligence. ► We expect that the whole industry will thrive in the future. ► Local third-party data center companies present quite a few new investment opportunities. Industry development prerequisite From 2007 to 2009, the market experienced fast growth from a small market scale. The growth rate saw a spike, fueled by the 3G adoption cycle in 2009. Since then and until 2019, 4G adoption was the catalyst for data soaring. Data centers in China Like those in the US, there are retail data centers and wholesale data centers in China. Retail data centers refer to data centers with small power (generally less than 100 kilowatts), and clients are mainly small tenants, providing electricity, cooling, internet connection and maintenance services. Wholesale data centers are usually rent by the larger customer like cloud service providers, consuming more electricity. Some wholesale data centers are hyper-scale facilities and usually provide customization. There are three types of data centers in China. China Telecom (728: HK), China Mobile (941: HK) and China Unicom (762: HK) are currently owning the most data centers in the country, leveraging their operational history in the space. Their cabinets are usually standardized, which often couldn't fit customer's various needs. Large cloud service providers are building their data centers in recent years. Some third-party colocation providers are increasing their cabinets dramatically, targeting future needs. Besides, one key difference from the US is that the traffic or data is concentrated on giants like Alibaba (BABA:NYSE; 9988:HK), Tencent (700:HK), ByteDance and Baidu (BIDU:NASDAQ). Research showed that over 70% of internet traffic is from their applications. We think this also implies data centers clients' mixture. Data centers generating more revenue from big cloud players benefited from the relation, which provides business stability, higher and faster utilization and funding access. Building data centers surround tier-1 urban areas and policy-friendly places are trending. Like other data centers in the world, facilities' locations are always closed to metropolises, which lower the key performance indicator of a data center: latency. What is more, differently, the Chinese central and local governments implement some policies on the building of data centers, 'new infrastructure' and Real Estate Investment Trusts (REITs) trial projects all set to accelerate data centers expansion. Based on BOC International’s figure, there are 2.27 million data center cabinets in China currently, 1.50 million data centers are being built or planned, although it can't cover the upcoming demand. We expect the business shifting to cloud, 5G adoption and AI will be the upcoming catalysts for a countrywide data boom. China's cloud market With the rapid growth of China's cloud market, increasing downstream demand is on the docket. China's cloud penetration rate was much lower than the US level proven by the cloud revenue divided by IT spending. The reason is the late inception of the Chinese market. CAICT expects China's public cloud market size to increase at over 30% by the end of 2023. Currently, the Chinese cloud market is still in the early stage as the services mainly on Infrastructure as a Service (IaaS). Therefore, we expect the cloud market tends to move toward what happened in the US, which more revenue generated from Platform as a Service and Software as a Service. In the meantime, IDC will benefit from this trend especially. The baton: 5G era 5G's adoption means an unpredictable upside opportunity for data centers. By the end of June 2020, according to the figure disclosed by China Mobile and China Unicom, at least 108 million users registered 5G bundles in China. Over 400,000 5G towers have been built so far and the target is to install 800,000 in 2020. With the adoption of 5G, we believe that higher resolution videos, cloud gaming, and self-driving cars can lift up the whole demand for data. Specifically, consumers started to make and watch data-consuming videos mainly in 2k or 4k: horizontal display resolution of approximately 2,000 or 4,000 pixels. In the past several years. Still, the scenario was not very popular because of the lack of relevant content, unsatisfied internet connection and power systems. It seems these significant problems are gradually being cracked with consumers who are stepping into the 5G era. Apart from videos, the development of cloud gaming is going to lift the data consumption. It will be adopted quickly as all the conditions are set out better, including low latency, stability, prices of 5G bundles and game offers. For now, cloud gaming consumes lots of data. Google's Stadia project was recently tested under the 4G/5G cellular. The test results showed the one-hour 360p game would spend 2.7 GB data. The figure jumped almost fivefold to 12.7 GB when running a 1080p game. We expect more data centers are set to be built to lower the latency. Artificial Intelligence Artificial intelligence companies will also ignite the data centers industry as they need lots of data to train their models. Theoretically, the more data trained, the model performs better. For now,  Gartner stated that 85% of AI projections will fail. The compute for AI is difficult as lacking optimized hardware. It takes days or weeks for training models. We believe that AI training tasks will keep growing fast as the improvement of related semiconductor equipment.   International Data Corporation reported the AI server shipment reached 79,000, increasing 47% year-on-year in 2019 in China. The report also revealed that the AI software market hit USD 2.89 billion. The whole market including hardware was USD 6 billion. Even the market is still in the early stage, we keep positive on its prospects.

Analysis EO
Analysis · 2
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Analysis EO
Aug 4, 2020 10:41 pm ·

1H 2020 China Smartphone Market Overview: 5G, New Types, Lower Prices

► The Chinese smartphone market is recovering steadily, thanks to the country's economic rebound and the excitement around 5G. ► By June, over 60% of the phones sold in China were 5G-enabled. ► During the first half of 2020, the prices for 5G smartphones got lower and lower, with a 40% decline by June. ► Chinese vendors were aggressively pushing new product series in the first half, with 216 new models being rolled out.  ► Huawei for the first time surpassed Samsung as the largest smartphone shipper globally, which is a result of Huawei's drive to expand product lines and price segment coverage. ► OPPO and vivo, as the second and the third vendors in the Chinese market, both encountered severe problems in channels and marketing. ► Xiaomi is in desperate need of a hard push in its smartphone segment.  ► Apple's lower price strategy turned out to be quite efficient: it brought the company a 35% year-on-year growth in China.  Overall shipments are rising – thanks to the economic rebound and local 5G phone hype Economic rebound On July 16, China reported its GDP of the second quarter of 2020, indicating an economic growth of 3.2%. Meanwhile, the US saw the most significant GDP recession for the past two centuries, with a 32.9% decline. The comparably strong economic rebound in China results from the successful virus suppression and the government's expansive fiscal policies. As consumer goods, smartphones lie in the scope of the government promotion plan in China and consequently saw decent overall performances during the first half-year of 2020. 5G hype Besides the favorable macroeconomic environment, the hype of replacing 4G mobile phones with 5G ones in China also contributes to smartphone sales. Though it will still take years to realize the full coverage of the next-generation network, Chinese telcos and smartphone vendors have already been lavishly promoting 5G cellular data packages and 5G-ready communication devices. “5G smartphones are thriving with 39 million units shipped in China in Q2 2020, up 260% from Q1,” said Louis Liu, a Canalys analyst. The 5G subscribers in China had already surpassed 100 million as of July 2020. The chart above reveals that the percentage of 5G smartphones is climbing rapidly, with promotion from all sides. On the one hand, the vendors are compressing their margins to compete for 5G phones market shares, which further pushed consumers to buy a 5G one since there is no price difference with 4G. On the other hand, there is actually no choice for Chinese consumers since all the newly released flagships or featured ones in 2020 are 5G-enabled, except for iPhones. The 5G function is becoming a default for Chinese vendors. In June, over 60% of phones sold were 5G-enabled. Compared with 20% in January, the growth is stunning. Though the shipments of 5G phones keep rising, the selling prices have been declining drastically as well, as a result of the price competition. From January to June, the average selling prices for 5G phones dropped by 43% from USD 645 to USD 369. The lowest price for 5G phones now is under CNY 2,000. Vendors that have already developed overseas channels have considered pushing lower-priced 5G phones to overseas markets where the 5G infrastructure is ready, such as South Korea, Japan and some European countries. For instance, OPPO is expanding to the Japanese market with its 5G phone Find X2, and Xiaomi is heading for South Korea to compete with local Korean companies on 5G terminals. Aggressive new releases Canalys believes, “a mature e-commerce channel in China is critical to the Chinese smartphone market recovery.” The online sales channels are indeed crucial for the first quarter's sales. However, for the second quarter, as most cities in China have terminated the quarantine policy since March, reopening shopping malls and pulling people back to workplaces, the online channel might not serve as the foremost contributor. Per EqualOcean's analysis, the surge in Chinese smartphone sales in the second quarter is credited to the hard work of the top smartphone vendors – Huawei, OPPO, vivo and Xiaomi (01810:HK). The phone vendors reckon the year of 2020 – the second year of the 5G era, as the key time to occupy the market since the demand for 5G-ready phones is organic as the 5G network rolls out. Consequently, during the first half-year, Huawei, OPPO, vivo and Xiaomi, along with other relative niche brands in China, released a total of 216 new models, where 5G specs account for nearly 50%. Huawei – humble and focused As the news of Huawei outcompeting Samsung (005930:KR) reveals, Huawei smartphone's milestone of championing the global shipment is primarily due to the excellent performance of the Chinese market compared with other regions in the world, which are still under the shadow of the pandemic. Though the region’s economic and health status matters a lot, Huawei mobile's success is not purely exogenous as the company's overseas shipments plummeted 27% in the second quarter due to the US-China tension and the pandemic. The substantial growth of Huawei at 8% in 2Q 2020 in the Chinese market, which is declining, is more important to address since efficient strategies could have a longer-term effect on the company's performance than the temporary market turbulence.  The first strategic move of Huawei is to satisfy the demand of ultra-low-end phones and lower the overall pricing. The pricing strategies for its spring flagship P series did not differ much from the last year – they even rose a bit higher. However, the Changxiang and Changwan series targeting the low-end segments started to draw on Huawei's marketing resources and even enjoyed their own press launches this past June. According to iyiou.com, a sister publication of EqualOcean, Changxiang 10, which is priced under CY 1,000, topped the 618 shopping festival smartphone sales and surpassed the second Huawei Nova 7 SE by 53%. The second is still about the company's commitment to the consumer business sector as the core of other segments. According to Huawei's interim press release, this sector saw a 2% increase compared with 2019, accounting for 56.34% of the total revenue. The year 2020 is a tough time, especially for Huawei, as the pressure is being applied from every direction. The company's answer is to pool all resources to boost the consumer business and cut expenditures on non-central businesses such as the investment in optical cables. Though its Huawei Mobile Services (HMS), which is a replacement of the Google one, is one of the core strategies that Huawei bears to thrive long-term, it does not affect the sales much in China's market since Chinese consumers do not depend deeply on Google services in the first place. OPPO and vivo – awaiting shifts In China, OPPO and vivo (OV) together released 16 new series in the first half-year of 2020, covering prices from USD 300 to 800. This is quite the typical style of the two company's aggressive marketing approaches. Though OV are comparably less troublesome in terms of external pressures, the shipment declines are still apparent, at around 20%. The plight for these two companies is mainly from three sides – offline sales declines, overseas market declines and the brain drain. The pandemic and the livestreaming shopping hype, to some extent, forced consumers to purchase online. The shift of people's buying behavior struck the two’s sales, which mainly happen in their offline outlets. However, with the announcement that OPPO is launching the online platform which integrated OPPO, realme and OnePlus, and life gradually going back to normal, the distribution capacity of the pair is not likely to be in huge trouble in the second half-year. The anti-China sentiment in the overseas market, especially India, the second-largest smartphone market, is more worrisome as the Chinese vendors are now contemplating a worst-case scenario whereby they could possibly lose the whole 100 million-strong Indian market. One of the foremost crises for OPPO during the first half of 2020 was the dismissal of OPPO's Vice President Brian (Yiren) Shen, a legendary figure in the smartphone marketing circle. Brian is the one who came up with a household slogan 'Charge for five minutes, talk for two hours' and pushed OPPO's marketing to a climax with lavish endorsement activities that covered almost all kinds of trendy variety shows. With Brian leaving the table, it remains suspicious whether OPPO will maintain its high exposure to the market through new approaches. Xiaomi – reserving or drained? In the Chinese market, Xiaomi's first half was rather conservative, with just the Mi 10 series and the upgraded version of last year's Redmi K30 Pro greeting the world. The price range is not as wide as its main counterparts and is perfectly included within their coverage. The marketing side did not tell a story of Xiaomi's diligent work in its smartphone sector, as the Mi 10 series does not have a celebrity endorsement while the previous two generations invited big 'cast members' (Kris Wu and Roy Wang) with high popularity in China. Quite the opposite to Huawei's strategy of focusing on the main business, Xiaomi resorted to the non-central product family by broadening the product and service boundaries. Though the interim report of Xiaomi is still in the air, it is apparent that Xiaomi's smartphone segment will stumble and the loss is likely to be compensated by the revenue from financial services and IoT products. Facing the pressure from Huawei, Xiaomi's Chinese smartphone business is desperate for denser product layout with quality. Xiaomi's management seems to have realized the pessimistic situation of its smartphone business and therefore embrace the former ZTE Mobile CEO as the smartphone division head. Apple – the best performer The performance of Apple's (AAPL:NASDAQ) iPhones in China is as gorgeous as the company's renowned designs, with 35% year-on-year growth, while Huawei is at 8% – the other top five vendors all have declined to present. The number of 35% showed the low-price strategy is really working well in China. For the first time, Apple officially participated in the middle year shopping festival in China with a 20% discount for the iPhone 11 series and a discount of CNY 200 for the iPhone SE, plus some additional installment payment discounts. If counting the channel discounts and shopping subsidies, the iPhone SE was priced under CNY 3,000 on Pinduoduo (PDD:NASDAQ). Notably, iPhones are the only high-end specs being not 5G-enabled and still witnessed such growth. If the upcoming iPhone 12 with 5G empowerment is still priced competitively, further growth could be expected – even when the market's patriotism is ready for Huawei. However, it is also dangerous for the iPhone to fall in the price competition trap in the Chinese market at the cost of losing the delicate design and fine quality. Balance matters.

Analysis EO
Analysis · 2
report
Analysis EO
Aug 2, 2020 02:15 pm ·

Four Strategic Risks Facing Alibaba Cloud in the Chinese Market

China’s cloud market is burgeoning. According to International Data Corporation (IDC), the size of its public segment reached USD 3.92 billion in the first quarter of 2020. Breaking down these figures, the Infrastructure as a Service (IaaS) market has increased by 57.6% compared to a year ago, while the figure for Platform as a Service (PaaS) is 64.4%. Alibaba Cloud has been dominating the Chinese public cloud market for a few years. In the first quarter of 2019, it owned 43.2% of the market, which was gained through leveraging its elastic computing, database and cloud security services. However, its main challengers – cloud units of Tencent (00700:HK), Huawei and Baidu (BIDU:NASDAQ)  are growing fast as well. Even as China's first and the world's third-biggest cloud service provider, Alibaba Cloud may face a number of risks in the middle term, as the pandemic rewards the technology industry. Giants’ game From a user side, based on some clients’ feedback, among these three companies, Alibaba Cloud performs better on the stability and security of the cloud. Instead, Tencent Cloud got better comments in terms of prices and functionality. The intensifying competition is supported by the fact that Alibaba Cloud's three new data centers started to operate. It is also planning to build the largest data center cluster in China by building ten hyper-scale units. Tencent also started (link in Chinese) to run its new hyper-scale data center this year in Qingyuan, Guangdong. It is also reported that Tencent Cloud adopted an aggressive strategy to win big order by equity contribution to its clients. We expect that one possible scenario for China's cloud market similar to the history of the United States’ cloud market is price war (AWS lowered rates over 70 times in the past decades to kick off players like Rackspace in public cloud business from 2009 to 2019). Cloud business is a game of the giants. Groups like Alibaba, Tencent and Huawei have plenty of cash to burn to acquire market shares. It is thereby hard to predict which company will win the war, whether Alibaba cloud can keep growing fast and how the cloud market will be shaped in the future. Apart from above, other trends like 5G, autonomous cars and Artificial Intelligence pose uncertainty on cloud business. It is prevalent in China that different groups have their own portfolio companies: individual companies tend to choose their shareholder's services. Tencent played a dominant position in categories such as social media, gaming and streaming. The major problem 5G is facing is lacking applications to monetize. Tencent may first roll out popular 5G services to create more demand for its cloud service. Instead, Huawei is likely to leverage its strength in 5G to create synergy with other cloud services. Macroeconomic pressure As the global economy is hammered by the coronavirus, many companies have started to cut their IT spending. This leads to delays in plans to shift IT infrastructure to the cloud, which may slow down the growth rate of the segment. On the other hand, demand for remote work has pushed some companies to transit traditional internal-deployed Infrastructure to the cloud. It is hard to debate the influence of macroeconomy erosion. Slow recovery? Factors benefiting Cloud business may fade amid the recovery process. On the first-quarter earnings call of 2020, Alibaba Cloud explained the rapid growth in the cloud business was due to the increased demand from video consumption, remote working and learning. The pandemic has almost been contained in China, while over 20 companies have been developing vaccines. It is reasonable to expect a COVID-19 vaccine to emerge by the end of this year and mass production of vaccines will happen after. Accompanied by the positive vaccine news, having been locked down for half-year, we expect people would do more outdoor activities such as 'revenge traveling' (people splashing money on extra trips to compensate for COVID restrictions) in the next few months. Meanwhile, people may spend less time on smartphones or screens. The traction from watching short videos, remote working and learning may slump. The geopolitical risks As the base of cloud computing, data centers in China face issues from simmering Sino-American tensions. One major problem is the hardware supply, which was cut off twice before. American companies like Intel provide essential components to assembly data center servers such as CPU, GPU and storage equipment. This gear maybe once again imposed sanctions by the US government. This pressure may shift to its downside business cloud service by delaying the building of data centers. To be specific, Inspur and Huawei built the majority of servers for data centers in China, they are both on the US sanction list. As the heart of a server, Intel’s Xeon chip accounts for 37.53% of the Inspur's annual purchasing amount. In 2015, the Obama government put restrictions on Intel from selling Xeon products to China. After, the Trump administration blocked Xeon processor shipments to Inspur this year, followed by Intel's resuming of shipments via adjusting the supply chain. The two events shared similar reasons as the processor might be used for military programs in China. Security concerns are not dismissed yet. As the tension escalated between Washington and Beijing, the pentagon may put more caps on hardware exports to China. The tail risk of cybersecurity Data storage can be another risk for Alibaba. It and peer companies both had a history of data breaching. For example, Alibaba turned off servers after a trove of data leaked in 2019. Other arms of Alibaba, including Ant Group breached use privacy, scolding by the cyber watchdog of China. Cainiao, the delivery body of Alibaba also leaked data once. Even it didn’t make a huge impact on company operation and stock price. But it reflects risks placed on its internet infrastructure with there are more and more internet attacks. Last year, Jack Ma said that Alibaba Group deals with over 300 million hack attempts per day.

Analysis EO
Analysis · 2
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Analysis EO
Aug 2, 2020 10:45 am ·

Huawei's HiSilicon: At Sixes and Sevens?

➤ The recent increase in sales of Huawei smartphones propelled HiSilicon into the world’s top ten largest chipmakers. ➤ Its integrated circuits are technically comparable to those made by Qualcomm. ➤ The chipmaking process is the epitome of the global supply chain in action. As recent experience has shown, the main focus of the United States‘ altercation with Huawei is the Shenzhen corporation’s wholly-owned fabless chipmaker HiSilicon, which provides comprehensive connectivity and multimedia chipset solutions. In the first quarter of this year, HiSilicon’s processor shipments in China exceeded that of Qualcomm (QCOM:NASDAQ) for the first time. As a result, the company ranked among the top 10 semiconductor sellers globally in the same period.  By looking into the shipments of processors within the Chinese market in 1Q 2019, 4Q 2019 and 1Q 2020, we can see that the market shares of Qualcomm and MediaTek (2454:TW) have been declining while HiSilicon’s grew from 24.3% to 43.9%, making it the largest processor vendor in China. Besides, in terms of semiconductor sales, in the first quarter of 2020, HiSilicon first ranked in the top 10 in the global market, with USD 2.7 billion. By comparison, Qualcomm was the seventh-largest firm, the revenues of which were USD 4.1 billion in that period. Although there is still a certain distance from the international giants including Intel, Samsung (005930:KR) and TSMC (TSM:NYSE), the gap is shrinking. The progress made by HiSilicon mainly resulted from two factors: the increasing sales volume of Huawei smartphones ¬– its main downstream application – and the highly competitive performance of its microdevices. According to the data provided by Counterpoint Research, Huawei is the best performer in the Chinese market, grabbing 46% market share in the second quarter of this year. The company’s smartphone shipments have increased from 205 million to 239 million, and its global market share reached 16% in 2019, surpassing 14% of Apple in the same period. Improvement of smartphone sales also comes from the high performance of its chips. There are two main kinds of chips developed by HiSilicon, including System-on-a-Chip (SoC) Kirin and Balong, a modem chipset. In addition, it has AI processor Ascend, CPU Kunpeng, Camera SoC, TV solutions and other product categories. And on the demand side, HiSilicon is trying to expand the customer base beyond Huawei. It is reported that the chipmaker has signed a cooperation agreement with BYD to explore new applications: the Kirin 710A will become its first System-on-a-Chip (SoC) to power digital cockpits. Its chips are also come equipped (link in Chinese) in Changhong’s TVs. Inheriting Huawei’s tradition of spending 10% of total revenues each year on research and development, HiSilicon has successfully developed more than 200 models with proprietary Intellectual Property Rights (IPR) and filed over 8,000 patents over the past few years. It is known that most Chinese smartphone companies order chips from Qualcomm, which launched its first 5G SoC at the end of 2018. To make a more detailed understanding of the performance of HiSilicon’s chips, we will compare two companies’ latest 5G SoC in CPU, GPU, battery life, download and upload speed. Though the overall performance of Kirin 985 is worse than that of Snapdragon 865, the difference is small and it outperforms the latter one in terms of GPU and CPU frequency, and upload speed. Though HiSilicon features self-developed chips, companies outside of China’s mainland are indispensable.  ► HiSilicon is a fabless Integrated Circuits (IC) designer, which means that its product will not be made without a foundry. TSMC, the largest foundry owning the most advanced 7nm process techniques and to be the first to be capable of 5nm, is currently caught in the crossfire between the two largest economies. ► HiSilicon should pay IP fees for many overseas companies. Qualcomm has signed a long-term and global patent license agreement with Huawei: it will record about USD 1.8 billion from Huawei in the third quarter. Besides, HiSilicon needs to get licenses of chip architecture from Arm Holdings. The chipmakers should also pay for electronic design automation (EDA) software.  Some companies listed above have deep business relationships with the United States. For instance, Given the fact that TSMC is using US-developed patented technology, it is not allowed to manufacture chips for HiSilicon without the country’s permit. TSMC is likely to become the first semiconductor company in the globe to be capable of the 5nm process. HiSilicon has no other choice but cooperating with the Taiwanese fabrication platform.  It is imaginable how difficult the situation of HiSilicon is. However, more Chinese mainland companies are rising up. SMIC realized the mass production of 14nm at the end of 2019. JCET is capable of various kinds of packaging and testing techniques. The problem is that the mainland businesses’ technology lags behind global large semiconductor companies including TSMC, Intel and Samsung. Those large companies have first-mover advantages and been in the industry for many years, making large amounts of revenue and can realize the high investment in research and development while local semiconductor companies are young, compared with them. The whole process of semiconductor mirrors the global supply chain. For example, the basic chip architecture provider Arm is headquartered in the United Kingdom, the largest foundry (TSMC) is in Taiwan and the most advanced mask aligners come from ASML, which is in the Netherlands. After reviewing the industry chain of semiconductors, to make sure the cost performance of products, there will be no completely domestic chips, at least in the short term. In the conflict among economies, there are no permanent winners and losers, countries are making the others better.  A new balance will be formed after the current wave of global turbulence. Both HiSilicon and China should seize appearing opportunities and hedge the risks.

Analysis EO
Analysis · 2
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Analysis EO
Jul 3, 2020 10:15 pm ·

Will Smartwatches Become the Next Smartphones? The Chinese Perspective

► Smart wearables, especially smartwatches, have the potential to shape the next stage of communication technology development. ► Global shipments have tripled over the past four years and the market is still far from saturated. ► Smartwatches are becoming people’s new coveted item: even in the pandemic days, as smartphone shipments declined, watches kept shipping at rising double-digit rates. ► Huawei has surpassed Samsung, securing the second-largest global smartwatch market share in the first quarter of 2020 – but it’s still trailing Apple. ► In China, Huawei dominates the market,  while Xiaomi boasts the most significant growth. ► Users’ needs for smartwatches are broad, requiring vendors to be accurately positioned and focused on either fitness / health or portability. If you were to name the ten most thrilling things in 2019, the rollout of 5G technology should have a place on the list. With faster speed, lower latency and broader connections, 5G seems promising as a way to spur the development of new gadgets and applications, just as 3G/4G networks served as curtain-raisers for the smartphone era. Smart wearables, exemplified by smartwatches, could be one of the beloved offspring of 5G technology and come to live on everybody’s wrist, becoming the next portable tech necessity. At the current stage, smartwatches are considered as accessories adjacent to phones. The more intimate connection between the device and the human body is where the smartwatches could cultivate new user habits around functions such as health monitoring and instantaneous data transmissions. Still, there is much more to expect with technology rollouts and service designs on the way. Consequently, considerable investment opportunities are emerging from smartwatch vendors and companies along the industry chain such as chipmakers and display solution providers. From 2013, when the first so-called smartwatch greeted the world, to the year of 2019, the shipments of this subtle device saw great growth. The one that truly ignited users’ excitement in this type of product was the Apple Watch (AAPL:NASDAQ) which was first released in 2015.  Although its Korean peer Samsung (005930:KS) presented the Samsung Gear two years earlier than Apple, there was not initially huge hype around this kind of device. From a global perspective, the smartwatch market grew by a staggering 10% year-on-year in the first quarter of 2020. By comparison, smartphone shipments declined by 13% in the same period. The smartwatch demand was surprisingly higher in the pandemic-hit quarter. Apple tops the list, with a 10% higher market share than the next-best vendor. Apple seems to have secured an absolute predominance in smartwatch sales, with a volume larger than the sum of Huawei, Samsung and Fitbit (FIT:NYSE). However, the growth rate is not that optimistic, since the 2.2% decline is quite disappointing compared with Huawei’s aggressive 118% year-on-year growth. Furthermore, if we shift the perspective to a China-focused one, Apple will somehow lose its ‘sense of superiority’ and Huawei will be in Apple’s shoes. Xiaomi and Huami Apart from Huawei’s handsome domestic performance, Xiaomi (01810:HKEX) and Huami (HMI:NYSE), which have been providing mutual support, have both maintained slots in the top 5 in terms of market share in China. Compared with Xiaomi smartwatch’s soaring growth, it is worrying that Huami is not performing as good as last year.  The company’s downslope is partly caused by Xiaomi releasing its own smartwatches, Mi Watch and Mi Watch Color, which outcompeted Huami’s Amazfit series. Previously Huami was standing on the shoulders of the ‘giant’ Xiaomi (pushing its luck one might argue) using the established brand and efficient sales channels to drive sales. Some people even reckon Amazfit to be a product name under Xiaomi’s operation. Consequently, when Xiaomi launched its own smartwatch, the sales volume of the younger brand, Huami, stumbled. Garmin Huami is not alone in facing a decline in shipments. Garmin (GRMN:NASDAQ), the Kansas-based GPS and wearables technology company, also suffered from diminishing market shares in China for the first quarter of 2020. In this case COVID-19 is to blame, as Garmin’s smartwatches are specialized in fitness and accurate physical data monitoring. Under nationwide quarantine policies, the need for outdoor sports was reduced to the lowest degree. In addition, Garmin targets the high-end, including luxuries; thus the economic regression caused by the pandemic has not tended to favor these categories. Though, in the global market, Garmin gained a steady growth of market share from 5.3% to 7.5%, the next quarter’s performance in the global market is likely to repeat what happened in China’s market in the first quarter as the pandemic spreads further and negative effects reverberate. Taking a glance at China’s smartwatch market mix, it is obvious that though the market is still niche, with only one-third of the shipments figures of smartphones, the price range and users’ needs are quite widely differentiated. The lowest price is presented by Huami, which did inherit its angel investor’s spirit on price-effectiveness. Garmin’s Forerunner 945 is the highest in price, at around six times Amazfit’s selling price. Though the range is comparatively large, the selling prices are mostly concentrated in the interval from USD 200 to 300 except for the American brands – Apple and Garmin. Apple in this case benefits from the brand premium and Garmin is out of the unique product positioning – focused on professional fitness service. Three major selling points: Medical monitoring, smartphone proxies and fitness Chinese brands have covered almost every customer group segmented by age, from the children’s electronic watches to the senior’s health monitoring watches and the young and business-focused areas in between. Smartwatches for seniors are expected to show physiological indexes such as ECG, blood pressure and respiration indicators. Lifesense (300562:SZ), as a listed medical equipment provider, has almost monopolized the smartwatch market for the seniors in China, just as imoo watch has achieved dominance in the children’s smartwatch market. China dominated the global market for kids’ smartwatches in 2019, accounting for more than three out of every five devices sold. Brands such as imoo (backed by the BBK Electronics) and Huawei were leading in market shares. As for smartwatches for working professionals and the younger consumer group, Huawei and Xiaomi watches, as accessories for phones, are leading. In this sector, the design, lasting time (can be reflected by the battery and display mode) and the communication capacity are the most important elements, where, if Huawei Watch could add the e-SIM so that the watch could be more independent from the phone, it will have the opportunity to take away Huami and Xiaomi’s sales.  If that is what is going to happen, Xiaomi will not be as upset as Huami, since the former has its Mi band as a killer product while for Huami the whole company has been counting on a quite singular product mix – Amazfit series. If Huami fails in capturing the healthcare and fitness-focused consumer group with its Huangshan-2 chip development, the future may be lackluster for this company.  Overall, China’s smartwatch market is still in a growing phase as it attempts to embrace significant changes in terms of market share. The total volume compared with smartphones also indicates a growth potential. Based on the three major selling points, local vendors have not yet covered the fitness-focused segment, leaving an alternative for the falling Huami to adjust its strategies. As for the middle-and-high-end smartwatches used as smartphone proxies, Apple and Huawei dominate,  establishing their brand images and sales channels. Xiaomi somehow lost its interest in the smartwatch category, since no further moves or promotions have come since the Mi Watch was released last year. It is possible that Xiaomi is taking a strategic step back and letting its investee make a successful specialization in smartwatches. With the 5G rollout and the completion of BeiDou navigation system, China’s smartwatch market is in a favorable uptrend.

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Analysis EO
Jun 28, 2020 07:28 pm ·

Cambricon: Staggering Growth, IPO and Post-Huawei Uncertainty

► AI chips for terminal devices are not likely to be the focus of Cambricon in the near future. ► The company’s growth is likely to come from the sales of cloud and edge AI chips and intelligent computing cluster systems. ► The competition in these new fields is stiff, both countrywide and on a global scale – this will be a hard nut to crack for Cambricon. On June 23, Cambricon passed the Shanghai Stock Exchange Listing Committee’s review and is now expected to start trading on the Star Market in July. This article reveals the chipmaker’s product mix, its key problems and its role in China’s semiconductor renaissance. Founded in 2016, Cambricon is a company focusing on the research and development of AI chips for cloud, edge and terminal application scenarios.  Its revenue structure has so far been somewhat imbalanced. According to the prospectus, the biggest changes of its revenue structure came in 2017 and 2018 – over 98% of company revenues then came from the intelligent terminal processors’ IP business. While, in 2019, the intelligent computing cluster business became the main constituent of revenues, followed by cloud intelligent chips and accelerator business. Below, we describe each of Cambricon’s businesses. Terminal intelligent processor IP The terminal intelligent processor IP business (primarily, Cambricon 1A, 1H and 1M series) was the only significant source of the company's income in 2017 and 2018.  Cambricon’s former-largest client accounted for 98.34% and 97.63% of operating revenues in 2017 and 2018 respectively. Huawei signed four contracts with the company, three of which were completed in 2018; the last one was due at the end of 2019. Since that, the telecom equipment giant hasn’t placed any orders with Cambricon, as it started building IP for its System-on-a-Chip (SoC) series, Kirin, in-house in the second half of 2019.  That was the very reason for Cambricon’s revenues from its IP business decreasing from CNY 117 million in 2018 to CNY 69 million in 2019. The share of this segment in the firm’s revenue dropped from 99.69% to 15.49% over that period. The quest for self-sufficiency is an industry-wide trend. Not only Huawei but also Apple (AAPL:Nasdaq) is now designing chips by itself to better match requirements for product performance. Other Chinese companies (like vivo and OPPO, for example) have stable relationships with the likes of Qualcomm (QCOM:Nasdaq.) Unless the United States government starts to prohibit the supply, there is no reason for those vendors to replace the original partner with local entities. Most probably, the IP-related revenues of Cambricon will not increase in both absolute and relative terms in 2019. Cloud intelligent AI chips and intelligent computing clusters In addition to processors for the terminal, Cambricon also designs AI chips for the cloud, including MLU 100, 270 and 290. In the cloud, servers and data centers need to process a large amount of raw data, which has high requirements for computing power and data storage of basic hardware. The demand for data center services is growing fast. According to IDC data, the scale of China's smart server market in 2018 was USD 1.31 billion, with a year-on-year increase of 131%, and will reach USD 4.33 billion by 2023. The overall CAGR of the market will reach 27.08%. Considering that the budget of AI chips accounts for 30%-35% of the cost of AI servers, the future demand for AI chips in the Chinese server market is expected to exceed CNY 10 billion. Apart from cloud AI chips, Cambricon provides customized software and hardware solutions. For clients with AI computing construction capabilities, Cambricon integrates the cloud intelligent chip accelerator cards into the existing computing cluster.  The core of this business consists of three parts, including cloud intelligent chip accelerators (MLU 270, 100), the basic system software platform – Cambricon Neuware – and an intelligent computing cluster management system. Edge AI chips In November 2019, Cambricon launched MLU 220, an AI acceleration product dedicated to edge computing application scenarios. On the one hand, edge computing can effectively make up for the disadvantage of the insufficient computing power of terminal devices. On the other hand, it can alleviate potential problems such as data security, privacy protection, bandwidth and delay in cloud computing scenarios. The combination of edge computing and AI technology is widely deemed to be helpful in the development of smart manufacturing, retail, education, home IoT, energy management, transportation and other fields. At the edge side, with the rapid commercialization of 5G in China, various supporting industries in the 5G industry will usher in opportunities for rapid development, and application industries such as V2X, Industrial Internet and Internet of Things will gradually enter a new stage of development. According to CCID Consulting, China’s edge computing market will reach CNY 32.53 billion by 2022. Noticing the value of edge AI chips, major semiconductor companies have entered the area. For instance, Nvidia launched the Xavier NX in November 2019 and Huawei’s Ascend, the computing power of which is 8TOPS. As a new niche player in this field, Cambricon does not seem to have any competitive advantage. Cambricon as a part of China’s big semiconductor story Since the US launched stricter bans on Huawei, more attention has been paid to the domestic semiconductor industry. The Shanghai bourse’s new tech board is becoming a great channel for financing for those high-tech companies. For instance, the country’s top foundry SMIC submitted the application for the secondary listing on the Star Market on June 1, passed the registration review on June 22, and will launch trading in July.  With the support of the government, the semiconductor industry is likely to have new development opportunities. However, in contrast to SMIC, Cambricon is an AI chip designer, subject to ever-appearing challenges on both ends of the industry chain – upstream and downstream.  On the supply side, they need IP and EDA authorization from ARM, Synopsys and Cadence. On the customer side, the original largest customer started designing its own chips in-house. It’s hard for them to find a substitute as big as Huawei, or one as reliable and comparatively broad in its pool of terminal users. Turning to the cloud and the edge, AI chips can help Cambricon achieve new growth opportunities and, indeed, this contributed a lot to its increase in revenues in 2019. The problem is that with the development of IoT, Internet giants are also establishing companies to research and develop AI chips. For example, PingTouGe, Alibaba's wholly-owned chip arm, achieves cloud and terminal technological innovation through software and hardware convergence. In an industry with high R&D investment requirements, CNY 2.8 billion, which the firm aims to raise this time, can only support Cambricon in the short-term. How to survive in the increasingly competitive market, in the long run, depends on the strategy, product performance and many other aspects. We can say one thing with certainty: it’s not easy.

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Analysis EO
Jun 25, 2020 06:50 pm ·

India and China after the Border Dispute: Implications for Huawei and Xiaomi

► China has been India’s main trade partner for decades and the biggest sourcing country for India’s trade deficit. Any trade disputes with India could drag down Chinese electronics vendors’ total sales by 10%. ► The Indian government plans to ban state-owned telecom operators from buying Chinese equipment, leading to anticipated sales losses for Huawei and ZTE. ► The financial recession of India is casting shadows for Chinese companies that rely on the Indian market to drive their revenues.  ► Due to previously established local factories, the rising import duties may not be affected as much as other importing sectors such as raw materials. ► Chinese investment in India is under severe scrutiny from the Indian government and more cost may be needed to invest in the future and carry out projects successfully. India and China, as geographical neighbors, have been closely linked for thousands of years culturally and commercially. Though political relations between the two countries have been tricky for decades, trade relations have shown an overwhelming development since the 2000s, and China has maintained its status as India’s largest importing partner for over 10 years. In 2019, the import volume in India from China reached USD 68.37 billion, accounting for 14.1% of total imports. Approximately half of the import volume comes from purchasing Chinese electric machinery and products, amounting to USD 33.83 billion. As on June 17, the most violent border clash caused 20 casualties of Indian soldiers, consequently pushed the ties between the two Asian giants to a new low since 1962 the Sino-Indian war. Triggered by this deadly encounter, the Indian government is quite likely to accelerate the imposition of trade and investment restrictions, which have been long premeditated, on China. As electronic products have taken the largest part of India’s import volume from China, this sector has turned out to be the very first target of India’s sanctions. Chinese vendors have profited from the enormous demand in the Indian market. This includes names such as telecom equipment providers ZTE (00763:HKEX) and Huawei and smartphone vendors like OPPO and Xiaomi (01810:HKEX). The following part will discuss how some of India’s anticipated reactions towards China-based companies are going to change the landscape of Chinese business operating in India and add investment risks. Falling demand From the Chinese point of view, the demand from the Indian market will definitely shrink. Three major factors have led to this projected shrinkage – government policies, local consumption decline and market sentiment. India’s fastest response towards the border skirmish with China came from the telecommunication department, who have decided to ban state-own telecom operators Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) from using 4G equipment supplied by Huawei and ZTE. Private operators are also taking the risk of being banned from buying equipment from Chinese vendors.   As the world’s leading telecom equipment providers, Huawei and ZTE are both leveraged heavily on the Indian market. One of the traits in the state is the extreme competitiveness of the space as the world's top telecom equipment producers such as Ericsson and Samsung all have been working to profit from the vast market, which has been pushing vendors to be efficient cost-wise – that has pushed Huawei and ZTE to struggle for their places for over a decade. If Huawei and ZTE suddenly quit the game, the left player could have chances to lift prices for governement purchase orders. The trade-off is still for the Indian government to contemplate. Heavily populated India is currently the world’s second-largest telecommunications market. If ZTE and Huawei are going to lose their carrier business market shares in India, the loss caused will be possibly in the millions of dollars. Other operational issues related to account receivables and inventory management will happen accordingly. However, it is not the first time that ZTE has faced sanctions from the Indian government. Back in 2006 and 2008, ZTE lost the bid initiated by BSNL for similar reasons. The later restored agreements of ZTE and Indian operators depicted the cooperation as mutually beneficial. Similar policy-related issues could possibly bother Chinese handset maker OPPO and its peers. The ban of Chinese telecom equipment has been implemented out of two considerations. First, the Indian government believes its security systems and critical infrastructure cannot be run by the Chinese state. The second purpose is to boost local production and to be self-reliant, reducing dependence upon China. The first concern does not have many links to handset vendors as the terminals are mainly for sending back data rather than gathering and analyzing it. But for the second concern, it is likely that the Indian government will lavishly support some of the local brands to be the domestic champions. The local consumption decline caused by the globally spread COVID-19 and the corresponding lockdown policies also cast a threat on the handset vendors’ Q2 and Q3 performance. According to IHS Markit, India’s PMI (Purchasing Managers’ Index) in April fell at 27.4 (a PMI reading under 50 represents a business activity contraction), reflecting a collapse of business activity with a record low in the 14-year survey history. For Xiaomi and OV (OPPO and vivo), which consider the Indian market one of their ‘cash cow’ businesses, they will face a steep downhill shift in the following months. A feasible counterplan is to drive revenue from their Internet service businesses and release promotions for highly cost-effective specs. Though this has never been a truly decent measure to boost sales, as it somehow harms the brand image and inventory smoothness, survival in the severe situation is even more important. As a consequence of the border conflict, boycotts of Chinese product activities have taken place both on the Internet and in the streets. OPPO’s offline stores and Xiaomi’s official Instagram page were under attack due to the market aversion. The market sentiment will bring Xiaomi a greater threat since it has been selling the ‘Mi fan culture.’ How to make a more localized and ‘China-less’ brand is one of the key issues to fix for Chinese handset vendors. Stable supply Soon after the ban of Huawei and ZTE’s telecom equipment, Reuters revealed that India would impose extra tariffs on 300 imported products. Though did not mention the name, China, as the biggest sourcing country of India trade deficits, is apparently the main target of this rising tariff wall. After the ever-increasing import duty on finished smartphones, several original equipment manufacturers – including Xiaomi, Samsung and Apple – started assembling their phones in the country instead of importing a finished unit. Thus, the same old ‘Made in India’ criterion does not seem to be fatal for Chinese handset vendors as Xiaomi, and OPPO is following the plan that deems 99% of their smartphones should be assembled locally. Setting up factories locally turns out to be a good way to reduce political risks and drive up the production capacity. However, for other Chinese finished electronics and components providers, such as Nokia Shanghai Bell and DTT (600198:SHEX), there will be an instant effect regarding order decrease. Investment restriction In April 2020, India announced a revised version of its FDI (Foreign Direct Investment) policy that would efficiently restrain the investment volume from neighboring countries (when talking about investment, the only one left is China) since it requires certain approval from the government first. Chinese companies will face challenges in getting their approvals to invest, given that this could have national security implications for India in the wake of the recent border hostilities. Like Huawei, ZTE and smartphone vendors all need to invest in local factories to expand production, the decline of direct or indirect investment transactions could be a serious problem. For Chinese firms that are running PE/VC investment in India, to pursue a larger volume of investments looks increasingly complicated. Over the past five years, Indian technology companies have been favored by Chinese investors. Nearly USD 4 million PE/VC has been poured into Indian unicorn companies such as Flipkart and Zomato. Yet most of the emerging excellent startups are in angel round; thus the investment barriers truly impede Chinese giants from staking their claims in the Indian Internet market.

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Analysis EO
Jun 23, 2020 09:08 am ·

China’s ‘618’ Shopping Festival 2020: Huawei and Xiaomi Dominate on Tmall

► Against the backdrop of lavish subsidies and the rapid development of livestreaming technologies, Tmall held the biggest-ever 618 shopping festival. ► Huawei and Xiaomi were comfortably ahead of other Chinese vendors in the 618 festival in terms of smartphone and wearables sales.  ► Huawei showed an abundant strength in products and consumer coverage, outplaying Xiaomi and other vendors. ► Appliance maverick GREE triumphed through its CEO’s livestreaming stunts, bringing a potential threat to Huawei and Xiaomi’s IoT strategies. Tmall, an e-commerce platform operated by Alibaba Group (BABA:NYSE), once again led the 618 Shopping Festival, with a CNY 698.2 billion gross merchandise value (GMV). The first hour of June 18 witnessed a 100% Y-o-Y growth in transaction volume. Two engines drove the consumption craze. First, to boost the economy, Tmall, along with other leading e-commerce platforms such as JD.com (JD:NASDAQ) and Suning (002024:SZ), handed out shopping vouchers generously at a CNY 10 billion level. Second, more widely applied livestreaming promos for makeup, clothing and 3C (computer, communication, and consumer) electronics products, lifted the sales to an even greater volume. Some had anticipated a downturn caused by quarantine or people’s reluctance of going to crowded malls – rather the opposite came to pass. A currently shrinking electronics market was actively seeking its redemption during this shopping festival, however a more intense level of competition was waiting for all players. Apple (AAPL:NASDAQ), the world-leading electronics giant, joined the shopping festival on Tmall for the first time. Chinese electronics vendors such as Huawei and Xiaomi (01810:HKEX) didn’t want to be outdone as well, thus the marketing events stimulated people’s purchase desires with bare stops. For the full category sales, Huawei and Xiaomi achieved thrilling results, taking the first and second position among main Chinese electronics players in Tmall sales respectively and leaving the third far behind, with approximately CNY 1 billion extra sales. The sales of OPPO and vivo (OV) somehow stumbled this year, based on data from Tmall provided by iyiou.com, a sister publication of EqualOcean, as the two vendors did not release their official numbers for the shopping festival. It is likely that, no matter how polished one’s promotional statement is, it cannot make up for the downward slope in sales. Pushed by the pandemic, OVs had to shift their sales from offline to online, which required a bit more time for them to adjust. In terms of smartphones and smart wearables, the data reveals a cozy duopoly for Huawei and Xiaomi. For the smart wearables, other players such as Samsung, Huami and OPPO still have a chance of bouncing back to the top, since the wearable market in China still has a large group of new users compared with the smartphone market.  Though the 5G data and related applications have not yet shaped 5G smartphone as a necessity, the phones featured for this tech have already occupied the peak of new sales. Apparently, the demand is shaped by vendors’ tricky promotion on the new generation of communication technology. Huawei and Xiaomi somehow presented a subtle switch in terms of product layout. Xiaomi in 2020 changed the strategy of smartphones to a concentrated product route while Huawei seems to have a broader price coverage and target customer groups. Xiaomi’s Mi 10 and Redmi K30 are the only two specs that have taken most of the promotion resources. For Huawei, Y series, P series, Nova series and series under the Honor brand are all indulged by the company’s marketing department and the customers, covering unit prices from under CNY 1,000 to 7,500. Xiaomi’s overall production and sales capacity is dragging its performance behind Huawei, as it won the solid second position only by two specs.    Chinese brands did a fairly great job in terms of home appliances. The top 3 positions are all taken by Chinese vendors – GREE, Haier (600690:SZ) and Midea (000333:SZ) – and left a CNY 1 billion sales gap for the fourth brand, Siemens. GREE should credit the sales boost in this year’s 618 to the livestreaming hype. GREE’s CEO, Ms. Dong Mingzhu, has been actively practicing livestreaming sales since April this year. After a two-month phase of testing and improvement, CNY 17.8 billion of sales were achieved through her five 618 livestreaming events. The 618 sales of 17.8 billion in 2020 represent approximately 10% of GREE’s total revenue in 2019, marking a true breakthrough in the livestreaming era. Midea’s top managers followed GREE’s footsteps with a populist attendance in livestreaming activities. However early birds are the ones to enjoy the worm – and Midea does not seem to overachieve in online promotions. The strong branding still supported Midea and Haier with decent sales. The top 3 appliance vendors still showed a strong competitiveness, which brought potential threats to Huawei and Xiaomi’s IoT and smart home strategies. 

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Analysis EO
Jun 19, 2020 05:33 pm ·

How Huawei Can Work around US Chip Ban

A US ban on foreign companies’ sales of chips to Huawei Technologies if American equipment or software is involved will undermine America’s already-weakened position in the global semiconductor equipment market, industry sources say. Chip fabricators will remove American equipment from production lines in order to maintain market share in China, the world’s largest purchaser of semiconductors. Samsung, the world’s biggest fabricator of memory as well as logic chips after Taiwan Semiconductor Manufacturing Corporation, already has set up a small production line for top-of-the-line 7-nanometer chips using only Japanese and European chip-making equipment, according to Electrical Engineering Times.  The Dutch firm ASML is the only provider of the Extreme Ultra-Violet (EUV) etching machines required to produce the tiny transistors on 7-nanometer chips, which can hold 10 billion transistors on a silicon wafer the size of a fingernail. Chip testing machines by Japan’s Lasertec sell for US$40 million apiece and are rated the best on the market. Samsung and Huawei are considering a deal under which the South Korean giant would fabricate advanced chips for Huawei’s 5G equipment, and Huawei would in effect cede a substantial amount of its smartphone market share to Samsung, I reported in Asia Times May 20. Mobile phones are Samsung’s flagship business, but they are a relatively small contributor to profits at Huawei, whose core business remains telecommunications equipment. Ban ‘unacceptable’ South Korea exports almost twice as much to China as it does to the United States, and it relies on China to restrain the erratic North Korean regime. Seoul told Washington that the ban on sales of chips made with American equipment to Huawei and other Chinese companies was “unacceptable,” according to industry sources. A deal with Samsung offers one way for Huawei to work around the Commerce Department ban, details of which are expected to be announced in mid-July. Another workaround – already in progress – is a set of “Manhattan Projects” to improve China’s domestic semiconductor equipment industry, now a fourth-place player after the US, Europe and Japan. Huawei has contracts to install 600,000 5G mobile broadband base stations, powered by dedicated chips designed by its HiSilicon subsidiary and fabricated in Taiwan by TSMC. The Chinese firm probably has a year and a half of chip inventory. It might be able to fill the gap for its base stations with domestically produced chips. China lacks the capacity to produce the most-advanced 7-nanometer and smaller chips, although its flagship fabricator, Semiconductor Manufacturing International Corp (SMIC), promises to have 7-nanometer production running by the end of this year. If SMIC sells chips to Huawei made with American equipment, presumably it would be subject to American sanctions, including a shutoff of further equipment sales. The critical issue is the speed at which China can build up its domestic chip fabrication capacity. When the Trump administration cut off sales of Qualcomm chips to Chinese mobile phone maker ZTE in April 2018, ZTE effectively shut down. How long will it take? By the following December, though, Huawei had announced its own Kirin chipset for high-end mobile phones and its Ascend chips for high-performance servers. Both are fabricated by TSMC. The speed at which Huawei rolled out its own designs surprised Washington, and the question that dominates every semiconductor chat room on the internet is how long it will take China to do the same for semiconductor manufacturing equipment. American firms like LAM Research and Applied Materials still have the largest market share in several parts of the complex production process, but in every phase of fabrication, Japanese, European and Chinese equipment manufacturers offer serviceable substitutes. Holland’s ASML has the only real monopoly left in the chip fabrication business, in EUV lithography machines. An EE Times report ranks the leading equipment providers at each of the 11 stages of the chip fabrication process. “Although it is theoretically feasible to build a semiconductor production line without American equipment, Japanese, European and even domestic [Chinese] equipment doesn’t lead in many of these areas.” Chinese domestic semiconductor equipment companies trail their American rivals because China hasn’t taken the trouble to build out the sector. Applied Materials, a leader in plasma etching machines, expects to spend $360 million this year in CapEx. Its closest Chinese competitor, Advanced Micro-Fabrication Equipment (ticker 688012 CH), will spend exactly one-tenth as much. China’s “Made in 2025” drive for domestic semiconductor fabrication assigned low priority to domestic equipment because it was cheaper to buy American, Japanese and European machines than to invest heavily in domestic substitutes. Recruiting the experts The Commerce Department’s ban on foreign fabricators’ sales of chips to Huawei – if they are made with American equipment – changes everything. In 2019 the US government persuaded the Netherlands to block ASML from selling a new top-of-the-line lithography machine to China’s SMIC, with a reported price tag of $130 million. China may not be able to buy Western equipment, but it can hire anyone it wants. Anticipating restrictions on US chip sales, China has recruited nearly a tenth of Taiwan’s chip engineers. Nikkei reported on December 3, 2019: “More than 3,000 semiconductor engineers have departed Taiwan for positions at mainland companies, the island’s Business Weekly reports. Analysts at the Taiwan Institute of Economic Research say this figure appears to be accurate. That amounts to nearly one-tenth of Taiwan’s roughly 40,000 engineers involved in semiconductor research and development.” The learning curve for building world-class semiconductor equipment is likely to steepen dramatically due to the application of Artificial Intelligence to the production process, an area which China has a strong and perhaps leading position. Intellectual property is not the obstacle to chip fabrication; the problem, rather, is that hundreds of different processes are involved, and each of them requires extreme precision. But AI can speed things along. According to David Fried, chief technology officer of Coventor, a subsidiary of LAM, said: “The equipment has sensors that are analyzing data from operations of the tool and monitoring of the wafer process. For instance, sensors and data logs are picking up information about which wafer went to which chamber, where the robot arm is at any point in time, etc. “All that data has to go into a system where it can be harvested and analyzed in real-time. And that’s just from one piece of equipment. In a fab, you have fleets of that kind of equipment, and then you have all sorts of other equipment and different processes. This is a massive big-data challenge, and what you really want to start doing is learning on that data.” Already obsolete It is not known how fast China can create domestic substitutes for US equipment, but it has access to the world’s best chip engineers from Taiwan as well as expertise in the most advanced industrial research methods. Big data simulation can increase the speed and reduce the cost of industrial experimentation by a factor of 100. TSMC is the world’s most advanced chip fabricator, and the US government hailed the announcement of TSMC’s plan to build a $12 billion fabrication plant in Arizona as an important step in re-shoring American high-tech production. TSMC’s commitment to chip fabrication in the US is tentative at best, industry analysts believe. The new plant will produce only 20,000 wafers a month, barely half of Apple’s requirements, and not enough to challenge Taiwan’s home-based industry. The 5-nanometer chips that TSMC will produce starting in 2024, moreover, will already be obsolete when the plant opens. TSMC is investing in 3-nanometer capacity in Taiwan. From an American national security vantage point, a Taiwanese chip fabricator for sensitive military uses is less than secure. The close contact between Taiwan and the mainland creates extensive opportunities for Chinese infiltration of any TSMC facility. The consensus in the United States holds that the Trump administration’s assertion of extraterritorial control over the use of chips made with American equipment will succeed at least temporarily. The Wall Street Journal editors wrote this week: “Other countries may face a more difficult choice. Foundries in Southeast Asia that rely on Huawei’s business may resent being subject to extraterritorial U.S. rules, and one risk is that those governments are pushed closer to Beijing. Huawei will also accelerate its efforts to make chips using its own know-how and take a faster technological leap. “Some question whether the U.S. can enforce the sale ban in a complex industry scattered worldwide. Yet the success of U.S. sanctions against Iran highlights Washington’s ability to monitor global transactions when it is a high priority. Thanks to America’s leading position in semiconductors going back to the 20th century, U.S. law is still a gatekeeper to the most sophisticated microchips, and Washington can likely block China from achieving technological parity with the U.S. – for now.” Earlier this year the Defense Department intervened to block the same Commerce Department proposal that the administration adopted in May. The risks to American pre-eminence are enormous. American leadership in semiconductor manufacturing is already a thing of the past in lithography, the most difficult part of the production process, and it is slipping elsewhere. The chip ban gives the world an enormous incentive to circumvent the US, raising the risk that the US rather than China will be left without a chair when the music stops. This article was originally published in Asia Times Financial and written by David P. Goldman

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Analysis EO
Jun 18, 2020 11:17 am ·

Life after TSMC: Is SMIC Able to Serve Huawei and Co.?

► Semiconductor Manufacturing International Corporation (SMIC) is one of China’s biggest bets in the global semiconductor race. ► Lavishly invested in by the government over recent years, the foundry has been getting technologically advanced, but is still lacking in talents. ► The global economic turbulence is presenting both risks and opportunities. The Integrated Circuit (IC) manufacturing process can be divided into three major steps: IC design, foundry, packaging and testing. The specific traits of the semiconductor industry typically require companies to spend capital on research and development and maintain vast production capacities. It is almost impossible for players other than enormous chip giants to follow the traditional ‘Integrated Device Manufacturer’ (IDM) model. As Moore's law accelerated in the second half of the 20th century, unmet demand from the industry upstream was the reason for the establishment of TSMC, the world’s first company to specialize in completing manufacturing orders from IC designers, in 1987. The company pioneered a fundamentally new business model in the field – the semiconductor foundry.  Lured in by this new type of low-cost, asset-light chipmaking, many companies have started to pursue the fabless model. Foundries have mushroomed around the world, becoming the key links in the global electronics supply chain. As one of the largest foundries globally, SMIC’s (00981:HKEX) income from its main business segment (chip manufacturing at 0.35 µm to 14 nm), accounted for 90.81% of its total revenues in 2019. It also provides one-stop support services, including design and IP support, photomask manufacturing, bump processing and testing, to name a few. Last year, SMIC became the first Chinese mainland foundry to achieve mass production of 14 nm FinFET. According to its newest prospectus, compared to the first generation, second-generation 14 nm FinFET technology is expected to improve performance by approximately 20% and reduce power consumption by approximately 60%. However, around the globe, not only SMIC but also GLOBALFOUNDRIES and UMC (2303:TWSE) have realized the mass-production of 14 nm in 2015 and 2017 respectively. TSMC has meanwhile been capable of 7 nm production since 2018. SMIC is almost two generations behind TSMC. According to data from Trendforce, we can see that, in 2Q20, TSMC’s market share was 51.5%, which was the highest among all foundries in the world. And the second place was occupied by Samsung, the market share of which was 18.8% in the same period. Among the top five foundries, only SMIC is a China mainland company, with a 4.5% market share ranking it fifth. After browsing the information above, we find that TSMC is absolutely the leader in the foundry market. As an important partner of Huawei, it is currently caught in the crossfire between the two largest economies, and Huawei has transferred some of its 14 nm orders to SMIC.  However, though SMIC can produce 14nm, it has lagged behind TSMC in many aspects, including R&D investment, revenue and gross profit margin, for years. For instance, in 2019, TSMC invested TWD 91.4 billion (CNY 21.1 billion) in R&D – the number of SMIC was CNY 4.7 billion. Though TSMC spent over 4 times more than SMIC, the proportion of its R&D investment was 9%, 13% lower than that of SMIC. In addition, the gross profit margin of SMIC was less than half of TSMC’s. As shown in the graph below, the margins of TSMC and SMIC are downward, but comparing the exact numbers, we can see that, in 2019, the gross profit margin of SMIC was 21%, while TSMC achieved 46%. Apart from those parts, there are some other disadvantages of SMIC compared to TSMC. For example, SMIC ordered an Extreme Ultraviolet Lithography (EUV) from ASML two years ago, but it hasn’t received the results yet. EUV is a piece of crucial equipment for making chips under 7 nm. Considering this, on the supply side, it’s hard for SMIC to be competitive with TSMC. By comparison, on the demand side, there are opportunities for SMIC. Under the bans released by the US government, HiSilicon needs to turn to domestic semiconductor companies for the supply chain. As the best local player among foundries, SMIC is set to be the crucial partner of HiSilicon and Huawei. Another thing is that, on May 15, SMIC announced that National Integrated Circuit Industry Investment Fund and Shanghai Integrated Circuit Industry Investment Fund agreed to make a capital contribution of USD 1.5 billion and USD 750 million respectively into the registered capital of Semiconductor Manufacturing South China Corporation (SMSC). 50.1% is indirectly owned by SMIC. This is not only capital that matters in the microelectronics world: experienced talents are vital for the development of the domestic chip industry. The company can buy equipment, but if no one is capable of using it, no matter how powerful the machines are, it will be no more than just iron-scrapping. Quite possibly, triggered by the recent geopolitical uncertainty, more Chinese nationals majoring in engineering and graduating from prominent US schools will be returning to the country in the following years. Some of them will join China’s top chipmakers, while others will start their own fabless firms. In the short term, Chinese chipmakers are likely to face profound difficulties, as the international supply chain is getting disrupted in many ways. In the long run, as usual, challenges and opportunities coexist. In league with global economic uncertainties, ubiquitous competition in the domain will shape the strategies of up-and-coming Chinese semiconductor companies. Representing the country in one of the principal subsectors, SMIC, seemingly, has no margin for error.

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Jun 5, 2020 06:40 pm ·

Huawei’s W. Genovese on the User’s Perspective, Fintech and 5G

EqualOcean held an exclusive interview with William Genovese, Vice President of Corporate Strategy Planning for Banking and Financial Markets at Huawei. We discussed the status quo of the fintech industry, the promise of the new generation of wireless technology and how the Chinese electronics juggernaut is leveraging the latter to disrupt the former. Below are the key insights from our conversation. In this chapter, we touch upon fintech and 5G from the users' perspective. Check out the rest of the interview:  5G, Its Value and Potential COVID-19 and 5G 5G and Fintech Huawei and 5G Three consumption buckets of fintech “People use financial services for three major needs. We need to pay for things and our bills and that is the bottom line. Companies thereby have to think about what types of payment activities are performing from mobile devices. How many times are users jumping from browsers or websites to websites? Is it just a single jump? For instance, PayPal is embedded in Amazon or other e-commerce platforms, so you do not need to jump around and launch different browsers. Now for a mobile device, if users have to jump around websites, that is a pain because nobody wants to do that. If I have fifteen windows open and then it starts to interfere with the performance of the device. Payment services are essential: users need to buy stuff. If people are undergoing quarantine in many countries, they would like to buy things from mobile platforms. If people do not have enough money, they need to borrow, which is the second bucket (credit and lending). Today we're not jumping in our cars, driving down the street to a local bank branch, filling out a bunch of papers and then getting back to the car and going home and waiting for five to seven days to get a response on a loan application. That is ridiculous and is not going to happen nowadays. So if a company can do digital onboarding for customers for microlending or traditional lending, whether it is a mortgage, a credit card or even microfinance – that is where 5G further comes in as a digital accelerator and provides optimization for mobile devices.” The last piece in terms of consumption is the protection of financial assets, the storing of money and protecting it. Can the consumers do mobile deposits, money transfers between their bank accounts and their family members’ or friends’ from a mobile device? Can they take out an insurance policy and protect the financial assets? Can they invest in the stock market from a mobile device? ‘Digital mobile’ touches everything that I said in terms of the three buckets of financial services.” Differences by geography “Things are going to be different in terms of demographics. But geography is even more important, in terms of the existing infrastructure. In China, the United States and Western Europe, this upgrade is not a big issue in terms of adoption, usage and investment comparatively speaking to true emerging markets. But if we are looking into emerging markets, where there are no historical infrastructures of 1G, 2G, 3G, 4G and now 5G, there is no point of reference for network generations before 5G in these locations. Emerging markets in many cases will go straight to 5G, and they need to for financial inclusion, as there are limited traditional financial services and infrastructures in some of these locations, hence the need for the latest in mobile technologies with 5G, so the people can transact financially from their phones” Growing expectations “Let’s go back to the mapping of the three functions. It is not so much in payment, but as you move more into the financial services, offering spaces in the growing expectations from users, to do more than people normally do in engaging with financial institutions or even e-commerce platforms. Users’ expectations are going to grow, than to just make a digital payment. They want to borrow money digitally, invest and insure their assets – all from their mobile device.”              Calling for data privacy standards “Opening up additional areas for advanced biometrics is providing a more secure environment, not less. I would like to take that step further to even the simplistic transaction, in which there is not much difference between 4G and 5G. Right now, there is a lot of work and thinking generated from China, the United States and Europe, about what level of transaction, and what security technology are we going to put into to protect payments, deposits and lending. Whether you are making a payment, borrowing money, or depositing money to bank accounts from your mobile devices, laptops or smart watches, the problem with the security is that there are limited or no standards in terms of what technologies to use for what types of transaction security and financial amounts. Some merchants would say that you can obtain your facial recognition to pay. Other merchants would say that you do not have to use facial recognition and please use your fingerprints. Different standards are still all over the place. We are using the QR code in China, but that is not the only standard. You can still use cash, or in some cases you can use fingerprints and Alipay offers facial recognition for transactions.”

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Jun 5, 2020 06:40 pm ·

Huawei’s W. Genovese on 5G and Fintech

EqualOcean held an exclusive interview with William Genovese, Vice President of Corporate Strategy Planning for Banking and Financial Markets at Huawei. We discussed the status quo of the fintech industry, the promise of the new generation of wireless technology and how the Chinese electronics juggernaut is leveraging the latter to disrupt the former. Below are the key insights from our conversation. In this chapter, we touch upon 5G and fintech. Check out the rest of the interview:  5G, Its Value and Potential The User’s Perspective, Fintech and 5G COVID-19 and 5G Huawei and 5G Prerequisites of mobile strategy “Huawei’s financial services strategy is built on three pillars from a technology enablement perspective. If a company does not have a digital and mobile phone and smart device strategy, then we do not really need to have this discussion. Digital is a broader term, but for 5G specifically, it is the mobile. That is the first prerequisite. If a company is more of a traditional outfit, maybe it is running a business on the Internet, laptop or PC and does not have mobile consumption, probably it is not the time for them to access 5G. However, if you are engaging from a business to consumer perspective, namely ‘B2C,’ or even ‘B2B2C,’ and you have a mobile strategy, then invariably the company is going to start to look at different aspects that it wants to get out, from the rental price to the consumer in the mobile device. The first use case that comes to mind in terms of capturing the information that a consumer is using and the way they are interacting with the company from the mobile device is analytics and Artificial Intelligence (AI). That is the second big piece of the puzzle of financial services in terms of broad categories of use cases. Thus, companies want to be able to harness answers from the device: What are people doing? What are they browsing? What are they paying for? And then we get into financial services construction buckets. The third piece of tech enablement is open platforms. This is not so much from a 5G perspective, but obviously if there are a lot of devices on play and they need to provide the three functions to consumers, across industry models and platforms, then they have to be open, especially with the coming of connection of smart devices and IoT. They cannot be locked down so there are open APIs.” Is the wireless upgrade worth implementing? “An important thing to consider is the expectations from consumers and what that brings to providers in the country from a financial inclusion perspective. Huawei is an example that has built and provided a mobile money solution as a digital wallet. Then we sell it to mobile network operators. For example, in Africa we worked with Safaricom and Vodafone to build MPESA. We built the mobile money software and provide infrastructure for them, and they use this offering for their customers to transact for payments and next for microfinance on their mobile devices. That is the mobile money solution. We do the same thing in Bangladesh, some regions in India and Indonesia as well. But all the countries and telcos, they want to offer a mobile wallet solution to their customers. So they need their customers to be able to send money via the mobile device and without bank accounts in some cases. The next thing that is going to happen is that 5G players will want to expand their services because the consumers are buying more width and more latency to do more things. For example, customers may want to do micro-finance, some quick lending. There are additional operations with bandwidth and latency in terms of their decisions, and maybe facial recognition for identity. That is requiring 5G. As the telcos move more into credit lending, that justifies the investment in 5G.” Three pillars of 5G-enabled fintech “To make 5G-enabled fintech happen, there are three dimensions. Number one is the sharing economy. In these emerging countries and probably some mature economies, the sharing economy has developed as new business models, which is the second pillar. Now, we have all these large conglomerates in ride sharing, food delivery, service delivery companies, such as Grab, GoJek, Uber in the west. Most of them are moving into different industries now. For instance, they are expanding the food delivery businesses since nobody's ridesharing right now because of the epidemic. People are still doing delivery right now so there are new business models from companies that were in the field before. And it seems to work. The third pillar is technology enablement. Without the tech, in terms of these massive platforms and mobile services, those companies are not going to get very far. It is not just one technology but rather a convergence of different technologies. So there is a need for AI, IoT, big data and other concepts that can be enabled in terms of scalability and performance by 5G for the mobile device.”

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Jun 5, 2020 06:40 pm ·

Huawei’s W. Genovese on Huawei and 5G

EqualOcean held an exclusive interview with William Genovese, Vice President of Corporate Strategy Planning for Banking and Financial Markets at Huawei. We discussed the status quo of the fintech industry, the promise of the new generation of wireless technology and how the Chinese electronics juggernaut is leveraging the latter to disrupt the former. Below are the key insights from our conversation. In this chapter, we touch upon Huawei and 5G. Check out the rest of the interview:  5G, Its Value and Potential The User’s Perspective, Fintech and 5G COVID-19 and 5G 5G and Fintech Huawei’s product mix “We at Huawei, obviously, do a lot of things. We have our own AI system-on-a-chip, which makes us one of the first companies to do that. We have the 5G networks, and we make our own servers and storage scale very well, and we have a consumer products division. But these are all the pieces that are sold in the marketplace to different target customers. For example, the phones are sold to consumers directly. We offer B2B by selling infrastructure to the industries directly, as well as B2C through our consumer division, and B2B2C through our Carrier division; Mobile Money is a great example of this. Credit card and ecosystem “From a business model perspective and in a structural perspective, Huawei is not merely a technology integration company. From the device perspective, this year we are launching a credit card, which is very much like that of Apple. Google now is launching a debit card. Samsung just announced a partnership with SoFi. They are going to get into that space too. The whole purpose is to start building the ecosystem bubble around the consumers from the device. Companies have integration to back-end infrastructure and payment gateways standards.” Open payments “Our advantage here is to build an open payment architecture. So that Huawei can go into any country, either through telco or traditional financial systems from the device. If a customer wants to use a Huawei phone or Huawei pay, they can combine the back end to traditional Union pay, Visa or Mastercard, whatever that works in the local country. Or the customer wants to have a mobile money solution to transfer money overseas, Huawei is capable of that as well. That is very much market-driven, and the relationship that Huawei has with suppliers and operators right now.” The smartphone market has passed its peak “Our consumer division has been growing in double digit percentage growth year-on-year and we have moved from No. 4 in the world for mobile devices to No. 2. Huawei will not maintain this market position forever. In technology terms, Huawei has already passed the peak of smartphone usage. Smartphones have been around for 10 to 12 years, but if you look at every shift in our lives and how we as humans use technology, it's somewhere in the year of 2008 to 2012 where things shifted. We went from personal computers to laptops and then to smartphones.” Smaller devices “Another trend is the devices are becoming miniaturized. The form factor is becoming smaller. Everybody had a PC in their home. Everybody had a laptop, and then a tablet, and now a smartphone. Twenty years from now, we are not going to have any device and we are going to consume content from any interface around us that we choose. To enable this, ideally, you cannot always “hard-bind” the technology to a specific interface for hardware. It is the platform that is open and with open standards, and then the interface adapts to that. Any interface, which could be your bathroom mirror. And the manufactory has a blueprint based on the consumer's agreement to opt in for that type of device, and then the manufacturer adjusts to the standards in the platform and they provide the information.” Is Huawei well-positioned? “From a technology perspective, Huawei is absolutely well-positioned, but it's not that simple. There are major superpowers in the world. They need to agree on standards, where it is not a national monopolistic situation. Everybody knows what is going on with 5G. There is discussion around the US and China cooperating on 5G standards though this is not going to solve the problem. What about all the other countries in the world? Then there is commercialization and competition. I personally do not believe or see the great decoupling where we have two or three Internets or different types of standards. We need to move to more open standards. We cannot operate on big islands of technologies that are walled gardens from each other.”

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May 18, 2020 10:40 am ·

More than 5G Equipment: A Glance at Huawei’s Troika of Businesses

► Huawei has developed a moat in the global telecom network field. ► The firm’s private status and a strong bias toward hardware are hampering its rather inevitable shift to a service-focused model. In 2019, it was ranked 61st among all the Fortune 500 companies and 15th among its compatriots by the annual revenue. That same year, it churned out over 240 million handsets, grabbing 17.60% of the worldwide smartphone market. Responsible for nearly 30% of Europe’s mobile infrastructure, it is currently dominating the emerging 5G space, boasting up to 40% of the fifth-generation equipment contracts closed globally. Huawei’s rapid, improbable rise from a ‘just another Chinese electronics copycat’ to a major future-shaping force has become a ghost story for both the largest players in the technology sector and a few high-ranked populists in some countries. Their concerns don’t appear from nowhere: a globe-straddling colossus, the Shenzhen company is resilient like no one else. Even during the toughest period of the COVID-19 outbreak, it managed to stay buoyant, seeing its gains inch up by 1.4% in the first quarter of 2020. Such prowess is a result of something more than the proverbial hard work and dedication. The manufacturer claims to have spent more than CNY 600 billion on research and development over the past decade, with nearly half of the 194,000-strong workforce pushing innovation internally. The firm had in excess of 85,000 active patents as of the end of 2019. Rather aggressive in its hiring policy, Huawei is openly seeking top-notch talents, recruiting technicians all over the place. Internally, the company’s infamous ‘wolf culture’ is considered one of the essential growth drivers. “While working on a certain project, every employee knows the basic things that the firm requires him to complete,” a former Huawei employee told EqualOcean. “Moreover, everybody shares the responsibility for the success or failure of the entire project.” At the same time, questions abound about its organizational structure and management system.  Because of the firm’s ever-private status, we can’t say for sure how exactly and under whom the gargantuan Chinese machine is running. While the official framework of corporate governance can reflect reality, it doesn’t show us how the decisions are typically made within the company. However, this scheme is a useful reference for possible short-term changes in Huawei’s product mix and expected alterations in its market strategy. In many respects, the hardware producer is in a class of its own. Unlike Xiaomi (1810:HKEX), another China-based electronics trailblazer, which has made a significant lurch to the consumer sector, it tries to grasp both halves of the final demand for Information and Communication Technology (ICT) products: from businesses (2B) and individuals (2C). The former segment is where Huawei excels. Nowadays, there is a lot of political hullabaloo around its unique position in the wireless networks industry. But the corporation has been here for a long while, with more than half of its revenue coming from this domain between 2012 and 2017. Primarily benefitting from 4G’s rollout a decade ago, it has since grown in terms of technical capabilities and transformed the market mix into a more balanced menu.  Quite obviously, the early bet on the concept of omnipresent connectivity has turned out to be the critical ingredient of Huawei’s headway. Its low-priced fair-quality hardware has occupied markets across scores of countries, boosting the downstream that is now full of highly committed mobile operators. Their loyalty is derived from well-known economic fundamentals: each next generation of wireless technology is cheaper when it is built on the existing setup. That said, switching vendors is often too expensive for cellular companies. Stable earnings coming from the 4G infrastructure contracts enabled the firm to develop a strong presence in the consumer electronics area. In the past two years, sales of handsets, wearables, laptops, home appliances and other devices designed to make our lives easier brought it CNY 815 billion (around USD 115 billion). Meanwhile, the Enterprise Business Group, which is mainly involved in providing solutions for smart cities, public safety, finance, oil & gas and transportation, has seen its operating income increase at a 33% CAGR since 2012. Apart from that, the company is making attempts in cloud computing – it seems to be a bit tardy though, and having a hard time expanding the scale in the newborn oligopolistic market. Fintech, Artificial Intelligence (AI) and other buzzwordy concepts are being leveraged by Huawei, too, but the magnitude is minuscule, compared to the country’s other big tech names. One difficulty is that these are a hard nut to crack. The firm’s traditional business – hardware – always gets commoditized at a certain point in time, with customers then looking for a better deal, ignoring non-price aspects. Software, contrastingly, requires way more than just stellar economics. In short, there is apparently a long path ahead for the Shenzhen manufacturer’s non-hardware endeavors. “We make everything that transmits or processes the data: the network, the device on the edge, but these pieces are not integrated, as we don’t touch the data,” Huawei vice president of corporate strategy planning for banking and financial markets William Genovese told EqualOcean in a recent interview. “We could probably grow even further into this space if we looked at the data more, connecting all these pieces.”

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May 12, 2020 02:27 pm ·

Huawei Joins Hands with 18 Car Companies to Create a ‘5G Automotive Ecosystem’

► The ecosystem will accelerate the commercialization of 5G technology in the automotive industry and jointly create impactful 5G vehicles. ► Looking into the penetration rate, the ICV is developing rapidly, and the market size has been predicted to exceed CNY 100 billion by the end of 2020. According to Huawei, it has joined with a batch of 18 car companies, including FAW Group (Faw-hongqi, Faw-benteng, Fawjiefang), CHANGAN, Dongfeng Motor Corporation (Dongfeng Passenger Car, Dongfeng Sokon), SAIC Motors (SAIC Passenger Cars, SAIC-GM-Wuling) and other up-and-coming brands. They officially announced the establishment of a ‘5G automotive ecosystem’ to accelerate the commercialization of 5G technology in the automotive industry and jointly create exciting new 5G vehicles. 5G vehicle development has become a strategic hotspot for innovation in the automotive industry. The high speed, low latency and high reliability of 5G technology will open up new imagination spaces for scenarios such as: 1)    Information and entertainment. With the improvement of cellular network performance and the increase of coverage, user acceptance has improved, and multimedia, games, and other interactive content have become more and more diverse. 2)    Navigation and journey. Use a combination of emerging technologies, and through a large number of instant messaging updates, generate high-definition 3D map information and also Networked danger map system, improve the function of car navigation. 3)    Traffic control. It can bring many benefits to the driver, including receiving the latest traffic information, providing traffic status advice or danger warnings. 4)    Autonomous driving. Vehicles will interact with each other and the environment to assist the driver. 5G is necessary for L4 and L5 self-driving. The new driving experience and entertainment experience, as well as the entire environmental experience of connected cars and homes, are the key points of future innovation of 5G vehicles and the direction that many car companies and Huawei are working towards together. In recent years, the Chinese ICV industry has been developing rapidly, and the next two years will be essential for 5G vehicle's eruption. On the one hand, the penetration rate. Data from the 'Report on the Fusion Development of Chinese Automobile Enterprises and New Generation Information Technology (2019)' by nbd.com and National Industrial Information Security Development Research Center shows that, in 2018, the penetration rate of new ICVs reached 31.1%, an increase nearly five times the rate of 2016. Among them, the penetration rate of new models of Chinese brands accounted for 35.3%, a 15-fold increase from 2016. It is worth mentioning that the function of ICVs is penetrating from high-end and luxury models to ordinary models. It is expected that the penetration rate of orders from potential customers of ICVs in 2019 will reach 36.4%. The report predicts that, with the acceleration of the launch of new models of ICVs and the increase in recognition by potential consumers, the penetration rate of ICVs will further increase, which will reach 51.6% in 2020. On the other hand, the ICV market is scaling.  According to data from Bain & Company, in 2016, the global autonomous car market size reached around USD 8 billion, expected to reach between USD 22 and 25 billion by 2025 with low and high performance respectively.  In terms of ICVs, Miao Wei, Minister of the Ministry of Industry and Information Technology of China, said: "by 2020, the market size may reach more than CNY 100 billion." Besides, Banma, jointly established by Alibaba and SAIC, is a powerful competitor for Huawei in this field. In related news published by EqualOcean, the firm is described as having covered 400,000 ICVs by December 28th, 2017. Banma has been embedded in cars, such as SAIC Skoda, RX5 and so on, and also signed strategic agreements with car companies like Chinese Dongfeng Peugeot Citroen Automobile Company LTD. At this stage, Huawei has established an ecosystem with 18 car companies and Banma's VENUS system has been carried in more than 400,000 vehicles. It may cost a lot and be difficult for Huawei's system to adapt to various cars, but in the long term, it will be beneficial to the firm to achieve advantages in the ICV field. For Banma, it established the Automobile  Ecosystem gradually and still needs to quickly expand its vehicle network to catch more market share in the future. Other than that, other large companies are powerful competitors, such as Tencent, which launched its TAI 3.0 in-car intelligent system on January 7, 2020 and cooperated with 16 car companies by data in 2018.

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Mar 24, 2020 10:39 am · eo company

Huawei terminal crisis

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Mar 5, 2020 11:41 am ·

Open Source, Open Mind: Baidu and LinkingMed Help Doctors in Medical Images

LinkingMed has launched its AI-based detection model for pneumonia CT-screening and prediction based on the Baidu’s PaddlePaddle (Parallel Distributed Deep Learning), EqualOcean learned from the medical imaging firm. A Hunan-based hospital affiliated to Xiangnan University became the first medical institution to use the system. This AI-equipped diagnosis system can detect and contour the lesion, picture the diagrams of the density of the two hemisphere lungs, and visualize a series of quantitative benchmarks such as quantity and volume percentage. All these tasks can be completed within less than one minute, with an accuracy rate of  92% - 97%, LinkingMed claims. So far, LinkingMed has not initiated any commercial plans for this AI-based pneumonia detection system. “The motivation to launch this AI medical diagnosis model is only to help fight against the spread of coronavirus,” Mr. Ryan Zhang, the CEO of LinkingMed, said. “We will unconditionally contribute our AI power to containing this plague, as much as we can,” he added. The high-tech medical solution provider focused on solving the compatibility issue with different types of scanning equipment by cooperating with research entities. At the development stage of the algorithm used by the system, the Xiangnan University-affiliated hospital provided professional clinical instructions regarding the data annotation, module design and set strict acceptance criteria to satisfy various medical conditions. This online AI screening system will be deployed at multiple hospitals in Hubei, Chengdu, and other severely-affected areas. Founded in 2016, LinkingMed is an AI technology enterprise in the field of oncological radiation therapy. The Beijing-based medical high-tech company sells techniques and cloud services related to the organic contour, target contour, and radiotherapy to medical institutions. By leveraging the internet and cloud platforms, it also provides remote collaboration and relevant website services for oncological doctors and physicists. During the past four years, LinkingMed has received d four funding rounds, including the recent one worth CNY 40 million in October 2019. Linear Venture is the serial investor for LinkingMed from Series Pre-A finance to the last Series A finance. Medical imaging is a niche business given lightweight and comparably less attention as Chinese medical device makers are promoting their ‘globally competitive’ strategy. Now this area is increasingly highlighted, as the novel coronavirus continues to spread and consumes a lot of medical facilities and doctors across China. The domestic high-tech medical device market rose in 2016, a fierce tussle participated by United Imaging (联影医疗), Huiyihuiying (汇医慧影) and VoxelCloud (体素科技). Most players use essentially indifferent AI technology while base the competency on different sources. These providers still need to consider some fundamental issues to apply AI in daily life. The first is developing the algorithm for the specific problem, for instance, coronavirus event. The other is high-quality data annotation, which takes time and hard work. Additionally, the lack of industry standards, quality protocols, and practice guidelines stand as the major problems ahead of the industry. For patients, time is life. CT imaging plays a critical role in identifying the infected patients, serving as a surrogate to PCR (polymerase chain reaction) diagnostic, according to a previous report. In the Huoshenshan (‘Fire God Mountain) hospital, one of the frontline hospitals, the CT lung screening by InferVision (推想科技) helped with the lab’s capacity as the number of suspected cases rose quickly.  To facilitate the detection process and guarantee the test results, LinkingMed incorporated the AI learning framework into the CT imaging process by utilizing Baidu’s PaddlePaddle. Injected with the AI’s deep-learning power, this open-source online diagnosis model can improve the efficiency and ease the pressure on the clinical doctors.  Before 2020, ‘Artificial Intelligence’ was a buzz word. Now, the outbreak of coronavirus is pushing many key industries to accelerate their AI processes, especially, in the urgent demand for medical facilities. The epidemic has forced Ali Health (阿里健康), Yitu Technology (依图科技), Huawei (华为), Deep Wise (深睿医疗), and other tech companies to introduce their AI-equipped diagnostics, in different aspects, aligning a joint wholistic force to ease the infection.  The PaddlePaddle of Baidu is an open-source deep-learning Chinese platform for industrial applications. Similar to Google’s TensorFlow, PaddlePaddle comprises core learning-framework, model bank, development tool kits, and online services supporting over 1.5 million developers in businesses.  The option to cooperate with PaddlePaddle also indicates LinkingMed’s motivation for its AI diagnostic system. “To curtail the current tension in Korea, Iran, and Japan, we want to provide technical support through Baidu’s platform for international medical institutions and developers,” says Mr. Zhang, “We also will keep an open mind to work with different medical entities, including online healthcare. The goal is to inject technology, whilst fulfilling our social responsibilities. ”

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Aug 16, 2019 05:41 am ·

Chinese Companies Seize Investment Chance amid Turkey's Financial Winter

With its 82 million population and a median age of 32, Europe's youngest and growing country, Turkey, has attracted sets of investment amid structural risks and long-term opportunities. The country is bestowed with natural resources and locates itself as a bridge between Asia and Europe.  In 2018, one M&A deal was accounted for the biggest deal of all-times in Turkey: Alibaba's purchase of one major e-commerce startups of Turkey, Trendyol. Chinese giant paid USD 728 million for 82% stakes of the Turkish company. With this transaction, the total value of startups sold in 2018 surpassed USD1.4 billion.  "Today, more than 1,000 Chinese companies are doing business in Turkey, including ICBC, Bank of China, China Merchants Group, China Investment Corp, shipping group COSCO and telecommunication giants Huawei and ZTE," states Arda Ermut, president of the Presidency of the Republic of Turkey Investment Office. What's more, the country has gained more visibility and became appealing for the investors as Lira depreciates.  Alibaba went after e-commerce Two trends foster e-commerce business in Turkey, fast-paced growing mobile penetration rates and expanding young middle-class with the increased urbanization ratios. The e-commerce market has reached over USD 10 billion in Turkey with a 42% growth in 2018 compared to the previous year, according to Tübisad, a Turkish chamber for industrial development. Within this environment, Trendyol sold 82% of its shares to Alibaba, making one of the most significant transactions in Europe in 2018. The purchase gave a massive exit for the Turkish fashion-sales firm's early backers: Tiger Global, Kleiner Perkins, and Earlybird Venture Capital. It has also fueled the entire ecosystem with confidence, upgraded the scale, and grabbed global attention. The firm is one of the largest e-commerce company in Turkey & MENA, serving more than 16 million customers a year.  Huawei Waltz in Communications Infrastructure Huawei's brand is polished in Turkey's today and future. By signing strategic cooperation agreements with the government in Smart Cities, and 5G deployment with the leading mobile carrier Turkcell; the company consolidates its position in Turkey's strategic fields. "The company is using one of the former Turkish political kingpins as its chief lobbyist in Turkey," said a person familiar with the matter. The Chinese heavyweight is accelerating its presence for the end-customer products as well, Huawei smartphone's penetration rate has jumped from around 1% to more than 8%. "Huawei is cooperating with the PR agency that has used to work for Apple," said the person. Indeed, Huawei's GR and PR engagements gave its fruits in Turkey. Xiaomi is the other Chinese company expanding in the Turkish market. The company is selling over 160 products, such as smartphones, accessories, computers and home devices to Turkish costumes in two Mi Stores in Istanbul. (Check out this in-depth coverage for Xiaomi's global expansions) Some other Chinese ICT groups are interested in major Turkish telecommunication infrastructure companies as well, Bloomberg speculates.  Alipay tries to disrupt fintech  Turkish banks have set their domination in financial technologies scene in the country, they are technically equipped, flexible, financially strong and have their compliance team to deal with the regulators. Many tried to disrupt banking in Turkey, but few succeeded.  In 2018, Turkey saw nearly 400,000 Chinese tourists arrive in the country, an increase of 59% compared to 2017. The opportunity has long been seen by the many, but Alipay is the first Chinese firm who steps into the market. The Chinese payment behemoth partnered with the payment platform ininal in Turkey in May 2019: making it possible for Chinese tourists to pay in Turkey via Alipay app.  Ant Financial, the parent company of Alipay, is one of the major corporate shareholders of the several fintech companies around the globe, it concentrates its investment activities around the developing regions.  Bytedance's TikTok discovers the hidden artistic-potential in Turkish people Turkey is the third-largest market for TikTok, after India and the USA. The app penetrated into 28 million users, nearly 35% of the population: and it is truely-prolific.  Turkey presents particularly unique opportunities for social media platforms with an average of 2 hours and 46 munites social media usage per person. The country is the 5th biggest user of Twitter and Instagram, and it seems they embrace TikTok as well. "Bytedance has long been hiring 'Turkish Speakers' for their team in Beijing, and they established Turkish office in 2019," said the person familiar with the matter. "Most of them are content-checkers, who controls and comply the content to stay in the safe side of the regulations," the person added.  Although fluctuated, the Turkish economy is one of the major economies in Europe, and its significance is increasing as it stays young. Amid this dynamic environment, Chinese investors and companies are seizing the opportunity and expanding their footprint. Several other areas, including, among others, Tourism, Healthcare and Auto are considered to lead the next wave of investments between Turkey and China. Economics aside, the Turkish government guarantees a peaceful and fruitful existence for the foreign companies, declaring "an opportunity to co-invest with the government to benefit from the next successful exit," as well. This incentive is particularly meaningful for the Chinese companies, considering the current politico-economic conjuncture that has been shaped by the rising global economic tensions one hand, and by the Belt and Road Initiative on the other's, in which Turkey stands in the Middle Corridor of the Project.

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