OPPO shuts down its chip business, or a reluctant but right decision
Behind this decision is the fact that the mobile phone industry and the chip industry behind it are in a cyclical downturn.
On 12 May, OPPO made a difficult decision: it announced the dissolution of its chip business, which had persisted for four years.
OPPO said that after careful consideration in the face of global economic and mobile phone market uncertainties, the company has decided to terminate its chip subsidiary ZEKU (Zheku) business. This is a difficult decision and we will handle the related matters properly and will continue to make good products and create value as we have done in the past.
The decision comes at a time when the mobile phone industry and the chip industry behind it are in a cyclical downturn, and OPPO has no better options. A semiconductor industry source told Digital Intelligence Frontline that the investment in chips is too big and if OPPO continues to stick to its core-building plan, it may not see tangible results in the next three to five years. "It's better to have a long pain than a short one, now is not the time to talk about saving face".
A sudden decision
After the announcement of OPPO's dissolution of its chip subsidiary Zheku, the outside world was surprised, as it had hardly heard any whispers of its dissolution before. Some users even said that Zheku was still hiring normally before the shutdown was announced.
In April this year, a media report said that Sun Chengkun, the former head of the AI direction of the overseas team at Wallen Technology, had just joined Zheku as the head of Zheku's NPU chip centre, reporting to OPPO CTO Liu Jun. It was also previously reported that OPPO's own mobile phone AP chip will be mass produced in Q3 2023, using TSMC's 4nm process.
However, at 10:30am on May 12, Zheku held an all-staff meeting to announce the decision to terminate the chip self-research business and provide N+3 compensation for all staff. For fresh graduates who did not report to work, they could choose to transfer to other departments of OPPO, with their salary remaining the same, or receive the 3N compensation directly.
As early as 2020, the special assistant to OPPO's CEO released an internal article, disclosing for the first time to all employees the "Mariana Plan" on self-research chips, and in July of that year, OPPO renamed its core-making sub-company ShouPu Technology, which was established in 2019, as Zheku Technology (Shanghai) Co Ltd (ZEKU).
Over the next two years, OPPO has kept a very low profile in its chip business, with very little external publicity. However, the size of the staff has grown over the years. In 2021, OPPO even offered an annual salary of 300,000 to 400,000 to recruit a large number of fresh graduates specializing in chips, which is a high salary in the industry.
According to previous disclosures, Zheku's workforce is around 3,000. There are three major internal teams, including the NPU chip centre, the baseband chip centre, and the WIFI Bluetooth chip centre.
On 14 December 2022, OPPO announced at the Future Technology Conference the launch of its second in-house NPU chip, Marianas MariSilicon X, which is already being used in OPPO's flagship phones. The second in-house chip, MariSilicon Y, is a Bluetooth audio chip.
It was also recently announced that OPPO plans to have TSMC OEM the 3nm SoC chip it has developed, which will be on its flagship phone to be launched in 2023 or 2024 if development goes well.
But in the end, all of this came to a grinding halt with OPPO's decision today.
What is the reason behind the shutdown?
There has been a lot of speculation and analysis about the reasons for OPPO's sudden shutdown of its chip business.
The first and most central reason is that the mobile phone industry, where OPPO is located, has suffered a serious decline in the past two years.
According to IDC, global shipments fell 11.3% year-on-year to 1.21 billion units in 2022, the lowest annual shipments since 2013. And in the first quarter of 2023, the Chinese smartphone market shipped around 65.44 million units, down 11.8% year-on-year. Despite OPPO's return to the number one position in the domestic mobile phone market in the first quarter of this year, sales are still declining year-on-year.
A mobile phone analyst had told Digital Intelligence Frontline that although the decline in the mobile phone market was shrinking, it was too early to say that the bottom had rebounded. The two years have shown that mobile phones have encountered challenges, and the profits from the mobile phone business are no longer enough to support OPPO's huge overheads in the chip business. It makes sense for other non-main businesses to be axed as a business move.
Secondly, the main mobile phone chip is very difficult to make. Before that, Xiaomi also tried to develop its own baseband chip, but that didn't work out either. Now, OPPO's action once again illustrates this point.
A chip industry source told Digital Intelligence Frontline that OPPO, with this volume of personnel, invests tens of billions in chip research and development every year, and if it is well led, it is still possible to succeed overtime. It's a very difficult thing to do, and the global market currently has few mobile phone chip companies. As early as 2021, OPPO founder Chen Mingyong said, "In the next three years, OPPO will invest 50 billion in R&D budget and more resources to build the most and most core underlying hardware technology as well as software engineering and system architecture capabilities."
For OPPO in 2019, it has every determination and drive to invest in this, with the mobile phone business giving a steady stream of blood to its other businesses, but the changes in the general environment now make it even more important for OPPO to stabilise its fundamentals. And apart from mobile phones, OPPO's other businesses have been challenged a lot over the years, such as the IoT business and the TV business.
In addition, behind OPPO's broken arms, the entire semiconductor industry is entering a cyclical downturn. A semiconductor industry source told Digital Intelligence Frontline that the global semiconductor industry has been in the limelight in recent years, with everyone grabbing capacity and increasing inventory, but the wind has gradually changed since last year. Intel is losing money, and even TSMC, which has always performed very well, has started to decline. According to some market institutions, the whole semiconductor industry is expected to decline by about 10% this year.
Semiconductor companies are starting to fight price wars, and some companies are even offering prices close to 10% off in order to de-stock. In this situation, investment institutions have also turned. The above-mentioned sources revealed that the previous two years were rushing to invest, a large number of chip companies were established, but this year are difficult to finance, the market began to return to rationality, solid work of enterprises to maintain stability.
An industry insider analyzed to Digital Intelligence Frontline, for the current OPPO, shutting down the chip team, perhaps a difficult but correct decision. OPPO's two previously launched chips, an imaging NPU and a Bluetooth chip, are both used in OPPO's flagship models, but if you look at their importance, they are not among the most core chips in the phone.
In fact, Chen Mingyong has been aware of the difficulty of building a chip from the very beginning. 2021, Chen Mingyong explained the reason for naming the chip project "Mariana", "Self-developed chips are destined to be a bumpy road, just like our chip name - Mariana. Marianas, which is the deepest trench in the world, represents the difficulty of self-developed chips."
It's just that things are changing fast and OPPO needs to make new strategic choices.
On 12 May, OPPO made a difficult decision: it announced the dissolution of its chip business, which had persisted for four years.
OPPO said that after careful consideration in the face of global economic and mobile phone market uncertainties, the company has decided to terminate its chip subsidiary ZEKU (Zheku) business. This is a difficult decision and we will handle the related matters properly and will continue to make good products and create value as we have done in the past.
The decision comes at a time when the mobile phone industry and the chip industry behind it are in a cyclical downturn, and OPPO has no better options. A semiconductor industry source told Digital Intelligence Frontline that the investment in chips is too big and if OPPO continues to stick to its core-building plan, it may not see tangible results in the next three to five years. "It's better to have a long pain than a short one, now is not the time to talk about saving face".
A sudden decision
After the announcement of OPPO's dissolution of its chip subsidiary Zheku, the outside world was surprised, as it had hardly heard any whispers of its dissolution before. Some users even said that Zheku was still hiring normally before the shutdown was announced.
In April this year, a media report said that Sun Chengkun, the former head of the AI direction of the overseas team at Wallen Technology, had just joined Zheku as the head of Zheku's NPU chip centre, reporting to OPPO CTO Liu Jun. It was also previously reported that OPPO's own mobile phone AP chip will be mass produced in Q3 2023, using TSMC's 4nm process.
However, at 10:30am on May 12, Zheku held an all-staff meeting to announce the decision to terminate the chip self-research business and provide N+3 compensation for all staff. For fresh graduates who did not report to work, they could choose to transfer to other departments of OPPO, with their salary remaining the same, or receive the 3N compensation directly.
As early as 2020, the special assistant to OPPO's CEO released an internal article, disclosing for the first time to all employees the "Mariana Plan" on self-research chips, and in July of that year, OPPO renamed its core-making sub-company ShouPu Technology, which was established in 2019, as Zheku Technology (Shanghai) Co Ltd (ZEKU).
Over the next two years, OPPO has kept a very low profile in its chip business, with very little external publicity. However, the size of the staff has grown over the years. In 2021, OPPO even offered an annual salary of 300,000 to 400,000 to recruit a large number of fresh graduates specializing in chips, which is a high salary in the industry.
According to previous disclosures, Zheku's workforce is around 3,000. There are three major internal teams, including the NPU chip centre, the baseband chip centre, and the WIFI Bluetooth chip centre.
On 14 December 2022, OPPO announced at the Future Technology Conference the launch of its second in-house NPU chip, Marianas MariSilicon X, which is already being used in OPPO's flagship phones. The second in-house chip, MariSilicon Y, is a Bluetooth audio chip.
It was also recently announced that OPPO plans to have TSMC OEM the 3nm SoC chip it has developed, which will be on its flagship phone to be launched in 2023 or 2024 if development goes well.
But in the end, all of this came to a grinding halt with OPPO's decision today.
What is the reason behind the shutdown?
There has been a lot of speculation and analysis about the reasons for OPPO's sudden shutdown of its chip business.
The first and most central reason is that the mobile phone industry, where OPPO is located, has suffered a serious decline in the past two years.
According to IDC, global shipments fell 11.3% year-on-year to 1.21 billion units in 2022, the lowest annual shipments since 2013. And in the first quarter of 2023, the Chinese smartphone market shipped around 65.44 million units, down 11.8% year-on-year. Despite OPPO's return to the number one position in the domestic mobile phone market in the first quarter of this year, sales are still declining year-on-year.
A mobile phone analyst had told Digital Intelligence Frontline that although the decline in the mobile phone market was shrinking, it was too early to say that the bottom had rebounded. The two years have shown that mobile phones have encountered challenges, and the profits from the mobile phone business are no longer enough to support OPPO's huge overheads in the chip business. It makes sense for other non-main businesses to be axed as a business move.
Secondly, the main mobile phone chip is very difficult to make. Before that, Xiaomi also tried to develop its own baseband chip, but that didn't work out either. Now, OPPO's action once again illustrates this point.
A chip industry source told Digital Intelligence Frontline that OPPO, with this volume of personnel, invests tens of billions in chip research and development every year, and if it is well led, it is still possible to succeed overtime. It's a very difficult thing to do, and the global market currently has few mobile phone chip companies. As early as 2021, OPPO founder Chen Mingyong said, "In the next three years, OPPO will invest 50 billion in R&D budget and more resources to build the most and most core underlying hardware technology as well as software engineering and system architecture capabilities."
For OPPO in 2019, it has every determination and drive to invest in this, with the mobile phone business giving a steady stream of blood to its other businesses, but the changes in the general environment now make it even more important for OPPO to stabilise its fundamentals. And apart from mobile phones, OPPO's other businesses have been challenged a lot over the years, such as the IoT business and the TV business.
In addition, behind OPPO's broken arms, the entire semiconductor industry is entering a cyclical downturn. A semiconductor industry source told Digital Intelligence Frontline that the global semiconductor industry has been in the limelight in recent years, with everyone grabbing capacity and increasing inventory, but the wind has gradually changed since last year. Intel is losing money, and even TSMC, which has always performed very well, has started to decline. According to some market institutions, the whole semiconductor industry is expected to decline by about 10% this year.
Semiconductor companies are starting to fight price wars, and some companies are even offering prices close to 10% off in order to de-stock. In this situation, investment institutions have also turned. The above-mentioned sources revealed that the previous two years were rushing to invest, a large number of chip companies were established, but this year are difficult to finance, the market began to return to rationality, solid work of enterprises to maintain stability.
An industry insider analyzed to Digital Intelligence Frontline, for the current OPPO, shutting down the chip team, perhaps a difficult but correct decision. OPPO's two previously launched chips, an imaging NPU and a Bluetooth chip, are both used in OPPO's flagship models, but if you look at their importance, they are not among the most core chips in the phone.
In fact, Chen Mingyong has been aware of the difficulty of building a chip from the very beginning. 2021, Chen Mingyong explained the reason for naming the chip project "Mariana", "Self-developed chips are destined to be a bumpy road, just like our chip name - Mariana. Marianas, which is the deepest trench in the world, represents the difficulty of self-developed chips."
It's just that things are changing fast and OPPO needs to make new strategic choices.
