The crisis of ZTE is the turning point for Chinese chips

The crisis of the ZTE has continued for several days. In the current Internet law, there is very few hot spots that can last for more than 7 days. However, people’s attention to ZTE’s punished events is unusually 'persistent'. Over the past few days, various viewpoints have been expressed. The angle is basically the same, but we seem to lack perspective from the bystanders.

On April 19th, Andrew Lu, an industrial analyst with the reputation of “Semiconductor Uranus Analyst”, was the world’s largest chip manufacturing service provider TSMC’s first quarter investment organization briefing session in 2018 (Taiwan’s “legal explanation meeting”). Asked: The U.S. Department of Commerce has prohibited ZTE from purchasing U.S. chip-related components. This negative factor will not affect TSMC's revenue performance in the second quarter.

'This incident has a very small impact on TSMC.' Teddy chairman Liu Deyin believes that it is not considered to be a negative factor in the second quarter operation.

The focus of this TSMC session was actually the retirement of TSMC's founder, Zhang Zhongmou. This was the first time that the new chairman Liu Deyin and the chief executive officer Wei Zhejia had worked together to illustrate the delay in shipment of Apple's mobile phone chips.

Qualcomm, which sells 5G chips to ZTE, is currently the second largest customer of TSMC. The problem is that ZTE's business is still not ranked in the top ten of Qualcomm, let alone TSMC's major customers from NVIDIA to Apple. MediaTek and Huawei (Hai Si) are all adopting advanced manufacturing processes (10nm or more). Qualcomm has reduced ZTE’s revenue by approximately US$600 million, and there are other 5G customers who can fill up.

Looking back, Qualcomm had been issued a fine of 975 million U.S. dollars by China’s National Development and Reform Commission in 2015, setting a record for China’s anti-monopoly history and demonstrating that mobile phone chips are so highly dependent on Qualcomm. Qualcomm’s 60% of high-end chips were manufactured by TSMC. China’s second-largest telecommunications equipment, the fifth-largest mobile phone company, but its value in the global supply chain is far lower than TSMC. It is in line with the “supply-side” reform conditions. The United States is looking for ZTE to operate, saying that it wants to prevent China’s 5G development from being too aggressive.

TSMC, Intel, and Samsung are listed as the top three semiconductor manufacturing companies in the world. They are also regarded as Asia's development semiconductor paradigm. From the very first day of its establishment, TSMC has spared no effort to develop intellectual property to serve its customers.

At that time, TSMC’s main technology source was Philips, a European Dutch manufacturer. Philips did not believe that Taiwan had the potential to establish a world-class semiconductor company 30 years ago. Finally, it included a total of US$100 million in technical rights including a 27% TSMC share price. It would be worth 20 billion U.S. dollars after 30 years, equal to the annual 600 million U.S. dollar authorization fee paid by TSMC to Philips.

Taiwan's small, has long been bullied by the global brand, knowing that the patent right not only to pay, but also walking the global market pass, not to mention Europe Philips is not yet a powerful first-line mainstream technology company.

ZTE’s strategy of “going out” was one of the moments. When Hu Yi, Chief IP Litigation Officer of ZTE Corporation came to Taiwan to communicate in 2015, he disclosed that from 2009 to 2015, ZTE had more than 140 patent lawsuits in the United States, and it has accumulated more than 240 pieces globally. From Europe to Asia, there were more than 100 patent infringement cases at the same time. Taiwan Semiconductor Manufacturing Co., Ltd. has even had independent intellectual property rights for its OEMs. ZTE has become a brand and has no independent key technologies.

At the World Economic Forum (WEF) in Davos, Switzerland, in January 2018, Liu He, the then director of the Central Financial Leadership Group Office, said that China will strengthen its opening up to the global market in four major areas: finance, manufacturing (car tariffs), Services and protection of intellectual property rights. Among them, 'intellectual property rights' is the basic game rules of the global high-tech industry. 'There are some measures that exceed the expectations of the international community.' Liu He said.

Now that the 5G era is approaching, ZTE may die, and the Chinese chip industry will usher in regeneration.

The first recapture opportunity was saved in 2016 when Softbank founder Sunyiyi bought ARM.

From Qualcomm, Samsung, and Nvidia, all use the British company's silicon intellectual property. ARM's intellectual property IP enables European and American first-class chip companies to reduce development time, and of course also includes later MediaTek and Huawei. This is a division of global creativity. It is also the linkage and interactivity of global supply chain innovation. China has proven itself absolutely capable of joining.

In the past, there was a reasonable suspicion that the promotion of innovation among European and American manufacturers was also 'funny', that is, in terms of the development of innovation platforms, the information speed of Asian countries was lagging behind. The US chip industry is behind the globalization of vertical integration. However, the pragmatic and avant-garde Korean-American Sun Masayoshi cut from the ARM to the Anglo-American forces group. The situation may have changed. If China's 5G chip development is in a market-pushed position, ARM will be willing to cooperate with one side and restructured while competing for pursuit. More efficient economic laws.

The second regenerating force is the returnees of numerous returnees.

The United States transferred its defense chip manufacturing technology to Japan, South Korea and Taiwan, and was cautious in jeopardizing the U.S. domestic industry. However, South Korean, Japanese, and Taiwanese entrepreneurs seized the opportunity of 'historical development' from the memory to the graphics chip. Communication chip, high-speed chip step by step to stand firm, does not rely on the curve overtaking, but the determination to establish their own technology.

At least, TSMC did so. In order to develop the economy, the former National Government’s science and technology decision maker Li Guoding assembled a group of upright and diligent engineers, and then extended the invitation to Zhang Zhimou, vice president of Texas Instruments, to develop a separate “division model” for semiconductor design and manufacturing. After a generation of engineers worked hard to survive in the global supply chain.

Now that the 5G market is on the rise, the next division of labor in the industry is approaching. Another generation of Chinese design companies, such as MediaTek, Hass, and Zengrui, are showing signs of embarrassment.

3. The third renewable force is the global rise of semiconductor manufacturing forces led by the Chinese.

The most advanced chip production line in mainland China is SMIC's 28nm manufacturing process. SMIC founder Zhang Yujing left TSMC and went to Shanghai Zhangjiang to start the first 'supply-side reform' of the chip industry to improve China's height. Depends on the status of imported chips.

Now the country emphasizes the importance of intellectual property, it is the respect of engineers, it is the right to maintain the innovation of R&D engineers, and it further extends to all aspects of personnel training and technology integration. This is why the Taiwanese scientific and technological community is the chairman of Tsinghua Unisplendour Group. Zhao Weiguo expressed great dislike for the idea of ​​“M & A Growth” and even thought that Zhao Weiguo was only a “stock speculator.” Ziguang Group, which is highly valued by the state, develops the chip industry and must not rely on money games such as mergers and acquisitions and premiums to acquire technology. In this case, technology cannot take root. Even if Taiwanese companies are bought by them, they will immediately produce faults, but they will waste the resources against Europe and the United States.

The fourth renewable force is China's strength to take risks and risk.

To understand the initial stage of the establishment of TSMC, the Taiwanese government invited Taiwan’s “God of Operation” Wang Yongqing and other private forces to join the investment at the price of NT$10 to participate in the initial stage of the establishment of TSMC, and took 23% of the shares, but only rose after the public listing in 1986. After NT$2, Wang Yongqing immediately sold it at NT$12. This shows that the risks in the field of science and technology are extremely high. It is not an industrialist's ability to control and excel. However, a big country can take long-term development risks.

The so-called 'intellectual property rights' does not mean that there is value in independently inventing technology. It is like building a house, if it is in a good location, it is an 'asset', and if not, it may be a liability – it is simply maintaining costs that exceed their own value. Mainland China has both the ability to 'build houses' and also have long-term 'housing' needs. Such a large semiconductor market deserves the government and engineers to jointly face the risk of creating 'assets'.

The above four regeneration paths are not smooth. After all, the United States sees the rise of China. It is not so simple to control Japan, Korea, and Taiwan. It is normal for the United States to regard China as an enemy, and to strengthen cooperation between the mainland of China and Taiwan. The Central Government has also increased the protection of intellectual property rights. , ZTE's crisis, but it is a precursor to revival.

This may also be the purpose of Lu Xingzhi taking ZTE's case to the table. He spent US Citi, Barclays, Nomura Securities, and actuarially calculated ZTE's 'little'. This time on behalf of China State Securities, it is also a symbol of China. Technology capital technology is developing rapidly.

Big countries develop their own technologies and have their own way of modesty. ZTE has worked hard and has had the opportunity to choose strategies. After all, it has completed phase tasks. It is not that the US Department of Commerce has judged it 'dead', but that China participates in the value division of global supply chains. The inevitable result.