Just last weekend, OPPO suddenly announced that, facing the uncertainty of the global economy and mobile phone market, after careful consideration, the company has decided to terminate the ZEKU business. This also means that OPPO has disbanded its chip business, which has persisted for four years, and the path of "chip making" has been cut off. Once this news was released, it quickly attracted the attention and discussion of many netizens: What happened to OPPO's self-developed chip?

01 | OPPO's Road to Self Developed Chips In 2019, the United States began to comprehensively suppress Huawei. Chips, as one of the highest value-added links in the global mobile phone industry chain, have launched a new "battle". The phone body, which was previously criticized for having no soul, has begun to extend to the upstream industry chain, and various manufacturers have personally stepped down to make chips. The logic behind it is not difficult to understand. Breaking the shackles of the experience and reigniting the freshness brought by the replacement requires a return to the underlying technology behind the hardware. Breaking the ice, led by chips, is an important step towards achieving critical innovation. In response to the joint suppression of the United States and the Western world, China began to catch up. In just three years, billions of dollars of investment have been invested in various nodes of the chip industry. OPPO established its "core making" subsidiary, Shoupu Technology (Shanghai) Co., Ltd. in 2019, and later renamed Zheku Technology (Shanghai) Co., Ltd. (ZEKU) in July 2020. It is reported that ZEKU chip company covers product lines including core application processors, short range communication, 5GModem, RF, ISP, and power management chips. In the year when ZEKU was first established, there were many rumors in the industry about OPPO core making, but OPPO never provided exact information about it. It was not until early 2020 that OPPO shared its plan on chips, the "Mariana Plan," in an article titled "Reflections on Building Core Technologies" published on the intranet. As the deepest trench in the world, Mariana has a depth of 6-11 kilometers and is also one of the worst environments in the world. OPPO uses this code name to demonstrate its ability to make the deepest hardware, which is the ability to make top-level chips. In December 2021, OPPO announced the launch of the world's first 6nm imaging dedicated NPU chip, MariSilicon X. On December 14, 2022, the OPPO Future Technology Conference INNODAY released the second self-developed chip Mariana MariSiliconY. The new product integrates an ultra fast Bluetooth solution that is 400% faster than traditional Bluetooth, achieving the industry's fastest 12Mbps Bluetooth speed, and solving the pain points of wireless Bluetooth audio in cross end communication in terms of sound quality and speed. In fact, after just three years of development, Zheku's performance is still good. Zheku's products cover hundreds of technical fields in chip design and processor development, covering hardware, SoftwareCPU, GPU, AI, etc., providing system solutions for flagship smartphones. The problem is that chips are definitely a high investment and low return industry in the early stages. From the perspective of OPPO's planning, Zheku absolutely carries all the company's hopes. However, the reality is skeletal, and relying solely on OPPO alone is not enough to achieve a healthy financial operation for Zheku. However, before receiving any news from the Research Application Processor (AP), OPPO suddenly announced the termination of its Zheku business, causing two to three thousand people to lose their jobs overnight and causing a market uproar.

02 | Can't OPPO afford to play anymore? Chip research and development is a high investment and high-risk industry, with very high trial and error costs. Without hundreds of billions of funds, it cannot be played at all. The investment in single chip talent is an unbearable burden. According to data from Semiengineering, a semiconductor technology research institution, the cost of developing chips for different processes can be as high as $51.3 million for a 28nm node, $100 million for a 16nm node, and $297 million for a 7nm node. By the 5nm node, the cost of developing chips can reach $542 million. According to supply chain news, OPPO's single chip test cost alone is as high as 100 million yuan. If it continues to advance towards advanced manufacturing processes, the investment amount will go far beyond this level. Chen Mingyong said, "Three years ago, we said we wanted to invest 50 billion yuan, don't we believe it too much? Now it's real gold and silver to invest." Starting from 2022, the semiconductor industry is experiencing a cold winter, and the era of "chip shortage" has passed, with a large number of consumer electronics entering a destocking cycle. According to the quarterly tracking report of International Data Corporation (IDC), the shipment volume of China's smartphone market for the entire year of 2022 was approximately 286 million units, a year-on-year decrease of 13.2%, marking the largest decline in history. After a decade, the shipment volume of China's smartphone market has once again dropped to below 300 million. Since the beginning of this year, the recovery of consumer electronics has fallen far short of expectations, and the semiconductor industry is still at the bottom of the cycle, resulting in a "cold winter" for consumer electronics chip companies in the first quarter of this year. For OPPO, which is initially experimenting with core manufacturing, even if it can eventually launch a mobile SoC, it is difficult to form a positive correlation between actual effort and revenue in the short term, and the continuous burning of money cannot be seen as an end. Abandoning core making may be the choice OPPO currently has to make.

03 | Discussion on Jingtai: What is the practical significance of OPPO's suspension of core making? The biggest practical significance is to remind us that there are still many such risks in the industry, and the landmines buried in recent years may be blown out one by one. After all, every major industry adjustment can only usher in the dawn of a reversal amidst the thunder. The OPPO stop loss has sounded an alarm for more companies. SMIC International has just released a quarterly report and predicts that although revenue bottomed out and rebounded in the second quarter, the extent of recovery in the second half of the year is not yet clear. Overall, we have not yet seen a comprehensive recovery in the market. Therefore, the expectations for the entire year remain unchanged, with a year-on-year decrease in sales revenue of ten digits and a gross profit margin of around 20%. The giant is still so cautious.

Secondly, projects that use advanced technology to manufacture large chips carry significant risks. For example, CPU, GPU, AI chips, these projects have a common characteristic of burning more money, employing more people, and high market risk. Despite being branded as domestically produced, the market capacity is insufficient and the team strength is insufficient. These projects are technically challenging, and it is a very challenging task to compete with international frontline products. Even if one works hard to achieve results, it is easy to incur sanctions. Especially under the current geopolitical influence, these enterprises do not need to use advanced technology to manufacture their wafers, even the initial wafers still have significant risks. The failure of OPPO also serves as a warning to those capital and companies who want to be involved in the core making operation: there are risks to core making and investment needs to be cautious. What do you think of this? Welcome to leave a comment and discuss in the comments section.