144: Establish a large home appliance department

"Old Lu, it's settled then. We'll focus on our own tasks. If Xiaomi's negotiations with Nvidia fail, we'll step in and see if we can acquire some of the patents."

"I say, Old Lu, I've been pushing back many of the meetings that should have been held before the Spring Festival just to wait for your return. Next, you should take Shen Yiren along to familiarize him with the business in the European and American markets. After that, international affairs can be handed over to him."

"The domestic front can't do without your presence."

During the months Lu Weiqi was away, Chen Chen was driven crazy with work. He wished for nothing more than for Lu Weiqi to stop traveling and stay put to oversee the headquarters.

Red Star Mobile Phone's international business expanded very rapidly. It entered India in November, Europe in early January, and the Americas in late January, all managed by Lu Weiqi. He even flew back home in February for the Spring Festival only to fly back to the USA immediately after.

Now that the European and American markets were fully opened, it was time to prepare for Red Star's next round of development and expansion.

Originally, Red Star was supposed to hold an internal meeting before the Spring Festival to summarize the 2013 sales and financial reports. However, as the global strategy was Red Star's top priority for these two years and Lu Weiqi had been abroad, it had to be postponed repeatedly.

Since Lu Weiqi had returned, Chen Chen decided to convene a new round of development meetings immediately.

The next afternoon, Chen Chen gathered the company's key executives for a meeting.

The main theme of the meeting was the company's next strategic planning steps.

Once everyone was seated, Chen Chen spoke: "Aunt Zhou, please introduce last year's revenue data to everyone first."

"Certainly, President Chen. As of the end of December, our group's total revenue was 97.2 billion rmb. The mobile phone industry is our primary revenue source, accounting for the bulk of total revenue. IoT and lifestyle consumer products account for 6.4% of total revenue, and internet services account for 3%."

"From the current perspective, the mobile phone business remains the group's main source of revenue."

"In 2013, our group's R&D investment was 4.3 billion rmb, accounting for 4.5% of total revenue."

"This year, this figure will increase further, and it is expected to reach over 6% of our total revenue in 2014." After Zhou Niyun finished speaking, everyone burst into applause.

After Zhou Niyun sat down, Chen Chen continued: "Everyone, don't think our revenue figures are very high; our profit margin is actually very low. If we calculate the net profit and loss, we might even be in the negative. Whether it's the Semiconductor Department or various R&D labs, they are all departments that constantly burn money."

Red Star's R&D investment was already based on many technologies provided by the system. If they relied purely on throwing money to develop certain technologies, those billions would likely only produce a faint sound without even making a splash.

The recruitment costs in 2013, plus the high salaries for researchers and Engineers—you should know, who in the semiconductor industry would have a low salary?

There are also project bonuses, year-end bonuses, and so on; personnel expenses alone are a significant figure every year.

"So, everyone, don't be misled by this figure."

"Only by continuously investing in the scientific research department can we, Red Star, eventually earn money while standing tall."

"This year, I have decided to continue increasing investment in Lingxiao Semiconductor, focusing all efforts on the NPU. I hope to see our lingxiao processor equipped with a brand-new neural network model chip before 2017."

"Now our IoT Department is on the right track, and its revenue has increased dozens of times compared to last year. So, for now, it seems the ecosystem chain project can continue. We have already taken the first step in the Internet of Everything; next is to take the next step steadily."

"The Chinese mobile phone market, including the international market, is growing rapidly. In 2013, total global shipments exceeded one billion units, a year-on-year increase of 33% compared to 2012."

"This figure will continue to grow rapidly in the coming years; we are entering an excellent golden age."

"We must seize this period. The next few years might be the last window for development, and we must seize as much market share as possible."

"Secondly, I plan to discuss the next stage of development goals for our group's business with everyone."

"Manager Cui, Cui Yichen, please speak first about the next steps for the shining series."

Cui Yichen stood up, cleared his throat, and said:

"Given the current price increase for the Red Star brand's digital series, the vacated price points will be filled by the Shining Brand's k series. In the future, the Shining Brand will fully cover all price points from 599 to 1,999 rmb with the k series, note series, and digital series."

"The k series will be our main focus for mid-range models in the next two years. The overall development progress is very rapid, and it is expected to complete adaptation and start mass production in July this year."

"Our goal this year is for the total shipments of the entire Shining Brand series to reach over 40 million units."

After Cui Yichen sat down, Chen Chen called on Zhang Feng: "President Zhang, the group plans to establish a Major Home Appliances Department in the first half of this year. I hope you can transfer some personnel from the IoT Department to set up the framework for the Major Home Appliances Department as soon as possible."

"The TV and air conditioning businesses of the IoT Department will be merged into the Major Home Appliances Department. For now, you will continue to be in charge of this department. When I spoke about Whole-house Intelligence, I wasn't just talking; I hope to see our Red Star air conditioners launch before this summer."

"No problem, President Chen. We have already negotiated cooperation with Changhong, and the development of the new models will be completed soon."

Actually, Red Star had already started its air conditioning business last year, but Zhang Feng and Chen Chen had a disagreement over the strategy. Zhang Feng felt that since they were doing air conditioning, given Red Star's current multi-pronged strategy, it would be best to cooperate with those established home appliance manufacturers.

Adding Red Star's modules to products from manufacturers like Gree and Midea, while design, R&D, and production would still be handled by these established manufacturers, with Red Star only acting as a platform.

Domestic home appliance manufacturers aren't fools; why would they allow their products to connect to Red Star's system? Wouldn't that be handing over their channels to Red Star? Moreover, adding a networking module to an air conditioner or washing machine isn't expensive, so why wouldn't they do it themselves?

So, after being rebuffed, Zhang Feng proposed that Red Star design and develop its own products, while also building a factory for self-manufacturing, entering the industry completely from scratch.

Chen Chen felt that Zhang Feng had gone from one extreme to another. It wasn't that they couldn't build their own factory, but the cycle was too long, the investment was too large, and it would consume a significant amount of energy.

In the end, Chen Chen made the final decision: they could do the design and R&D themselves, use existing solutions where possible, and outsource production to domestic OEM factories.

To put it bluntly, it was white-labeling. This plan was almost an instant hit with Changhong. Changhong's air conditioner sales weren't that high, and they had excess factory capacity, so acting as an OEM for Red Star was a perfect way to utilize their production lines.

PS: Some content in the first chapter has been changed; everyone is welcome to give feedback.