53: Hongmi Note?

Negotiations with Qualcomm had completely collapsed, but Chen Chen and Yu Chengbei had a certain psychological expectation for this. Although the two mobile phone manufacturers had some competition in the domestic mid-to-high-end market, they were surprisingly aligned on this matter.

"No acceptance!"

"No compromise!"

"It seems we can only rely on MediaTek for the time being."

Lu Weiqi gave a bitter smile. Refusing was easy, but he would likely have to handle the follow-up work.

"It doesn't matter. It will take another two to three years for 4G to be fully rolled out. Furthermore, Qualcomm isn't the only one with 4G patents. Through cross-licensing, we won't lose out in the 4G era."

China began formally launching 4G network access at the end of 2013, with China Mobile being the first to launch. This was also to compensate for some of China Mobile's efforts during the 3G era. Among mainstream network standards, only China Mobile used the TD-3G network. Compared with CDMA2000 and WCDMA, those who had used Mobile 3G understood.

In other words, next year would be the first year of 4G. Red Star had to resolve the 4G patent licensing issue before the second half of next year; there was still time for now.

After all, just because 4G had started to enter the network didn't mean everyone would immediately launch 4G phones. All mobile phones in the second half of this year would still be 3G phones. Even in the second half of next year and the first half of the year after, 3G phones would remain mainstream. It wouldn't be until the second half of 2015, as 4G tariffs began to drop, that it would completely become the mainstream.

Wasn't there a joke about how if you left your 4G network on overnight, China Mobile would come to take your house the next day?

It all came down to tariffs.

Red Star also had 4G patents now, but compared with those mainstream telecommunications manufacturers, they were lagging behind, not even as good as Huawei. Now that the baseband issue had been resolved, the next issue was the filter. As long as these supporting components were resolved, Red Star would have absolutely no fear of potential future sanctions.

They weren't the only ones to have a falling out with Qualcomm. Didn't Old Huang's Meizu live on just fine after being banned by Qualcomm for so long? It wasn't like Huawei disappeared immediately after being fully sanctioned.

Meizu, backed by MediaTek, was still thriving, and its shipment volume had once entered the top few in China.

Having figured this out, Chen Chen finally had time to pay attention to Xiaomi's Hongmi 1st Generation. In his previous life, this mobile phone had swept the low-end market; there wasn't a single competitor that could stand against it.

Hongmi: "Red Star, stand up first. It's not that I'm targeting anyone; what I mean is that everyone here is..."

A week after the release, Xiaomi's first round of sales had 300,000 units in stock. In the past, this would have been completely unimaginable—Xiaomi selling from stock? What a joke.

This was also because Lei Jun had been pushed to the edge by shining 2. If they didn't sell from stock, they likely wouldn't have any chance at all.

Even so, Lin Bing of Xiaomi's heart was bleeding. 300,000 units! The more they sold, the more they lost!

The cost price was approaching 750, and they were selling it for 649. This round of sales meant losing tens of millions; how could his heart not ache?

"Mr. Lei, should we control the shipment volume? With this way of losing money, I'm afraid that 300 million us dollar financing won't last too long."

"What is the number of reservations for the second round now?"

"Currently, it's over 2 million. Li Wanqiang is planning to open sales once a week this month, with 300,000 units each time. That means we will lose nearly 100 million in this month. My suggestion is that we control the quantity for the next few sales, for example, limiting the quantity to 100,000 units each time, while we continue to tell the public that we are shipping 300,000 units. Anyway, no one knows our backend data, just like with mi 1."

Lei Jun rejected Lin Bing's proposal without hesitation. By setting such a low price, he had already prepared to lose 100 to 200 million. While Red Star was entangled with the Qualcomm matter, Xiaomi definitely had to seize the time to ship.

"No, just follow Li Wanqiang's plan. We must take advantage of the current popularity and seize as many users as possible. If it weren't for the factory not being able to keep up, Wanqiang and I were prepared to try to reach 2 million units in the first month."

Lin Bing's expression changed. Lei Jun had never told him that he wanted to achieve a shipment volume of 2 million. 2 million units would basically mean losing 170 to 180 million.

Although he was the president of Xiaomi, when it came to the company's grand strategy, Lei Jun, the chairman and CEO, was definitely the one who had the final say.

"Still a step too slow. If we could have released it at the beginning of the year, we wouldn't be so passive."

Speaking of this, Lei Jun looked depressed. For Mi 1st Generation and Mi 2nd Generation, he had always played his cards first, and Red Star had directly countered with higher configurations and a price one yuan lower. How had it completely reversed with this Hongmi series?

Clearly, it was Red Star that played the cards first, and he played after, yet he had fallen into a passive position.

This was actually the scale effect. Lei Jun understood it too. A month after his mi 1 was released, Red Star had also released theirs. Xiaomi's scale effect hadn't yet formed, and the capacity ramp-up hadn't even begun, while Red Star had used their good cooperation with suppliers and foundries to quickly increase production capacity.

Watching Red Star ship in large quantities, Xiaomi could only watch helplessly.

It was different with this low-end phone. Red Star's scale effect had already formed, and they had more room for price cuts. Even if he set his price lower than theirs, it was useless. Component prices had already dropped a round in the past few months; his procurement price was low, but Red Star's large-scale procurement was definitely lower.

It ended up that Red Star could still make a profit when lowering prices, while he could only lose money when lowering his.

It was completely an overt strategy, the kind that was unsolvable.

The low-end market wasn't like the high-end market, where one could raise prices based on various distinctive features and differentiation. The configurations were all about the same, and Red Star's quality was even a little better than his. Consumers would definitely choose whoever was cheaper.

The MIUI system was originally a plus, but now Red Star's Starlight OS had caught up, and there wasn't much of a lead at the system level.

"As for our next step, it is to develop a large-screen low-end hundred-yuan phone, the Note series. According to the existing plan, just upgrade the processor a little bit. Otherwise, butting heads with Red Star like this isn't a solution. We need to make something different so that we have differentiation."

"A large-screen low-end phone? That's a good idea. If the progress is fast, it can be brought out in less than two months. Coupled with hongmi 1, we can completely amortize our development costs."

"Yes, I think mobile phone differentiation is definitely the future direction. Currently, only Samsung and Huawei are doing it in the large-screen market. Although the screen of the Kunpeng mobile phone is not small, it's not exactly huge either. Moreover, I think we can restart the development work of xiaomi note."

After the Kunpeng mobile phone was released last year, Lei Jun had thought about making a large-screen, high-end phone, but he felt that the Xiaomi brand couldn't support a price above 3,000 yuan for the time being, so he temporarily abandoned the development plan.

Now that the Kunpeng mobile phone and Huawei Mate had proven that domestic manufacturers could also stand firm at the 3,000 yuan price point, since the predecessors had already paved the way, Xiaomi definitely couldn't fall behind others.