News on September 26th, Wang Li, the executive vice president of Yulong Coolpad, gave a Tencent Technology exclusive interview at the 2011 Communication Exhibition. He was not optimistic about the phenomenon of Internet companies entering the mobile phone industry and advised manufacturers such as Alibaba Cloud Phone and Xiaomi Phone that "the hardware bench needs to sit cold for ten years."
Li believed that Internet companies crossing over into making phones, including Alibaba Cloud Phone and Xiaomi Phone, should first be wished well in their endeavors. However, Li pointed out that software and hardware cultures are different; home appliance companies have not succeeded in making phones, and only Apple has succeeded among PC makers. There is a Chinese PC company that ventured into phones but is now under great pressure with less than ideal operating conditions. Li stated that Internet companies making hardware is a case of cross-industry operation with different cultures, corporate strength, long-term R&D capabilities, and quality management being completely different. Li advised that doing hardware requires sitting on a cold bench for ten years, as hardware products need continuous upgrades and consumers constantly require new things.
Li also expressed his concerns about Internet companies making hardware: "Today, Coolpad has nearly 3000 R&D personnel. If a company only has 100 people, how can it keep up with such speed?"
The 2011 China International Communication Expo was held in Beijing from September 26th to 30th. Tencent Technology, as the official strategic cooperative portal and Weibo cooperative platform of this conference, provided comprehensive video and pictorial live broadcasts on-site. A special high-end interview room was set up to invite industry experts and corporate representatives to discuss the current state of the industry and guide future trends.
As the officially designated Weibo cooperative partner of the conference, Tencent Weibo (http://t.qq.com) launched the #AskTelecomMasters activity where all netizens could ask questions in advance to the telecom masters they were following. Some of these questions would be selected and asked on-site by Tencent Technology, receiving direct responses from the guests.
Below is the interview transcript:
Executive Vice President Li Wang of Yulong Coolpad was a guest at the Tencent exclusive interview room.
Host: Hello Tencent netizens. The 2011 Communication Exhibition officially opened today, and we have invited Mr. Li Wang, the executive vice president of Yulong Coolpad, to our Tencent interview room.
Li Wang: Long time no see, Tencent netizens.
Host: We know that Yulong Coolpad, as a terminal manufacturer, has gradually matured and reached the high-end market, covering various levels from high-end to mid and low-end. With the crazy rise of the Android market this year, Yulong's layout in this area is also very evident. I would like to ask Mr. Li about our plans for next year and how we will position our terminal product strategies?
Li Wang: This year, I think all consumer end-users have felt the rapid development of Chinese smartphones. We see that this year's growth rate has exceeded three times last year's. For Coolpad, as a Chinese local enterprise, we have finally seen that our past choices were firm and correct. Coolpad has now formed a product line of 20 smart devices, satisfying various needs. We have launched products with 5-inch screens, along with our series of 4.3-inch screens. At this exhibition, we premiered the 9160 4.3-inch product. We have also developed a series of products ranging from 4 inches to 3.5 inches to 3.2 inches. Together with Coolpad's product advantages, we currently offer the richest product line in the Android smartphone market, providing Chinese smartphone consumers with the most diverse product choices. We have also collaborated with China's three major operators' strategies, launching competitive products around the thousand-yuan mark. Including the recently released 706, we launched the 5860 smartphone for the first time, a customized product for China Telecom, and the 8013 product below 1000 yuan. We have had extensive exchanges with Tencent netizens, and Coolpad has achieved a historic breakthrough around the young and fashionable demographic, satisfying the terminal needs of our vast Tencent netizens.
We will continue to cooperate deeply with application developers and content providers, including potential customized phones with Tencent. Coolpad has such a customer base. I would say that in this round of smartphone changes, China has not fallen behind; we have walked a solid path. We also have confidence to go international, and Coolpad firmly promotes its international layout, achieving significant breakthroughs in the North American market.
Not only can we do well with Chinese domestic brands, but we can also make these brands go international, not just Korean enterprises, but mainland enterprises truly have self-research and development capabilities, ultimately being able to laugh last.
Host: In the development process of Coolpad, we have seen that Coolpad does not only focus on the domestic market but also actively expands in overseas markets. What rough goals have we set for the overseas market, and what achievements do we aim to achieve? Simultaneously, as part of a dual-pronged approach in the terminal industry chain, domestically and internationally, what are our overall plans and goals?
Li Wang: Regarding this topic, for Coolpad personnel, this is a long-term strategy. We have always adhered to independent innovation and focused on smartphones and mid-to-high-end products. Coolpad is mainly mid-to-high-end, but with price centers shifting downward. Now, our one-thousand-yuan retail priced smartphones provide an experience comparable to the iPhone 3, and slightly more expensive ones, including two other Chinese brands, can almost match the performance of the iPhone 4, greatly accelerating the popularization of smartphones. Globally, the trend started in North America and Europe. Initially, smartphones were taught by Nokia, but Apple represented the new generation of smartphones, so Android caused an explosive increase in global smartphones.
Android's open platform provides opportunities for enterprises with excellent design capabilities, primarily in China. Whether in North America or Europe, developed countries, including developing countries like India, have demands for smartphones. They also have needs for differentiated products and high-cost-performance products, which Chinese local manufacturers can solve. Companies like Huawei and ZTE have earlier layouts, and their growth in the early stages of the year exceeds 30%. Coolpad has maintained over 60% growth for the past six years. We surpass the domestic growth rate, and Coolpad maintains the most important points: insisting on autonomous brands. We don't do contract manufacturing; we insist on doing our own brand. The Coolpad brand is a fundamental strategy, maintaining the Coolpad brand. We persist in cooperating with operators, who play a dominant role far exceeding the domestic market. Herein lies a high threshold, but for companies like Coolpad with R&D capabilities, it's a low threshold, as it supplements channels and brands.
Thus, it brings new opportunities to our enterprises. HTC initially took this path, and we hope to achieve success directly without resorting to contract manufacturing or custom development. The North American market serves as a high point, truly testing a company's overall strength—technology, products, services, marketing, and comprehensive capabilities. It is gratifying to see that we have achieved a breakthrough in the North American market, though large-scale product launches may require some time. Our products are in the final stages of customization, and if tests proceed smoothly, we may achieve large-scale listings, possibly even 4G products, which we have launched first in the U.S., as the 4G product in the mainland market is not yet ready. The maturity of products in North America might significantly assist in the development of the mainland market.
Host: You mentioned overseas markets earlier. Is there any difference between the layout overseas and domestically?
Li Wang: The main countries globally are operator-customized, while the Chinese market is an exception. These two markets are exceptions—one in China and another in India, where operators dominate this industrial chain. Everyone in the Chinese communication circle this year sees that the operators' dominance is very strong. Three operators resolve their own industrial chains, and I believe this trend is irreversible. The trend of operators dominating the industrial chain is also irreversible.
Host: We understand you mentioned key keywords earlier—terminal popularization and scaling toward thousand-yuan smartphones. Coolpad covers high, medium, and low tiers. A critical question arises: many domestic and international manufacturers are competing in this market segment. How does Coolpad maintain its market share?
Li Wang: This is a very challenging question. The Chinese market in the past couple of years has shown very clear characteristics. One is the accelerated popularization of 3G, especially the acceleration of Android-based smartphones. Starting from the second half of last year to this year, this is an accelerating popularization process. The growth rate globally is the fastest, even surpassing North America. Another factor is that China has some excellent local manufacturers. We ourselves have participated in the entire change, and China has the ability to develop high-cost-performance, high-quality products, directly promoting the rapid growth of the industrial chain. Without a doubt, China's price centerpoint is one thousand yuan, and smartphones approaching one thousand yuan represent a tipping point. For Coolpad, the thousand-yuan smartphone is part of the smartphone composition. Our prices range from 1000 to 2000 yuan. Today, we've brought some products for everyone, targeting China Telecom and Unicom with thousand-yuan smartphones: the 5820. More importantly, we have a high-end layout, especially for enjoying Weibo. This is the world's first dual-standby product with a 5-inch screen, conveniently operable with one hand, reaching an extreme situation. We've also launched 4.3-inch products, 9.9 mm thick. We will also release 4-inch screen phones, high-cost-performance products. Currently, the product's cost-performance ratio hasn't been announced, but the price will exceed expectations.
At this exhibition, we've launched the 7600 3.5-inch Android product, a high-end product, which we've also announced in advance. These products collectively form Coolpad's lineup of 20 smartphone models, four of which are priced at one thousand yuan, and the rest above one thousand. In terms of volume, the one-thousand-yuan category is large, meeting the vast majority of consumer needs. Consumers spending one hundred yuan per month on communication fees can take a phone home, with a one-thousand-yuan retail price averaging one hundred yuan per month in terminal consumption costs. Under such a pattern, the Chinese market ignites the market. We continuously maintain a good mid-to-high-end product line layout, with more than 15 models above 1500 yuan among the 20 models, and about five models below 1500 yuan. It's a large market, igniting at this price point. We must continue to maintain our mid-to-high-end product line layout.
Why are there thousand-yuan phones? To give discounts. Indeed, we're giving discounts to all consumers. Operators have increased subsidy efforts, and manufacturers have given away profits in this price segment, resulting in extremely thin profits, essentially at the level of the PC industry. Channel distributors have also given up profits, ultimately winning market sales turning points. Thus, the formation of China's entire smartphone market today is due to the efforts of every link in the industrial chain, channel distributors, and retailers laying out and discounting to consumers.
Host: You've discussed many aspects regarding thousand-yuan smartphones, whether in layout or planning. If many terminal enterprises have similar layouts, you've mentioned maintaining thin profit margins while satisfying market demand. Coolpad also announced cloud services earlier this year. Combining these two issues, Mr. Li, you've commented that Internet companies are also aggressively entering the terminal sector, announcing their own phones, cloud phones, and cloud services. Traditional terminal manufacturers, besides enhancing hardware services to satisfy users, face non-traditional competition from Internet companies entering the market. How do you view this issue, and how do you address the industry's changing landscape?
Li Wang: Cloud combined with terminals is the real cloud; previously, cloud was indeed abstract. Cloud can now be grounded. Recently, many companies have talked about cloud; iPhone discusses cloud focusing on applications. Some domestic brands have also talked about cloud, and Coolpad is one of the earlier platforms to introduce the concept of cloud. From the perspective of cloud, Chinese companies are not lagging behind. Earlier, during media interviews, I mentioned that cloud is not something created from scratch; every company is working on it based on an integrated solution for the Internet. We've been talking about this for many years, and this plan ultimately culminates in a word called 'cloud,' representing an integrated concept. Tencent is promoting the concept of cloud, and Coolpad's promotion of cloud draws from many years of accumulation in intelligent platforms. We call it an integrated solution. We've done many things similar to Apple's cloud, emphasizing security even more. Recently, the media has highlighted the importance of security. We specifically showcased Coolpad's cloud security platform. Beyond traditional views of cloud platforms involving storage and various backups, we emphasize the platformization of cloud content, which is third-party driven. By constructing a secure cloud system, we are the first, and globally, we are in a leading position in forming a systematic solution to cloud security problems. Therefore, regarding cloud, I believe, based on current hardware technology and the entire operator network technology, the potential of cloud is infinite. Microblogging is a practical experience of cloud; your content exists on their servers. However, based on cloud software, there are still many areas for improvement. The potential of wireless Internet is limitless, and we are still in the early stages, far from the endpoint. This is the exciting aspect of the industry we see.
Many people want to enter hardware, especially those in the Internet field. We recently heard about Alibaba Cloud Phones, but it seems the results aren't ideal. Recently, Xiaomi has gained attention, and I've seen many comments. First, we wish them success. Having done hardware for ten years, engaging in ten years of product research and hardware design, we know this is a tremendous challenge. Software and hardware cultures are different. Yulong Coolpad started with software and transitioned to hardware over twelve years ago. Looking at successful examples of Internet companies making hardware, we see that companies like Apple and Samsung started with hardware. Home appliance companies haven't succeeded in making phones, and among PC companies, only Apple has succeeded. If categorized, among PC companies, only Apple has succeeded. A Chinese PC company ventured into phones but faces significant pressure and less-than-ideal operating conditions. Internet companies making hardware involve cross-industry operations with different cultures, corporate strength, long-term R&D capabilities, and quality management being entirely different. Therefore, we say that doing hardware means sitting on a cold bench for ten years, as hardware requires constant upgrades. Some can succeed, but consumers expect new things within six months. After another six months, they expect something new again. How to keep products ahead? Today, Coolpad has nearly 3000 R&D personnel. If a company only has 100 people, how can it keep up with such speed?
Coolpad's production lines have reached a considerable scale, and even reaching this point has been difficult. Doing hardware indeed keeps you sleepless, requiring both cost control and quality improvement. For a completely start-up company, it's a long road ahead. Yesterday, we exchanged ideas with some friends, saying we wish these companies well as peers. However, a company choosing this path cannot expect smooth sailing. We feel this may be an attempt, and we hope to see their success. Regardless, it cannot become mainstream. R&D capabilities, distribution channels, and brand promotion based on the Internet are areas worth learning from. We say to evaluate from several dimensions; for them, we congratulate their hopes for obtaining certain successes.
Host: My view aligns closely with Mr. Li's. Competition in any industry is beneficial for users. As you mentioned earlier, before stepping into a traditional industry, an emerging industry often requires time—not a short period—to create well-known branded phones and experiences akin to established companies. Finally, we thank Mr. Li Wang for accepting Tencent Technology's interview and hope that as a renowned domestic brand, it will bring consumers more phones and more Internet applications and experiences in the future.
Li Wang: No problem. The era of Coolpad in the 3G era, thank you everyone.
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