What are Chinese looking for with Technology? - A User, Government, and Business Perspective Dolcera Webinar Series Dolcera • Dolcera is a knowledge services company based out of Silicon Valley-CA, Bellevue-WA, Chicago-IL, London-UK, Beijing-China, and Hyderabad-India • Dolcera works with over 100 innovative companies across the Americas, Europe, and Asia. • We are a proud team of 110 engineers and business analysts with expertise in telecommunication, semiconductors, software, servers, data analytics, chemistry, packaging, food technology, biotechnology, biochemistry and pharmaceuticals • Dolcera is helping its clients stay innovative by providing them information related to • Business Strategy (Business research, and innovation strategy formulation) • Intellectual Property (Engineering services) and • Visualization tools (Dashboard 2.0) Dolcera China's first lady Peng Liyuan taking pictures with a Nubia Z5 Mini from ZTE Corporation; 13-mega-pixel camera; costs about $240/- Source: http://www.chinadaily.com.cn Agenda 1. China Size, migration patterns, influencers 2. The Chinese Consumer Profile, Expectations, Sensitivities 3. The Chinese Government Strategy Why did the Chinese Government choose TD-LTE? Evolving role of foreign players in China’s eco-system 4. The Chinese Corporation Will Chinese companies play in the global eco-system? 5. Take-aways from this Webinar Understanding and succeeding in the Chinese technology eco-system 1. China 1. China (1 of 3) China’s sheer size and population positions it as one of the key markets in the world today. Country Overview • China has the biggest population in the world (x4 times USA). • The biggest city in China is Shanghai with an urban population of 20 million (comparable to Florida’s population). • China is expected to overtake the USA to become the world’s largest economy by 2017. Population: 1,350,700,000 GDP: $13.37 trillion Average Salary: $730 /month Capital city: Beijing Language: Standard Mandarin Currency: Renminbi (yuan) ¥ Links: http://english.gov.cn https://twitter.com/china 1. China (2 of 3) Urbanization, infrastructure, and a booming middle-class will drive technology adoption. Growth of ‘Mega’ Cities ‘Mega’ Cities = ‘Smart’ cities 8 mega cities with population >10 million by 2025; over $15 Billion infrastructure investment by 2015. The ‘rising’ urban middle class 2014 More money to buy luxury products 2020 70% (~1 billion) of the Chinese in cities by 2030 with close to 3 times more $$ to spend. 1. China (3 of 3) The Chinese people and the Chinese Government play a role in technology “success”. Push for “indigenous innovation” and IP, Regulatory Enforcement • • • • China technology R&D in 2013 second only to the US. “Only if core technologies are in our own hands can we truly hold the initiative in competition and development”- President Xi Jinping, June 2014 Patent application subsidies for domestic players led to explosive growth in filing Stricter enforcement of Regulatory and Antimonopoly issues in the since 2011. World’s largest mobile market • • • China has the largest number of internet users (618 million) and about 80% of them use mobile internet. Nearly 50% of urban Chinese own and use a smart-phone 25 hours a week. Top uses of smartphones are search, news, texting, social networks, gaming, and online buying/mobile payment transactions. Source: GSMA Intelligence: Half a billion Chinese citizens have subscribed to the mobile internet, Wireless Eco-system Players In China Service Providers Infrastructure Equipment Providers Chipset Vendors Terminal Device Vendors 2. The Chinese Consumer 2. The Chinese Consumer (1 of 3) Chinese smartphone users are power users with high-speed data requirements Chinese use their smartphones several times a day, for data intensive tasks • Internet users spend an average of 25.9 hours online every week. • CNNIC credits this to more Wi-Fi access, maturity of 3G coverage and 4G access. Instant Messaging, Social networks Online News Mobile Searching Music & Video Online shopping and payments Gaming Average age of a Chinese smartphone user is 25 years. 77% of users have a data plan that costs about $20 monthly. Chinese on an average own ~1.7 devices per person. 2. The Chinese Consumer (2 of 3) Chinese smartphone users look for sleek, stylish, feature-rich handsets Xiaomi Mi4 - - - 5.5-inch 2K Quad HD, 538 PPI & 16 Megapixel OIS rear camera 3GB DDR3 RAM and 32GB ROM (Internal Memory). Qualcomm Snapdragon 805 processor with 2.5GHz Quadcore CPU. Support GSM, 3G WCDMA, 4G FDD-LTE network. ZTE Nubia Z5 Mini - - - Dual Cameras: Front:5.0MP Back 13.0 mega pixel/Auto Focus. Snapdragon APQ8064 Quad Core 1.5 GHz Dimensions: Size (LWH): 2.59 inches, 0.41 inches, 5.31 inchesWeight: 5.6 ounces Built In GPS & A.GPS Dual sim dual standby, WCDMA+ GSM, Wi-Fi:IEEE 802.11 b/g/n, supports Wi-Fi hotspot Samsung Galaxy S3 - - 8MP rear camera, 1.3MP front camera MTK MT6577 1.2GHz processor, GPU: PowerVR SGX531; Android 4.1.9 OS Support GSM & WCDMA 3G network Support WiFi, Bluetooth, GPS. 2. The Chinese Consumer (3 of 3) The trend is towards buying ‘cool’, affordable smartphones more often. Local brands are more popular than ever • Chinese prefer domestic, lower priced smartphones. • Lower prices has caused pre-paid and non-contract phones to become more popular. Affordability has led to faster replacement • Android is still the most popular operating system for smartphones, and phones are now replaced every 15 months. 3. The Chinese Government Strategy 3. The Chinese Government Strategy (1 of 11) Why did the Government pick TD-LTE? Wireless standards that shaped the eco-system in China Source: CommScope GSM, CDMA WCDMA FDD-LTE, TD-LTE GSM, CDMA TD-SCDMA, TD-LTE WCDMA In China, • The government issued 4G spectrum licenses for TDLTE in December 2013 (3 networks so far). No timeline for FDD-LTE. • Similar trend seen in 3G when spectrum licenses were issued for the local standard TD-SCDMA before WCDMA. World-wide, • As of May 2014, 288 LTE networks in 104 countries, among which 36 LTE TDD networks in 24 countries. 3. The Chinese Government Strategy (2 of 11) Why did the Government pick TD-LTE? TD-LTE is believed to help enhance the position of domestic players in the eco-system. TD-LTE license enhanced China Mobile’s dominance Huawei & ZTE top TD-LTE infrastructure suppliers for China Mobile Users' market share 2014 (end of 1st quarter) China mobile 15.0% 23.0% China Unicom 62.0% China Telecom • • China Mobile leads with 62% Chinese mobile service users, more than half revenues of three carriers, and 4 times profits of China Unicom and China Telecom. All 3 are state-owned. • • • TD-LTE equipment providers’ biggest customer is China Mobile. In 2014, China mobile will construct 5,00,000 4G base stations (60% global volume), offer 4G in 340 cities and 100 million 4G terminal devices. Chinese domestic manufacturers led by Huawei & ZTE account for about 70% market share. 3. The Chinese Government Strategy (3 of 11) Why did the Government pick TD-LTE? Picking TDD LTE: Long-term advantages to China TD-LTE is seeing increasingly strong adoption worldwide • • • • Over 100 operators are investing in the technology. Infrastructure investments expected to grow at 15% over the next 6 years. TD-LTE device shipments will surpass 100 Million in 2014 alone. Large scale adoption will drive integrated LTE eco-system, and impact Advanced LTE & 5G. Huawei currently leads the TD-LTE infrastructure market share and is expected to be tough competition to Ericsson in the global market. Source: ReportsnReports.com report The TD-LTE Ecosystem: 2014 - 2020 - Infrastructure, Devices, Subscriptions & Operator Revenue, Qualcomm 3. The Chinese Government Strategy (4 of 11) Why did the Government pick TD-LTE? Dolcera IP Study to validate the ‘domestic’ advantage hypothesis Used the Dolcera ETSI Disclosures database to find all LTE disclosed patents, and found CN patents. 9,087 Chinese patents extracted from 31,779 patents worldwide. Our subject experts used keyword, assignee, inventor based searches to identify additional patents related to LTE. 22,692 additional CN LTE patents found. Used Dolcera’s PC 1.0, an innovative supervised automation tool that uses machine learning to classify patents to tag CN LTE patents to TD-LTE, and FDD-LTE. Of 9,087 patents, 2,068 patents tagged to TD-LTE. ~6,700 were agnostic. Analyzed and interpreted trends related to domestic and foreign players in the LTE space. 3. The Chinese Government Strategy (5 of 11) Why did the Government pick TD-LTE? IP: There are more TD-LTE patents that domestic players own than FDD-LTE patents Few domestic players hold SEP patents; proportion of TD-LTE patents is more. • • Based on Dolcera’s analytics on the ETSI Standards database, Qualcomm and Samsung own the most number of SEP patents in LTE world-wide. The number of domestic players in China that have disclosed to ETSI is small; led by Huawei and ZTE. Distribution of CN Essential LTE IP TD-LTE and FDD-LTE IP of top Chinese players CATT 80 Zte Corp Domestic 21% 62 Huawei 37 0 1 TDD 6 FDD Foreign 79% Mediatek Inc 10 0 20 40 60 80 100 Number of Patents/Publications Please note that no reassignment information on Lenovo acquired SEP patents related to LTE from NEC in April 2014 was available, and hence not included. 3. The Chinese Government Strategy (6 of 11) Evolving role of foreign players in China’s eco-system ‘Foreign’ companies play a significant role in chipsets, and terminal Devices (Smartphones). Service Providers Infrastructure Equipment Providers Chipset Vendors Terminal Device Vendors 3. The Chinese Government Strategy (7 of 11) Evolving role of foreign players in China’s eco-system Qualcomm, a foreign player and Mediatek, a domestic player are major chipset vendors. Qualcomm leads revenue share in chipset market Baseband/Apps processor Revenue Share, 2013 • • • Qualcomm leads the LTE market; supports multiple LTE frequencies with WCDMA and CDMA compatibility. Samsung, Apple, Xiaomi are players in China that rely on Qualcomm for baseband ICs or baseband/app processors. Qualcomm has 69% revenue share, while Mediatek has a 14% revenue share in the Chinese handset market. Chinese players like Spreadtrum and Leadcore have less than 1% revenue share. Mediatek dominates in the low-end domestic market • In 2013, Mediatek had almost double the market share of Qualcomm in shipments to Chinese vendors. Baseband share at Chinese domestic smartphone OEMS (2013) Source: CLSA 3. The Chinese Government Strategy (8 of 11) Evolving role of foreign players in China’s eco-system Use of low-priced domestic phones on the rise; high-end ‘foreign’ phones still popular. Smartphone market is crowded, with a large number of domestic players • • • Over 100 million smartphones were shipped in China in Q1 2014. Apple, Samsung, HTC are the only foreign players in the top vendors list. About 10% of phones shipped were 4G enabled, and over 70% were 3G enabled handsets. 1 in every 4 Chinese buy phones that are priced over $500 • • About 27 million phones cost > $500; 80% of which were iPhones. 57% phones cost less than $330. 3. The Chinese Government Strategy (9 of 11) Evolving role of foreign players in China’s eco-system While most of top IP holders in China are ‘foreign’, a few domestic players file aggressively. Foreign players currently hold more IP than domestic players in China • The number of CN patents filed has exploded in the last 10 years. The top assignees include mostly foreign companies with the exception of Huawei & ZTE. • Top IP holders in China: Wireless NTT Corp 876 InterDigital Technology Corp. 884 CATT 40,000 Wireless: Patent filing trend in China No of patents 36,995 35,580 1004 LG Electronics 1132 Ericsson 30,000 26,056 22,397 21,032 20,000 10,55112,121 10,000 16,578 13,331 7,485 1261 NOKIA Corporation 1523 Samsung Electronics 1618 Qualcomm Inc 3416 Huawei Technology 3585 ZTE Corp 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Publication year 3835 0 1000 2000 3000 4000 5000 Number of CN LTE patents and published applications 3. The Chinese Government Strategy (10 of 11) Evolving role of foreign players in China’s eco-system The use of Anti-Monopoly Law (AML) by the Government and Licensing IP (SEP) in China. AML enforcement increase • China’s anti-monopoly law which took effect in 2008 has been recently enforced to launch probes on multiple companies, including foreign players like Qualcomm, Microsoft etc. Recent ruling impacting issues related to antitrust law and IP licensing of SEP • In April 2014, the Guangdong High Court of China published its October 2013 judgments in two Huawei Technologies v. InterDigital cases. • One held that U.S.-based InterDigital (IDC) abused its dominant market position by refusing to license standard essential patents (SEPs) for 3G wireless communication devices on fair, reasonable and non-discriminatory (FRAND) terms. • The other set a FRAND rate capped at 0.019 percent of the actual product selling price for IDC to license its Chinese SEPs to Huawei. 3. The Chinese Government Strategy (11 of 11) Evolving role of foreign players in China’s eco-system China is a key market. Many foreign brands have been successful, yet challenged in China. China is a key market; a challenge • The ‘brand’ helps Apple gain in China • • Apple’s Q1 2014 revenue from Greater China, which includes Hong Kong and Taiwan, rose 13% from a year earlier to $9.3 billion. Over 75% of phones > $500 are iPhones. Localization key to Samsung’s success in China • • • Freebies, local language, localized apps. Understanding the micro trends within each region and localizing. Use of the number ‘8’ and ‘red’ in Samsung advertising in China China is an important market on a global stage, and some companies have been more successful than others. Most popular smartphones in China: April 2014 3. The Chinese Corporation 2. The Chinese Corporation (1 of 3) Will Chinese companies play in the ‘global’ eco-system? Lenovo’s M&A driven expansion to become a ‘global’ brand. Lenovo + Motorola + IBM = Global brand • • • • Lenovo is the 2nd largest domestic player in smartphones in China. Enhanced its IP portfolio, and reach in the Americas through acquisition of Motorola in 2014, and NEC patents in April 2014. International workforce of 27,000 employees and customers in more than 160 countries. Enjoys substantial advantages of scale, supply chain and costs that enable it to compete profitably using a margin-based hardware model. 2. The Chinese Corporation (2 of 3) Will Chinese companies play in the ‘global’ eco-system? Xiaomi: The Chinese domestic giant is ready to take on the world. Affordable smartphones • • Xiaomi's flagship devices, the Mi 3 and 4, are clearly "inspired" by Samsung's Galaxy S5 and Apple's iPhone 5s, but costs $230; the iPhone costs $750 in China. Razor thin margins, direct consumer sales, online only presence, minimal inventory help keep costs down. Quality hardware, customized Android experience • • The Mi 3 runs on a 2.3 GHz Qualcomm Snapdragon processor, has 2GB of RAM, and a 13megapixel camera. Its customized version of Android has china specific applications as default. Going Global • By 2015, Xiaomi plans to expand into India, Brazil, and Russia as well as Indonesia, Malaysia, Mexico, the Philippines, Thailand, Turkey, and Vietnam. Xiaomi is already selling phones in Mainland China, Hong Kong, Taiwan, and Singapore. 2. The Chinese Corporation (3 of 3) Will Chinese companies play in the ‘global’ eco-system? Xiaomi is building its patent portfolio to be a global player. China Government subsidies push domestic players to build IP strength • The Chinese Government provides subsidies for patent filing, and there is a push for “Invented in China”. Xioami, for instance, has built up a portfolio of over 1000 CN patents since 2010. Xiaomi's filing trend Xiaomi's portfolio distribution KR, 6 JP, 5 US, 33 WO, 65 Number of patents/Publications • EP, 5 Top Areas of Filing CN, 974 UI 188 Digital Signal Processing 96 88 50 341 3 74 Priority Year 116 0 654 2010 2011 2012 2013 123 Mobile Terminal Function/features Information retrieval/Database structures/File system structures Communication Control/Connectivity 700 600 500 400 300 200 100 0 100 150 200 Number of Patents/Publications Key Take-aways from this Webinar Key Take-aways from this Webinar Intelligence and local due-diligence are key for foreign player success in China. Success in China comes from understanding local trends and environment. Dolcera can help with strategic due-diligence during all phases of the business life-cycle. Get ready for China Commercialize in China Sustain in China Consumer Understanding & Segmentation Competitive Intelligence Market & Business Intelligence Market and IP Due-diligence Product Innovation for China IP Strategy Buy or Partner IP Licensing & Litigation Brand positioning Key Take-aways from this Webinar Intelligence on the Chinese landscape will become ever critical for any ‘global’ player. As China’s domestic giants are expand globally rapidly, it is important to know them! Dolcera’s presence in China adds a local perspective unavailable otherwise. Primary Research for user, market, and IP trends. Customized, and current information in a fast paced emerging market. An Integrated approach to market analysis with a local and world view for effective decisions. IP Litigation, domestic player analysis and in-depth reviews not available easily outside. Assessment of Chinese patent literature and other local sources in native Mandarin.