Image source: Visual China

BEIJING, May 16 (TMTPost) -- The president’s office of China’s phone maker Oppo has abruptly announced the termination of its chip design business Zeku, marking a sharp strategic reversal after four years of pursuit.

According to the company, the decision was made based on “uncertainties in the global economy and smartphone market” and its need to weather future hardships. A member of the Zeku research and development team revealed that the entire team would be disbanded and offered “n+3” compensations.

Zeku served as the core entity of OPPO’s self-research chip business. Business records indicate that it was founded in August 2019, with Liu Jun, OPPO’s CTO, as its legal representative. Oppo had publicly disclosed that the number of professionals in its chip team had surpassed 2,000 as of December 2022.

The company’s abrupt decision to terminate the chip-making business came as a complete surprise for insiders there. Members of Zeku revealed that all work arrangements had been proceeding as usual until they received the unexpected notice from the company last Friday.

According to a source familiar with Oppo’s chip business, the company’s cellphone chip designed using the TSMC 4nm process had just rolled out at the end of February and was still waiting for final mass production. Coupled with the departure of key talents during the recent period, there were setbacks in the company’s research and development, perhaps resulting in the decision to abandon the self-research chip business.

Several insiders in the chip industry have also provided analysis on the factors contributing to Oppo’s decision. One key aspect is that the company heavily relied on hiring people from outside at high prices, resulting in mounting costs. This influx of new talents also came with distinct corporate cultures, making internal integration challenging and leading to the departure of several crucial personnel. Furthermore, the company’s chip-making industry lacked focus and profit-generating ability, becoming a prime target for cuts in the face of unfavorable market conditions.

OPPO was once considered as the leading figure among Chinese cell phone manufacturers in the chip-making race, following HiSilicon’s retreat from the market. In 2021, the company reached a significant milestone by introducing its inaugural self-developed chip, the Mariana X. This imaging chip has been successfully incorporated into numerous high-end and flagship cell phone models it produced. In December 2022, the company unveiled its second self-developed chip, the Mariana Y. This chip utilizes TSMC 6nm RF process, showcasing the company’s dedication to technological innovation.

Since 2022, the global electronics market has faced a challenging landscape due to a confluence of macroeconomic headwinds and unexpected events such as epidemics, the Russia-Ukraine war, and other unforeseen factors. These occurrences have significantly impacted market demand, with the smartphone sector bearing the brunt. According to the market research agency Canalys, global smartphone shipments in 2022 declined by 12% year-on-year, totaling approximately 1.19 billion units. Ranking the fourth in terms of shipments, Oppo experienced a substantial decline of 22% year-on-year. The decline has persisted into 2023, with global shipments in the first quarter amounting to approximately just 270 million units, representing a 13% year-on-year decrease. Within this challenging landscape, Oppo witnessed an 8% decline in shipments during the same period.

Furthermore, OPPO is entangled in multiple global patent lawsuits with Nokia, leading to the ban of its cellphones in Germany and other regions. These legal battles have thwarted the company’s endeavors to expand in the overseas market. Certain industry analysts argue that the company’s decision to terminate its chip design business indicated a pessimistic outlook on the future of the cellphone market on the side of its management.