The fate of the ‘genius’ DJI.
A depth charge shattered the calm of the weekend yet again.
In the middle of the night on December 18, Beijing time, the website of the US Department of Commerce once again issued an announcement saying that the Bureau of Industry and Security (BIS) of the US Department of Commerce has included 77 entities on the ‘entity list’.
The website of the US Department of Commerce first updated the announcement on SMIC’s technical restrictions. Commerce Secretary Wilbur Ross said that the ‘Entity List’ is mainly to restrict SMIC’s access to certain US technologies by controlling the sales licenses of US exporters to supply to ‘Entity List’ entities including SMIC. ability. Items such as those required for the production of semiconductors at advanced process nodes (10nm or below) will be subject to a ‘presumptive rejection’ policy (applications for sale authorization are not approved).
Subsequently, the Ministry of Commerce updated the complete list of 77 newly added entities. Among them, Chinese enterprises, universities, and individuals account for a large proportion, including the well-known Dajiang Innovation, Beijing Institute of Technology, Beijing University of Posts and Telecommunications, China Communications Construction Co., Ltd., and so on.
There is still a whole month before Trump officially leaves office, and the Trump administration has not finished playing the cards, and this latest update of the ‘entity list’ is bound to have a negative impact on the normal operations of companies and institutions such as DJI and SMIC. great influence.
DJI flagship store in Shenzhen | Visual China
‘To make matters worse’
Whether it is DJI or SMIC’s inclusion in the ‘entity list’, there are early signs.
In mid-August of this year, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) included 38 of Huawei’s subsidiaries in 21 countries and regions around the world on the “entity list”, and further tightened Huawei’s requirements from third-party chip manufacturers Qualcomm, MediaTek’s outsourcing chip channel.
Shortly afterward, foreign media including Reuters reported that the U.S. government is considering adding China’s largest chip foundry, SMIC, to a trade blacklist. From September to October, SMIC and the International semiconductor Equipment and Materials Association (SEMI) all made statements on the rumors, until today the rumors become a reality.
DJI has received warnings from US regulators several times since 2017. In August 2017, the U.S. Army Laboratory and the U.S. Navy found that DJI UAVs had ‘combat risks’ (collecting sensitive data such as geographic information, audio and video), and asked the U.S. military to stop and remove DJI equipment, remove batteries, and storage media .
In May 2019, the U.S. Department of Homeland Security said it had strong concerns about the security of data collected by DJI drones. In the same year, the U.S. government banned U.S. federal agencies from buying drones made in countries identified as ‘security threats’ and banned the use of federal funds to buy DJI drones due to concerns over sensitive data breaches and data security. In November, the U.S. Department of the Interior removed about 800 drones.
Similar to Huawei, the US has a long history of distrusting DJI.
At this stage, being officially included in the ‘entity list’ is not good news for either DJI or SMIC.
SMIC is mired in ‘infighting’. In mid-December, SMIC announced that Jiang Shangyi would return as vice chairman, but Jiang Shangyi’s return triggered a chain reaction, leading to the resignation of SMIC’s current co-CEO Liang Mengsong.
Liang Mengsong, as SMIC’s five-generation technology development route from 28nm to 7nm, and the turbulence of a key figure in breaking through the 14nm process, will have a huge impact on SMIC’s follow-up technology route and the smooth evolution of the process.
On the other side, the situation in DJI is also not good.
Since the beginning of this year, news about DJI laying off 50% of its workforce has begun to ferment. In early August, Reuters reported that due to the impact of the new crown pneumonia, DJI will significantly reduce its sales and marketing teams. This news was interpreted by the media as DJI laying off 14,000 people, and Xie Tiandi, director of public relations at DJI, responded to this in a circle of friends. DJI has only 14,000 people in total, and countered the layoff news from the side.
Although the report was refuted by DJI, due to the impact of the epidemic, the opportunities for people to travel and travel have been greatly reduced, resulting in a cliff-like decline in the application scenarios and frequency of consumer drones. To a certain extent, the increase in the inventory of DJI’s consumer-grade products has increased the difficulty of DJI’s operation.
Therefore, the changes in the external business environment and the superimposition of the internal business management of the enterprise will have an impact on DJI and SMIC.
DJI Drone Show | Vision China
Where is the fate of ‘genius’ DJI?
The impact on SMIC after the announcement of the ‘Entity List’ is obvious. Once SMIC is unable to purchase key equipment, materials, and instruments for manufacturing chips, such as ASML lithography machines, it will not be able to manufacture chips with more advanced processes.
The most worthy of attention is the ‘destiny’ of DJI.
Xie Tiandi, the public relations director of DJI, told Geek Park that at present, only knowing that DJI can continue to sell in the United States, no one can answer other influences. Of course, the binding force of the ‘entity list’ is not the same as the previous restrictions. It will take a few days to see how to restrict it.
As one of the most successful technology companies in China, DJI has a deep influence in the global consumer-grade and even industrial-grade drone market. At the same time, a large part of DJI’s revenue comes from overseas markets.
In an article in Bloomberg Businessweek in March this year, a series of data showed the absolute dominance of DJI in the US market. For example, according to Drone Industry Insights UG statistics, DJI accounts for 77% of the U.S. drone market sales, while the market share of other competitors does not exceed 4%. And a Bard College study shows that government departments in all 50 U.S. states are using drones, 90% of which are manufactured by DJI.
For a long time, DJI has updated its products at an extremely fast speed and achieved commercial success in the US market through performance and price advantages. Competitors such as 3D Robotics and GoPro in the U.S. market have tried to challenge DJI’s position, but they have all failed.
At the same time, success in the US market is a ‘double-edged sword’, with nearly 40% of DJI’s revenue coming from the US market.
After the ‘entity list’ is announced, DJI first needs to face the sustainability of the drone production supply chain. Similar to mobile phone manufacturing, drones also have many key components.
Three months ago, Nikkei and a research company dismantled the DJI Mavic Air 2 drone and found that a DJI drone has about 80% of finished parts, similar to smartphone and personal computer parts. , and a large part of it comes from the United States. For example, the IC chip that controls the battery is made by Texas Instruments; the IC chip that amplifies the radio chip and cancels the noise comes from Qorvo; and the GPS receiver comes from smart watch components. In addition, there are chips from Intel and Qualcomm.
Once key components are restricted, DJI is likely to be limited in production and manufacturing, just like Huawei. Even if a substitute is found, the cost and performance issues will also plague DJI’s market sales.
Under normal circumstances, DJI components cost about 20% of the retail price, which is lower than the 30%-35% cost of a smartphone. An executive at a Japanese drone company said that for the same product, our component cost is as much as twice that of DJI. It is conceivable that when changing parts suppliers, how to continue DJI’s cost and performance advantages will become a thorny issue.
Second, in the future, the United States is likely to vigorously support and subsidize U.S. domestic drone companies. It will inevitably have an impact on DJI’s revenue in the US market. The worst plan is that DJI completely loses the US market and loses nearly half of its revenue. Under the epidemic, the market demand for drone consumer products fluctuates, and the US market revenue shrinks, which will cause damage to DJI’s R&D and sales systems.
Of course, things are still changing, and how the ‘Entity List’ will be implemented and implemented is still under evaluation. In mid-to-late January next year, Trump leaves office, and it is still unknown how the next administration will implement the ‘entity list’.
Under uncertainty, for example, Xie Tiandi, director of public relations at DJI, responded to the layoff incident before, giving DJI some time to ‘let the bullets fly for a while’.