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What are Chinese looking for with Technology? - A User, Government, and Business Perspective

What are Chinese looking for with Technology? - A User, Government, and Business Perspective. Dolcera Webinar Series. Dolcera. Dolcera is a k nowledge s ervices company based out of Silicon Valley-CA, Bellevue-WA, Chicago-IL, London-UK, Beijing-China, and Hyderabad-India

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What are Chinese looking for with Technology? - A User, Government, and Business Perspective

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  1. What are Chinese looking for with Technology?- A User, Government, and Business Perspective Dolcera Webinar Series

  2. 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)

  3. Dolcera

  4. China's first lady PengLiyuantaking pictures with a Nubia Z5 Minifrom ZTE Corporation; 13-mega-pixel camera; costs about $240/- Source: http://www.chinadaily.com.cn

  5. Agenda • China • Size, migration patterns, influencers • The Chinese Consumer • Profile, Expectations, Sensitivities • 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

  6. 1. China

  7. 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 thebiggest 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

  8. 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. More money to buy luxury products The ‘rising’ urban middle class 2020 2014 70% (~1 billion) of the Chinese in cities by 2030 with close to 3 times more $$ to spend.

  9. 1. China(3 of 3) The Chinese people and the Chinese Government play a role in technology “success”. • 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. Push for “indigenous innovation” and IP, Regulatory Enforcement World’s largest mobile market • 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 Anti-monopoly issues in the since 2011. Source: GSMA Intelligence: Half a billion Chinese citizens have subscribed to the mobile internet,

  10. Wireless Eco-system Players In China

  11. 2. The Chinese Consumer

  12. 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. 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.

  13. 2. The Chinese Consumer (2 of 3) Chinese smartphone users look for sleek, stylish, feature-rich handsets Xiaomi Mi4 ZTE Nubia Z5 Mini Samsung Galaxy S3 • 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 Quad-core CPU. • Support GSM, 3G WCDMA, 4G FDD-LTE network. • 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 • 8MP rear camera, 1.3MP front camera • MTK MT6577 1.2GHz processor, GPU: PowerVRSGX531; - Android 4.1.9 OS • Support GSM & WCDMA 3G network • Support WiFi, Bluetooth, GPS.

  14. 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.

  15. 3. The Chinese Government Strategy

  16. 3. The Chinese Government Strategy (1 of 11) Why did the Government pick TD-LTE? Wireless standards that shaped the eco-system in China In China, • The government issued 4G spectrum licenses for TD-LTE 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. GSM, CDMA FDD-LTE, TD-LTE WCDMA TD-SCDMA, WCDMA GSM, CDMA TD-LTE Source: CommScope

  17. 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 • 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. • 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.

  18. 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.comreport The TD-LTE Ecosystem: 2014 - 2020 - Infrastructure, Devices, Subscriptions & Operator Revenue, Qualcomm

  19. 3. The Chinese Government Strategy (4 of 11) Why did the Government pick TD-LTE? Dolcera IP Study to validate the ‘domestic’ advantage hypothesis

  20. 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. TD-LTE and FDD-LTE IP of top Chinese players Distribution of CN Essential LTE IP 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.

  21. 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).

  22. 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 inchipset 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

  23. 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.

  24. 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 Wireless: Patent filing trend in China

  25. 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. InterDigitalcases. • 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.

  26. 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 • China is an important market on a global stage, and some companies have been more successful than others. The ‘brand’ helps Apple gain in China Most popular smartphones in China: April 2014 • 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

  27. 3. The Chinese Corporation

  28. 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.

  29. 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 13-megapixel 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.

  30. 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'sfiling trend

  31. Key Take-aways from this Webinar

  32. 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. Brand positioning Product Innovation for China Market and IP Due-diligence Consumer Understanding & Segmentation Competitive Intelligence IP Strategy Buy or Partner IP Licensing & Litigation Market & Business Intelligence

  33. 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.

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