Meizu confirms loss 1.3 billion, patent dispute with Qualcomm still unclear

Nanjing Hua Xun US Patent News: Recently, according to the financial data of Meizu Company released by Tianyin Holdings in 2015;

In 2015, Meizu's total assets were 7.2 billion yuan, its liabilities were nearly 8.9 billion yuan, and its asset-liability ratio was as high as 123. Operating income was 16.8 billion yuan, with a loss of 1.037 billion yuan. As of June 30, 2016, unaudited financial data showed that Meizu had an operating income of 7 billion yuan and a loss of 0.34 billion yuan in the first half of this year.

1.3 billion's huge losses have made the outside world talk about Meizu's development prospects. Whether it is questioning the development model or thinking it is the result of rapid expansion, Li Nan, vice president of Meizu Technology, explained this.

"Last year's 1 billion was actually not just operational, last year's after-sales ate up a lot of investment, including channel construction, including R & D growth, some fixed income, and this year another big effort in this area. This year's 0.3 billion losses are mainly due to supply chain problems, this problem is not our family, the second half of the year is in good shape, the whole year Meizu should be possible from the 1 billion losses to the real profit of the big reversal."

In addition, the shareholding structure shows that after the completion of the transaction, Meizu founder Huang Xiuzhang (I. e. Huang Zhang) accounted for 51.959 per cent of the shares, and Hangzhou Meitou Information Technology Co., Ltd. was the second largest shareholder, accounting for 28.828 per cent of the shares. Industrial and commercial registration information shows that the corporate legal person of Hangzhou Meitou Information Technology Co., Ltd. is Alibaba.

According to Nanjing Hua Xun, in February 2015, Meizu announced a US $0.59 billion investment from Alibaba. So far, Meizu has embarked on the fast lane of double growth in sales and market share. In 2015, Meizu's mobile phone sales rose 350 percent to 20 million from less than 4 million in 2014. According to the domestic smartphone sales report for the first half of 2016 released by market research organization Sano, Meizu ranked 7th with 11.24 million units.

But the good times did not last long. In the second quarter market data TOP5 released by IDC, Meizu was not found.

Meizu already exists in the ranks of "other". The total shipment volume of "other" was 0.1548 billion units, down 10.8 percent, and the market share dropped from 50.7 percent to 45.1 percent, which represents more than half of the market share of TOP5 mobile phone manufacturers.

"Entangled" with Qualcomm"

Of course, the dilemma faced by Meizu is not just a loss, Meizu and Qualcomm have been in a state of "love and hate entanglement" due to patent issues.

On October 14, Qualcomm took action against Meizu's patent infringement in the United States, Germany and France, including filing a lawsuit with the U.S. International Trade Commission, filing a patent infringement lawsuit with the Mannheim District Court in Germany, and filing a seizure procedure against infringing products in France in order to obtain evidence for possible future lawsuits.

However, since China's National Development and Reform Commission reached a settlement on Qualcomm's patent monopoly in the Chinese market and established a reasonable patent licensing rate and method, many mobile phone manufacturers including Huawei, OPPO, vivo, Lenovo, Xiaomi and more than 110 related companies have signed patent licensing agreements with Qualcomm, only Meizu has not signed patent licensing agreements with Qualcomm.

In June this year, Qualcomm has filed several lawsuits against Meizu in China related to licensing conditions and patent infringement.

According to the charging standard provided by Qualcomm, for the license of Qualcomm 3G and 4G necessary Chinese patents of brand equipment sold for use in China, 5% license fee will be charged for 3G equipment (including 3G/4G multi-mode equipment), and 3.5% license fee will be charged for 4G equipment including 3-mode LTE-TDD if CDMA or WCDMA is not implemented, in each of these cases the royalty base is 65% of the net selling price of the equipment.

Meizu said in a public statement: "Meizu is willing to pay for the patent, but need a reasonable rate." Earlier, Meizu said in response to the media, "Qualcomm gives you a black box and requires you to accept it," and said that the negotiations with Qualcomm were "not fair, reasonable and non-discriminatory".

Meizu believes that if Qualcomm's charging model continues to be used as a reference for precedents, China's entire mobile phone industry will face a crisis. Every year, tens of billions of dollars in patent costs will be passed on to consumers. Secondly, the development of a group of national enterprises will be unfairly hit.

Li Nan said that this is a long-term lawsuit and there is no result if it is not fought for several years. However, many people in the industry have pointed out that China's smartphone market is now approaching saturation, and future opportunities may really only be pinned on the international market, so it seems that Meizu may lose many opportunities.

It is also a domestic mobile phone. After OPPO successfully hit the top of China's smartphone sales list, some voices came out that the Internet development model is ultimately not a long-term solution for smartphones.

In the past few years, the Internet model and Internet thinking represented by Xiaomi have been enthusiastically sought after by the industry and fans, but in the next few years, with the rise of OPPO and VIVO, it seems that the cost is spent on advertising and channels. The traditional model is considered to be a more reasonable model. Some people begin to cheer the traditional counterattack, and some people think that the Internet model advocated by Lei Jun is wrong.

In the face of the cold winter of the Internet mobile phone market, although Meizu is caught in the double dilemma of huge losses and lawsuits, as a mobile phone manufacturer, it still has to return to the old way of making money from mobile phones and integrate online and offline channels. And, keep the share of the low-cost market online, don't be too low and subsidized.