Meizu with Patent Disputes: Loss of 1.3 billion yuan in One and a Half Years

Nanjing Huaxun News: on the evening of October 20, A- share company Tianyin Holdings disclosed the financial situation of Meizu Technology in an investment announcement, showing that Meizu has been losing money for the past two years, with a loss of 0.3 billion yuan in the first half of this year, and a loss of 1 billion yuan in 2015, with an asset-liability ratio of 123 per cent.

Sales and market share double growth of Meizu is facing embarrassment. On the evening of October 20, A- share company Tianyin Holdings disclosed the financial status of Meizu Technology in an investment announcement. Meizu has continued to lose money in the past two years. In the first half of this year, it has lost 0.3 billion yuan, and in 2015 it lost 1 billion yuan. The asset-liability ratio is as high as 123.

Meizu is also being entangled in a patent dispute with Qualcomm. After Qualcomm sued Meizu for patent infringement in China in June this year, Qualcomm announced on October 14 that it would take action against Meizu for patent infringement in the United States, Germany and France.

In response to the financial issues raised by Nanjing Hua Xun about Meizu and the progress of patent disputes with Qualcomm, Meizu said it would not accept an interview. On October 23, Li Nan, vice president of Meizu Technology, said on Weibo: "Meizu will eventually have an explanation for Qualcomm".

Yu Bin, an Internet analyst, believes that Meizu's apparent "prosperity" cannot hide the crisis behind it. A single sea tactic will only fall into the quagmire of low-price competition and the vicious circle of barbaric growth. If it cannot break through the middle and high-end markets, Meizu may touch the brand ceiling.

rapid expansion

Tianyin Holdings stated in the announcement that the company intends to use its own funds to subscribe for part of Meizu's capital increase and hold 0.655 percent of Meizu's equity, with a total investment of 0.2 billion yuan.

According to the announcement, including Tianyin, Shanghai Xiutong Investment Management Center (limited partnership), Yuanke (Pingtan) Equity Investment Fund Partnership (limited partnership) and Karamay Bingshenhong Equity Investment Limited Partnership have invested in Meizu, with the last three contributing 0.393, 0.657 and 1.213 respectively. According to calculations, Meizu's capital increase totaled about 0.89 billion yuan. After the capital increase, Meizu's market valuation reached 30.5 billion yuan.

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., the second largest shareholder, accounted 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.

In February 2015, Meizu announced that it had received 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.

However, the rapid expansion has brought huge losses. According to the audited financial data of Meizu Company in 2015 released by Tianyin Holdings, Meizu's total assets in 2015 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.

Regarding the questions raised by our reporter about Meizu's capital increase and the reasons for its performance losses, Meizu said that it would not accept interviews at present.

In the industry view, the loss is due to the Meizu machine sea tactical profits are too low, and operating costs are too high. In December 2014, Meizu released 1000 yuan machine charm blue series, after the series became the absolute support of Meizu mobile phone sales. At the press conference of Meilan Metal in October 2015, Meizu President Bai Yongxiang announced that Meilan series had sold 13 million units. In April this year, according to Bai Yongxiang, the number has reached 20 million. In addition, Meizu released Meizu MX and Meizu PRO series respectively in the middle and high-end markets to carry out the layout of the whole product line.

"Personnel costs, channel costs, R & D costs, and supplier costs are all brought about by rapid expansion. In addition, Meizu also faces strong suppression from competitors such as Xiaomi and ZTE. They are also fully deployed in high schools, middle and low ends. Meizu is getting deeper and deeper in the price war." Yu Bin, an Internet analyst, believes that Huawei has now established itself in the market above 3000 yuan, and OPPO and VIVO have also established itself in the market above 2000 yuan. Meizu's efforts to enter the middle and high-end market have frequently failed. Meizu, which has no new growth point, is competing in the 1000-yuan machine market and it is difficult to continue to grow. Nowadays, competition in the mobile phone market has shifted from online to offline. It takes a lot of money to spread out online stores, and Meizu's losses are difficult to solve in the short term.

Grass growth

One side is huge losses, the other side is in patent fees and Qualcomm several entanglements. 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.

Prior to this June, Qualcomm had 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 statement to our reporter: "Meizu is willing to pay for the patent, but it needs 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.

Regarding the question raised by our reporter about whether Meizu wants to unite the whole industry to fight Qualcomm's charging model and the follow-up of patent disputes, Meizu said it would not accept an interview. On October 23, Li Nan, vice president of Meizu Technology, said on Weibo: "Meizu will eventually have an explanation for Qualcomm."

When asked about Qualcomm's patent fee after the release of new products in the autumn of October 20, Wu Qiang, vice president of OPPO mobile phones, told the media including this newspaper: "Qualcomm's business model was worked out first. If you use its chip products or patents, you must follow its rules. He is not saying that he will tell you the rules after you use them, but he will tell you the rules first. If you use them, you should pay according to the rules." Wu Qiang said that one of the sources of product innovation is joint development with upstream suppliers and solution providers. For companies like Sony and Qualcomm, OPPO and them are upstream and downstream from the perspective of the industrial chain, but from the actual cooperation From the perspective of the situation, the two parties are a partnership.

Nanjing Huaxun US patent experts told our reporter that after accepting the anti-monopoly punishment of China's Development and Reform Commission in 2015, Qualcomm adjusted the standard of patent fee collection and passed it, which means it is legal. Patent licensing itself is one of Qualcomm's profit models, and this fee standard is not only for Meizu, even in foreign countries have been widely accepted. With the development of the mobile phone industry today, patent protection is increasingly recognized, and the barbaric growth model will be unsustainable. It further said: "Manufacturers like Huawei may indeed pay lower royalties than Meizu, because Huawei has signed a patent cross-licensing agreement with Qualcomm. Meizu needs a bargaining chip if it wants to bargain."