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Oppo’s Zeku Closure Sparks Speculation as 3,000 Engineers Are Laid Off

Speculation has been rife in China following the surprising decision by Oppo, the Chinese smartphone giant, to disband its in-house chip design unit, Zeku. This move involved laying off nearly 3,000 engineers, making it one of the largest lay-offs in the country’s semiconductor industry. The reasons behind this action have triggered intense debate and speculation within China.

Oppo, in a brief statement issued last Friday, attributed the closure of Zeku to “uncertainties in the global economy and smartphone market” and referred to it as a “difficult decision.” According to Shobhit Srivastava, a senior analyst at tech research firm and consultancy Omdia, the primary factors behind this move appear to be the economic slowdown and the necessity to maintain profitability. Srivastava further explained that running a chip division requires significant investment and support from partners, making it a challenging task.

However, Chinese analysts have also put forth non-financial reasons for the shutdown of Zeku, including speculation that Oppo may be seeking to avoid potential trade sanctions imposed by the United States. These speculations suggest that by dismantling its in-house chip design unit, Oppo may be taking precautionary measures to mitigate any potential negative impact from trade-related issues.

The exact motivations behind Oppo’s decision to disband Zeku may involve a combination of economic considerations and strategic planning to navigate a rapidly evolving global landscape.

While Oppo has not been specifically mentioned as a target for blacklisting, it is worth noting that the United States has already imposed trade restrictions on Huawei Technologies Co, a struggling telecommunications equipment manufacturer. Huawei, which operates an advanced semiconductor design firm called Hi-Silicon, faced significant challenges due to US trade sanctions.

In December of the previous year, Huawei reportedly exhausted its in-house-designed semiconductors for smartphones as a result of restricted access to advanced new chips, as indicated by a report from Counterpoint Research. Industry sources suggest that many engineers from HiSilicon had joined Zeku, Oppo’s chip design unit, due to the continued impact of US sanctions on Huawei’s operations.

In an 18-minute video addressing employees, Zeku’s CEO, Liu Jun, stated that the primary reason for Oppo’s decision to close the chip design unit was the weak smartphone market. This statement suggests that the closure of Zeku was driven mainly by challenges within the smartphone industry rather than explicit trade-related concerns.

While there may be some speculation and discussion about the potential influence of trade restrictions on Oppo’s decision, the official explanation from the company emphasizes the impact of the smartphone market’s current conditions.

Liu, visibly emotional in the video, stated that the company could not afford such a substantial investment in chips, indicating the financial challenges involved. Oppo declined to provide further comments on the matter on Monday.

The closure of Zeku represents yet another setback for China’s ambitions in the semiconductor industry and its goal of achieving self-sufficiency in this high-tech field. US trade sanctions have continued to disrupt the operations of major domestic firms in the Chinese semiconductor sector.

Prior to the announcement of Zeku’s closure, the chip design unit had actively been recruiting semiconductor talent, targeting new university graduates in China and enticing engineers from other Chinese chip firms with attractive compensation packages. A recruitment notice seeking chip engineers for its offices in Shanghai, Beijing, Chengdu, and Xian had been published just two weeks prior to the shutdown announcement.

Established by Oppo in 2019, Zeku’s primary purpose was to design chips that could enhance the performance of Oppo’s smartphones and other devices. Over the course of four years, Zeku introduced two semiconductor designs: MariSilicon X, an imaging-dedicated chip launched in December 2021, and MariSilicon Y, an audio-processing chip introduced in late 2022.

Zeku has offered its employees what is known as N+3 severance packages, where N represents the number of years of service. This compensation package will be calculated by multiplying N+3 with an employee’s average 12-month base salary and bonus, which is considered generous by industry standards. New graduates who were recently hired have the option to either work for other departments at Oppo’s head office in Dongguan or accept the N+3 severance package, according to a notice from Zeku.

According to an industry source, Oppo’s decision to establish a semiconductor unit with 3,000 employees appears to be a strategic mistake, as that number was deemed too large for a chip design start-up.

In terms of smartphone market share, Oppo ranked as the world’s fourth-largest vendor in the first quarter, following Apple, Samsung Electronics, and Xiaomi Corp, according to data from Counterpoint Research. However, Oppo’s smartphone shipments experienced a decline in the first quarter, with 20.8 million units shipped, down over 10% from 30.9 million units in the same period in 2022.

In 2022, Oppo’s total smartphone shipments, including those of OnePlus and Realme, declined by 20.7% year-on-year to 107.6 million units, resulting in a 23% reduction in revenue to $38.2 billion, as reported by Counterpoint.

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