In a remarkable leap that has defied expectations, Gree Electric Appliances, under the leadership of its tenacious chairwoman, Dong Mingzhu, has successfully ventured into the realm of semiconductor manufacturingThis ambitious move marks a significant departure from traditional perceptions of the home appliance industry, which has long been considered low-tech and less innovative compared to sectors like electronics or automotiveHowever, with Gree’s announcement of producing over 100 million chips, skepticism persists in some circles regarding the sophistication of these semiconductors.

Dong Mingzhu, a high-profile figure in China's business landscape, recently expressed immense pride in Gree’s achievements during an interview“We have successfully developed chips, completing the entire industrial chain from independent research and development to manufacturing, all without receiving a single cent from the government,” she stated

Her bold declaration highlights the company's commitment to technological self-sufficiency amidst a global climate of uncertainty and competition for semiconductor resources.

Historically, the concept of a home appliance manufacturer trying to forge ahead in chip production seemed far-fetched, even laughableYet, the pressing “chip shortage” crisis that began six years ago shook the Chinese manufacturing sector and catalyzed a movement towards cross-industry innovationThe transformative wave was not limited to electronics but rippled across multiple domains, including home appliancesGree's choice to adopt a fully integrated model—encompassing independent design, production, and development—demonstrates a strategic map aiming for deep market penetration and technological independence.

Two primary strategies outline Gree’s foray into the chip industry: pivotal investments in semiconductor firms and the establishment of its own chip manufacturing facilities

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Starting in 2018, Gree took significant financial steps by funding the formation of Zhuhai Zero Boundary Integrated Circuit Cowith an investment of 1 billion yuan, dedicating its efforts to chip design and developmentConcurrently, the company invested in publicly listed semiconductor companies such as Wentai Technology, where it became the second-largest shareholder after contributing 3 billion yuan to their capital expansion.

In the following years, the company accelerated its transition from investment to creation by developing proprietary semiconductor solutionsGree has diversified its product offerings over the last few years, unveiling a range of homegrown chips, including those designed for air conditioning systems, smartphones, and IoT applicationsBy 2020, Gree proudly released several types of chips specifically aimed at enhancing the performance of their air conditioning units, followed by more advanced chipsets for mobile phones and IoT devices a year later

However, it is important to note that the chips currently produced gravitate towards the mid-to-low end of the marketTheir chips are typically manufactured using the 28nm process technology, a notable threshold indicating that they are yet to be classified as high-performance variants.

The practical application of these chips shows that while Gree has made strides in semiconductor design, its offerings haven’t yet breached the barriers of cutting-edge technologyIndustry experts contend that most domestic semiconductor manufacturers can produce chips with comparable specifications, prompting questions about whether Gree can claim true competitive advantage within a global context.

Despite these challenges, the company has recently made significant investments into third-generation semiconductor factories, focusing on silicon carbide chipsGree’s new facility boasts a manufacturing area of about 200,000 square meters with an annual production capacity of 240,000 six-inch SiC chips—a move that aligns with the global push for improved energy efficiency.

In a broader context, Gree's ventures into new markets have not been without setbacks

Despite attempts to diversify into sectors like electric vehicles and smartphones, their efforts have not significantly boosted revenue streamsIn the third quarter of 2024, Gree reported revenue of approximately 146.7 billion yuan, marking a 5.3% decrease from the previous year, which stirred concerns among analysts and shareholders regarding its growth strategy.

Gree's diversification efforts, which include segments such as industrial products and smart home devices, collectively contributed less than 11% of the total revenue in the first half of 2024. In contrast, competitors like Midea Group reported diversified business revenues exceeding 25%. This disparity underscores the fact that Gree's diversification strategy remains relatively underdeveloped and unable to provide substantial financial uplift.

An alarming trend noted in Gree’s financial performances is the increasing dependency on air conditioning sales, which represented over 78% of the net revenue as of mid-2024. This figure marked a significant rise compared to previous years, raising alarm bells regarding the company's over-reliance on a single product line amidst changing climate conditions that have led to reduced overall market demand in the air conditioning sector.

As Gree navigates its expansive ambitions, the interplay of competitive dynamics poses additional challenges

Dong Mingzhu attributes the company’s adaptability and technological advances to a resolute focus on innovationHowever, this assertion comes against the backdrop of ongoing market disputes, particularly with Xiaomi, which recently faced legal repercussions due to patent infringements related to Gree’s technologyMoreover, the introduction of high-end products like the “Rose Air Conditioner” has met criticism for its aesthetic choices, reflecting a dissonance with younger consumer preferences.

Furthermore, Gree has had to contend with significant internal shifts, particularly regarding its distribution modelThe push towards integrating online and offline sales disrupted long-standing relationships with traditional distributors, leading to friction within the operational frameworkDong Mingzhu's proactive approach to digital sales channels, including live-streaming promotions, has surfaced mixed reactions; while some embrace the innovation, others view it as undermining the company’s traditional retail strategies.

In summation, Gree Electric Appliances stands at a crucial crossroads