OEM to ISP Transformation

A Presenta*on at Hong Kong Business Associa*on of Hawaii -‐ Hong Kong/China Forum @ Hilton Hawaiian Village, Honolulu, HI (June 4-‐7, 2014)

Prepared by: Al Kwok Member, HKSAR “IP Trading” Working Group Founder, Interna*onal IP Commercializa*on Council

Governor & Co-‐founder, Savantas Policy Ins*tute President, CASPA PRD Chapter Founder, China Interna*onal Intellectual Property Services Former VP & CIPO, NetLogic Microsystems (“NETL”)

OEM to ISP Transformation 1

OEM to ISP (Integrated Service Provider) Transformation: "Turning a

Product Company into a Service One"

June 5, 2014

Evolution of Intangible Assets – U.S. Companies

Knowledge-based Economic Trend

2 June 5, 2014 OEM to ISP Transformation

Mkt. Cap. / Intangible Asset: 1)  Apple: ~US$656B / >99% 2)  Foxconn: ~US$5B / <20%

The Value Hierarchy (Business Models) Va

lues

/Pro

fit M

argi

ns

Applications (Mkt. & Standards)

System Integration (Archit., …)

Engineering (Design, ODM,..)

Manufacturing (Process, OEM)

Intellectual Property (IP)

Out

sour

cing

Tr

end

Consumer recognition Core competency

Brand Innovation

50%

40%

30%

Presented at Intellectual Property Symposium 2002 in Guangzhou on December 10, 2002

OEM to ISP Transformation 3 June 5, 2014

Value Chain (=> Demand!Supply in Alignment)

IC H/W Platform

IC S/W Platform (API, drivers, etc.)

System Application Platform(s)

Generic Reference Design (w/ other chips)

Differentiated Application Designs

Various Applications/Services

Consumer Markets (End Users)

IC Design houses

System Integrators

Service Providers

For Consumer Electronics Market (Ecosystem)

System Manuf.

Great end-‐to-‐end push-‐pull effect for market scaling thru lifecycles


Raising Values of a Product (IP is the Core) "  Price = Value to Customers =>

Price = Mftg. Costs + Services + Embedded IP License + Brand

"  Pre-sale services mean design-win efforts providing solutions to address customers’ problems "  This is the best sources of

innovation and ideas for the next-generation products

"  Post-sale services mean reducing customers’ costs of ownership, extending the useful lifetime of the product, generating recurring sales

"  Embedded IP licensing means the customers can use the product IP for their own product uplifting & differentiations - e.g., “Intel Inside”

"  Brand recognition means the customers recognize the product and its maker for superb quality, performance, reliability & services

IIPCC Confidential & Copyright Protected 5 Jan. 19, 2014

Manufacturing Cost (⽣生产成本)

Pre- & Post-Sale Services (售前及售后的服务)

Brand Recognition (品牌认可)

Embedded IP Licensing (隐含IP授权)

Incr

easi

ng V

alue

s ( 提⾼高增值

) Price = Values to Customers

(价格 = 给客户的价值)

>70%PM

~10%PM

>60%PM

>40%PM

Mkt. Cap. / Intangible Asset: 1) Apple: ~US$393B / >99% 2) Foxconn: ~US$3B / <20%

Demand Side

Demand Side

Demand Side

Supply Side

Profitability vs. IP Creation (Competitiveness)


Manufacturing Cost (⽣生产成本)

Pre- & Post-Sale Services (售前及售后的服务)

Brand Recognition (品牌认可)

Embedded IP Licensing (隐含IP授权)

Incr

easi

ng V

alue

s ( 提⾼高增值

) Price = Values to Customers

(价格 = 给客户的价值)

>70%PM

~10%PM

>60%PM

>40%PM Demand Side

Demand Side

Demand Side

Supply Side

OPEN

OPEN

PRIVATE

Trademarks

Utility Patents, Design Patents, Copyrights…

Trade Secrets (Know-how)

Only <20％ Know-how for Patents, the rest kept as Trade Secret

Serv

ice

requ

irem

ents

driv

e H

/W p

latfo

rm im

prov

emen

ts

Existing OEM/ODM business model breaks the IT Business Food Chain without positive feedback from Service to drive next product dev. cycle

Mkt. Cap./Intangible Asset: 1)  Apple: ~US$393B / >99% 2)  Foxconn: ~US$3B / <20%

Integration vs. Standardization vs. Scalability #  Hierarchy of IT Business (from “service to consumers” as the top

of the food-chain with highest Gross Margin then down): Much Higher Value Creation from Demand-side

Service (to consumers) <=> Domestic market (localization) (China market is huge enough) Application (for service) <=> Domestic market (localization) (China centric standards & IPs) Network platform <=> Domestic stds. for local services/appl. International stds. (for global interface)

System Integration <=> Domestic market (localization) vs. Int’l. mkt. (for applications) (China centric standards & IPs vs. Int’l. ones)

S/W & F/W platform <=> Int’l and domestic stds. (global & local) H/W platform <=> International stds. (global IC supplies)


Mature (must have)

Und

er-d

evel

oped

Ecos

yste

m

Wel

l-dev

elop

ed

Cut-throat Competition

(me too!)

Application

Futuristic (nice to have)

Too Far-out: Not ready,

hype, bubble

Future Growth: Longest-term

Future Growth: Long-term

Future Growth: Short-term

Well-developed infrastructure: consumer market by nature with lower (30->50%) profit margins

Bui

ldin

g in

frast

ruct

ure

&

ecos

yste

m:

Indu

stria

l m

arke

t by

natu

re w

ith h

ighe

r (5

0->7

0%) p

rofit

mar

gins

Market Positioning – Product/Service Focus


June 5, 2014 OEM to ISP Transformation 9

MxXxxx Ltd.

Case Study: MxXxxx Ltd (2007)(Hong Kong - Shenzhen)

Business/Market Strategies #  Business focuses/existing revenue sources

#  AMR system (#1 priority) - Towngas as the lead customer #  GPS/GPRS logistics service platform (#2 priority) - Nippon Express (for

cargo) & Eternal East (for passenger) as the lead user/customer #  Wireless data acquisition system (#3 priority) - existing business

#  Business model #  Fully-integrated solutions to build long-term service platforms #  Scalable service platforms for recurring revenue streams from top-tier

customers. #  Add high-value service items to grow revenue/account.

#  Customer channel development - mostly by referrals (endorsements) #  Top-tier users/customers introduce their partners as new customers

#  Follow and support top-tier customers’ expansions for growth #  Market expansion -- as led by top-tier customers

#  Hong Kong (as the market test site) -> PRD -> Mainland -> Global #  Setting up service/data centers in Beijing, Shanghai, Chengdu and Xian



AMR System - Architecture (for Towngas)

Gas meter -Low Speed

DTS

GPRS Modem

Control Centre

A/D Converter

Commercial & Industrial (C&I) Users

Domestic

Household

Gas meter -High Speed

MS/RMS CMS

GBS

Mid-way collector

1X

20 X

240 X

2Y

Y

Y 240 X

: Items currently supplied by MxXxxx

DTS : Item to be supplied by MxXxxx : Items to be integrated

Billing

Customer service

Resource Planning

Marketing IVRS

Towngas existing internal system

GPRS

IVRS = Interactive Voice Response system

CBS CBS

RF


AMR System - Milestones

GBS

Jan 2005

CBS CMS

Control Center

Sep. 2008

Jan 2006

RMS

Dec. 2008

Nov. 2008 Adoption

into 60+ JVs in China

Sept. 2005

Dec. 2006

MxXxxx Product/Technology Roadmap

DTS *

Jan. 2009

R/T Data Analyses

Billing Customer services, IVRS, Gas supply planning

Values to Towngas

* = under development Full system integration capability for any AMR system in all flow-based applications incl. gas

AMR System - Realized Benefits to Towngas Direct Cost Reduction Benefits #  Monthly data transmission charge (GPRS vs. phone line)

#  HK$20 vs. HK$148 #  Installation cost reduction (w/o digging, drilling & cabling)

#  HK$200 vs. over HK$5,000 #  Monthly staff cost reduction for collecting meter reading manually

#  HK$2.4M (over 200 persons @ $12K/mon) CRM, Productivity & Efficiency Benefits #  Enable real-time gas usage monitoring, down to 1 minute interval,

for CRM, ERP and gas supply/distribution/delivery planning #  Enable proactive CRM to retain high-value customers #  Enable accurate billing based on real data instead of estimates #  Connectivity in all situations regardless physical accessibility


Service = Highest-level Value/IP Integration

MyCard Confidential 9August 1, 2008

GPS/GPRS Logistics Service Platform - System Architecture

GPRS

Logistics & PassengerLogistics & Passenger

Logistics Co.

ForwardingAgents

SecurityMonitoring &

Alerts

Customer-specified Call

Services

Functions of Control/Call/Data Centers & Service Platform

Customs

InsuranceCo./ Bank -Asset Mgt.

Real-timeLocationTracking

Coordination,Security Checks

& Alerts

Data analyses / Bus.Intel., Map Database &

User Web Portal

CallCall

CenterCenterControlControl

CenterCenterData Center /Data Center /

Access PlatformAccess Platform

Data Storage &Archives

Map Database Mgmt.

User Access Control &Portal Management

GUI & Templates

EmergencyAlerts

Senders &Receivers

Transformation from Product to Service: OEM -> ODM(S/S) -> IDM(D/S) -> ISP(D/S)


Supply-side OEM = Original Equipment Manufacturers ODM = Original Design Manufacturers

---- A Big Gap In-between ----

Demand-side IDM = Integrated Design Manufacturers ISP = Integrated Service Providers


GPS/GPRS Log. Service Plat. – Network

Customers monitor vehicle activities on MxXxxx web-portal

Hutchison

PCCW (Sunday)

China Telecom

MxXxxx

Sinotrans

China Mobile

Inte

rnet

4M+ lease line

10M lease line

MxXxxx capabilities: • Web ASP services • Map database • Data center

In Hong Kong In Mainland

Wireless network

Wireless network

Wired & wireless network

Wired network

Wired network


GPS/GPRS Log. Service Plat. - Milestones

Launch in HK - Single-SIM

2nd-gen. Device w/ Additional Interfaces

Dual-SIM Device

Cross-border Logistics Co.

Cross-border Passenger Vehicles

Partnership with TC - the largest smartcard payment service provider for bus in China

90 cities in China with 98,000 bus

Overseas markets

Aug. 2004

Mar. 2006

Dec. 2007

Aug. 2008

Oct. 2008

Jan. 2010

Total Solution to Customers - Fully integrated System

MxXxxx Service/Technology Roadmap

Market Development

Local Logistics Co.

Full system integration capability to send other device data thru GPRS

Eternal East as the lead customer

GPS/GPRS LSP - Realized Benefits to Users Direct Cost Reduction Benefits #  Saving on fuel consumption: $4,000 estimated vs. $220 for a monthly

service fee to MxXxxx $  As reported on a newspaper, a saving of HK$120,000 in fuel expense for 30

trucks on monthly basis, with the assistance of MxXxxx’s fuel consumption report

#  Saving on toll expenses: $3,360 estimated vs. $220 for a monthly service fee to MxXxxx

$  Testimony by CEO of Eternal East: a potential saving of HK$3,360 in toll expenses for each coach on monthly basis, with the help of MxXxxx’s specified location report

CRM, Productivity & Efficiency Benefits #  Has become a mandatory requirement (de-facto standard) for cross-

border cargo logistics by the largest forward agents in HK - MxXxxx is the sole source!

#  Intelligent fleet management through “Fixed Route Control” or “Fixed Area Control” with SMS/e-mail alerts on rule violations for proper supervision

#  Effective security measure against robbery/theft with the on-line SOS button #  Ability to real-time coordinate vehicles for optimized job assignments


Differentiating Advantages & Strategies #  “Full System Integration” solutions

#  End-to-end proprietary solution from “H/W+F/W+Interface S/W” device platform to “Application S/W + User Interface (GUI & templates)” IT service platform

#  Embedded through customization into customers’ operation systems as an integral part of its daily operation - hard to replace

#  Becoming de-facto standards with on-going customer driven improvement cycles once every 3 months

#  Comprehensive core competency for location-based total-solution service capability (“Entry Barrier”)

#  “Full System Integration” know-how endorsed by lead customers #  Proprietary map database system customizable to cust. needs

and capable of fast search (benchmarked as the best by PCCW) #  Proprietary wireless transmission evaluation platform to ensure

proper optimization for high-reliability data transmission #  Data center and call center capabilities to support customers’

needs for “Total Solutions”


Diff. Advantages & Strategies – Cont. #  Close collaborations with lead customers/users

#  For wireless real-time flow-based intelligent-control total-solution #  Towngas - AMR “total system” solution development

#  For location-based real-time intelligent logistics managmt. system #  Nippon Express and SinoTrans - cargo logistics GPS/GPRS tracking #  Eternal East - passenger logistics GPS/GPRS tracking #  Tianjin IC Card Public Network System - integrating GPS/GPRS

tracking with smartcard (RFID) applications

#  Business connections and leverage: #  Being the Shenzhen base of National Engineering R&D Center

for Mobile Communications - a market-leader making platform! #  pre-approved authority to pilot-test in new frequency spectrum -- 1st

mover advantage with >1 year’s lead #  Attractive platform to team up with the best device (H/W) providers

#  Strategic partnership with leading network service providers in China: China Mobile, China Telecom and Sinotrans in Mainland; Hutchison and PCCW in HK


Business/Technology Developmt. Roadmap #  Comprehensive Business Intelligence (BI) enabling

capabilities as core strategy #  1st stage (present status): GPS/GPRS

#  For “real-time” (updating) location-based service platform for time/mission critical applications

#  Generation of appropriate management reports #  2nd stage: GPS/GPRS + RFID

#  RFID: add real-time item tracking capabilities #  For Location-based item-tracking service platform for Item-based

logistics management and BI services #  3rd stage: GPS/GPRS + RFID + environmental sensor

technologies #  Sensors: add real-time environmental (temp., humidity, pressure,

etc.) monitoring capabilities #  For high-end high-profit comprehensive critical-item tracking and

logistics management services



MxXxxx Ltd.

Looking Ahead

Methodology for “CRE + Con*nuing Innova*on”

Lead Customers’ Requirements => 2nd G => 3rd G =>…

Differentiating Value Creations => 2nd G => 3rd G =>…

Business Model => 2nd G => 3rd G =>…

Service/Product Roadmap => 2nd G => 3rd G =>…

Application/Technology Roadmap => 2nd G => 3rd G =>…

IP Portfolio Development => 2nd G => 3rd G =>… The next innovation ideas come from customers (CRE) & “Stress Tests” identifying (1)  The weak-links in product design & performance and scalability (2)  System (architecture) integrity and scalability (elasticity) issues (3)  The bottlenecks for scalability (technology and manufacturability roadmap)

Close collaboration between the customer (CRE) and the vendor Mission-&-Time Critical Requirements along Demand-chain


Strategies in the “Cloud” & IP Protection Barriers in Cloud Computing era against copycats #  Business Model – Service-franchising is the best

#  Contractual framework in favor of the franchisor.

#  Business/operation process – proper SCM #  Close-loop fully-traceable certified process is the best

#  Network system integration #  Real-time monitor and surveillance is the best

#  System integration - PaaS #  Proprietary firmware as trade secrets

#  Software - SaaS #  No source code disclosure is the best

#  Hardware - ASIC #  Anti reverse-engineering practice is the best


Key Advantages of HK for Business As stated by international business executives why they pick HK for

doing business #  International heritages and appeal

#  International Business Hub – no visa controls for businessmen #  Foreign employees – can bring in engineers from India and Mainland

#  International Financial Centre – no currency exchange controls #  Pro-business & pro-free-market-economy environment

#  A World’s Freest Economy #  Little government interferences – a “hands-off” & “behind-the-scene” policy

#  A Free and Open Society – open book for rules of the game #  Anti-corruption is the norm – relatively equal plain field for all!

#  Accountable Government – has a civic process to review and criticize #  Open and cost-effective legal system

#  The Rule of Law #  Based on well-familiar British Common Law

#  International Arbitration and Dispute Resolution Centre #  Update Arbitration Law – autonomy to establish new ones if needed #  Available domain expertise from international channels


Thank You!

[email protected]

OEM to ISP Transformation June 5, 2014 25

OEM to ISP Transformation

Business

isp transformation

amr system architecture

product ip

pm demand

new customers

customers problems

amr system milestones

netlogicmicrosystemsnetl