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"When talking about Chinese companies, people always say OEM, which I feel is quite unfair." In the view of Wang Laichun, the founder of Luxshare Precision, the label of "OEM" is actually a self-deprecation. Of course, OEM factories generally don't like the word "OEM". In Wang Laichun's view, if you look down on Luxshare Precision for this reason, you are also blinded by one thing.

Whether you like the word "OEM" or not, in the field of consumer electronics, OEM is indeed a job with a high threshold, especially to be recognized by Apple. By clinging to Apple's thighs for a long time, Luxshare Precision has become a consumer electronics giant with a market value of hundreds of billions, and the strongest Apple OEM in the A-share market.

However, in recent years, with the continued downturn in the global consumer electronics industry, Apple, once considered the most trusted company, has begun to struggle, with its performance declining for several consecutive quarters and the company beginning to frequently adjust its production lines and suppliers.

This has made life even more difficult for its suppliers, who are generally struggling in the siege of the "Apple supply chain". At its peak, Luxshare Precision's market value once exceeded 400 billion yuan. In just a year and a half, Luxshare's stock price increased by 9 times. However, at the beginning of this year, its market value had fallen below 200 billion, and its market value had fallen by half.

Fortunately, recently, as Apple's market value exceeded 3 trillion, surpassing Microsoft and returning to the top of the world market value, the entire "Apple chain" companies were also excited. The stock price of the "Apple chain leader" that had been neglected for a long time finally picked up.

Since entering February, Luxshare Precision has been on an upward trend, with its market value rising from a low of 182.526 billion yuan to a high of about 311 billion yuan in July, an increase of about 128.5 billion yuan. Among them, institutional statistics show that the highest increase was in the second quarter of this year, with Luxshare Precision's stock price rising by 34% overall. As of July 22, Luxshare Precision's market value was 286.1 billion yuan.

How much support does the positive factor from Apple's stock price provide to Luxshare? With both new and old businesses developing, can Luxshare's stock price regain its former glory?

1. The dark horse stocks that public funds are most optimistic about

No one expected that Luxshare Precision, which had been neglected for many years, would become the most obvious dark horse favored by public funds in the second quarter. Many of these public funds that have been frantically increasing their holdings are products of leading fund giants such as Xingquan, China Universal, GF, Invesco, and E Fund.

But there are far more institutions that favor Luxshare Precision. Wind data shows that the number of institutions holding Luxshare Precision shares has soared from 704 in the first quarter to 1,151, an increase of nearly 350. Not only has the number ranking increased month-on-month, but it is also the one with the most incremental institutions among all A-shares.

Many institutions have cast their votes for recommendations, and Luxshare Precision has become the "new favorite" of institutions. Statistics show that as of July 3, 46 brokerages have released the list of golden stocks for July, with a total of 271 stocks recommended. Among them, Luxshare Precision was recommended by 10 brokerages.

It is no wonder that netizens can't help but compare Luxshare Precision with Kweichow Moutai, known as the "King of Stocks". From the data, from 2010 to 2023, the compound growth rate of Kweichow Moutai's operating income and net profit attributable to shareholders was only 21.77% and 23.03% respectively, both lower than Luxshare Precision.

For this reason, Luxshare Precision is often affectionately called "Electronics Mao" by stockholders, and institutional investors have also begun to rush into the market. But in fact, the correct association with "Apple Chain No. 1" is still to look at the overlord of the consumer electronics industry chain - Apple.

According to the 2023 annual report, the company's largest customer, Apple, achieved revenue of 174.4 billion yuan, accounting for 75% of its revenue. It can be said that Luxshare Precision and Apple have long been in a "prosperity-share, loss-share" relationship. Therefore, the key to judging whether Luxshare Precision can succeed lies in whether Apple's consumer electronics business can succeed.

As we all know, the confidence of Apple's industry chain is still largely dependent on the sales performance of each product line. Previously, hardware products such as the iPhone faced the dilemma of poor sales, and the market has gradually disenchanted "Apple chain" companies.

Nowadays, influenced by the general trend of AI, Apple mobile phones, which are labeled as technological trends, have also actively invested in this field. On June 11 this year, after Apple released the iOS18 system with AI capabilities, it significantly increased the market's sales expectations for Apple mobile phones.

According to Morgan Stanley, Apple may sell nearly 500 million iPhones in the next two years, with shipments of 235 million in fiscal 2025 and 262 million in fiscal 2026. As soon as the news came out, Luxshare Precision, as the largest foundry in the A-share market, became a direct beneficiary.

Faced with market opportunities, Luxshare Precision followed closely and increased its voice in AI servers and related technologies. Half a month after Apple announced AI, Luxshare Precision also talked about its AI strategy at a shareholder exchange meeting, saying, "For Luxshare, in the AI ​​era, hardware sensing technologies such as sound and light are also very important, which is also in line with the company's layout."

In fact, in the past two years, Luxshare Precision's overall strategy has been to follow closely the footsteps of Apple, its financial sponsor. Therefore, although the consumer electronics industry continues to decline in 2023, Luxshare Precision has not given up clinging to Apple. When Apple develops a new generation of products, Luxshare Precision will follow suit and produce them accordingly.

For example, in December last year, Luxshare Precision acquired 62.5% of the shares of Shishuo Electronics, which mainly produces old iPhone models, for 2.108 billion yuan. In the same month, it took over Qorvo's packaging and testing factories in Beijing and Dezhou, Shandong, and its main customer was also Apple.

Through continuous mergers and acquisitions, Luxshare Precision has continuously strengthened its production capacity for Apple OEM and increased its market share in Apple OEM. From the performance point of view, it is precisely by acquiring more categories and market share of Apple that Luxshare Precision has achieved an increase in profit growth in this round of downward consumer electronics market.

Data shows that in 2023, Luxshare's overall operating income increased by 8.35% year-on-year. Among them, the revenue brought by Apple, its largest customer, increased by 11.25% year-on-year, which is the main reason why Luxshare can still achieve growth.

Today, among Apple's flagship consumer electronics products, Luxshare has become the largest OEM manufacturer of headphones and watches, and the second largest OEM manufacturer of mobile phones. However, in retrospect, the reason why Luxshare Precision has become the leader of the "Apple supply chain" is that its founder Wang Laichun copied the Foxconn model.

2. The rise of Foxconn disciples

As we all know, most Chaozhou family businesses are started by fathers and sons or brothers, and there are relatively few "brother-sister teams". Women usually play a supporting role behind the family business. However, Wang Laichun, a woman from Chaoshan, has been able to stand on her own and step onto the front stage of entrepreneurship early on.

In fact, Wang Laichun was originally a female worker at Foxconn. Many people regard Luxshare Precision as the mainland version of Foxconn. As early as 1988, Wang Laichun, at the age of 17, became one of the first employees of Foxconn in Shenzhen. There were 149 people in the same batch as Wang Laichun at that time, but not many of them could stick with it.

Wang Chunlai worked there for more than 10 years. In 2004, Wang Laichun and his brother Wang Laisheng decided to found Luxshare Precision together, planning to do OEM for Foxconn. At that time, this plan was strongly supported by the Guo brothers. For example, Foxconn's subsidiary Fugang Electronics became the third largest shareholder of Luxshare Precision, and the chairman was Guo Taiming's younger brother, Guo Taiqiang.

However, Foxconn itself is an OEM, which means that Luxshare Precision was an OEM for OEMs at the time. All orders that Foxconn was unwilling to accept or could not accept were given to Luxshare Precision. At first glance, this seems to be a very insignificant business, but in fact it solves the problem that many factories dream of - orders.

In the first few years of Luxshare's founding, almost half of its orders came from Foxconn, which became the food for Luxshare's rapid development. In 2010, relying on Foxconn's orders, Luxshare Precision achieved a leap forward in listing and successfully landed on the A-share market. Coincidentally, the year when the listing sprint was successful, the mass production of iPhone 4 officially kicked off the era of competition for the dominance of smart electronic products.

At that time, Foxconn had just begun to taste the joy of "Apple", and Wang Laichun, a former employee, also saw this opportunity and was eager to try. However, how could he win over the richest sponsor in this industry chain? Wang Laichun thought of a way to copy Foxconn's homework and get core orders through mergers and acquisitions.

You know, the reason why Foxconn became a giant at that time was because of the expansion of major customers brought about by mergers and acquisitions. This operation was also learned by Wang Laichun. In those years, Wang Laichun almost followed the footsteps of Foxconn and walked the road of vertical integration of the industrial chain.

In 2010, Wang Laichun chose to terminate the OEM business for Foxconn and adjusted the business to the independent production of connectors. Luxshare Precision's business gradually shifted from mobile phone OEM to mobile phone component and functional module manufacturing business. This means that Wang Laichun needs to constantly knock on the door of Apple suppliers and compete with Foxconn for the "Apple" bowl.

However, compared with Foxconn, Wang Laichun's mergers and acquisitions are more radical and bold. According to incomplete statistics, Luxshare Precision has launched a total of 15 mergers and acquisitions between 2010 and 2018. Among them, Luxshare entered the iPhone linear motor business in 2018. Later, it entered the Apple Watch business in 2019 and the iPhone complete machine OEM in 2020.

Until 2021, after several years of integration, Luxshare successively won Apple's Lighting, headphone cable, power cable and wireless charging business, and finally successfully won the AirPods assembly order. With the expansion of the product line, Apple finally replaced Foxconn and became Luxshare's largest customer.

After a series of advancements, Luxshare Precision has completed the advancement from components to modules to complete machines. Whether it is from simple component processing to module production and then to terminal product assembly, it has completed the three-step transformation of the enterprise. Luxshare Precision has truly achieved "upward movement" in Apple's industrial chain.

Luxshare Precision has become the well-deserved "No. 1 in the Apple supply chain." However, the risk of "putting all eggs in one basket" is also threatening it unprecedentedly. From the perspective of business composition, nearly three-quarters of its revenue comes from Apple. Once it loses Apple's big order, Luxshare Precision will also lose its ability to support its performance.

Wang Laichun is also aware of this. The Apple industry chain is glamorous, but it is not easy to crack.

3. Break out of the Apple addiction

As early as 2021, Wang Laichun launched three five-year plans, stating that he would develop consumer electronics, automobiles, communications, industry, medical and other businesses in an all-round way, and set a strategic goal of making Tier 1 (first-tier supplier) business enter the top ten in the world in the automotive business field.

The goal is ambitious, but fortunately it does not stop at PPT. In 2022, Wang Laichun invested 10 billion in Chery and officially entered the new energy track. Completely different from the concept of consumer electronic wiring harnesses and connectors, Luxshare Precision claims that its automotive wiring harnesses and connectors are A-class components and are the nerves and blood vessels of the entire car.

Therefore, based on the previous business advantages, Wang Laichun once publicly stated that "the ideal situation is that a single customer will not contribute more than one-third of Luxshare Precision's performance in 10 years." However, compared with the mobile phone industry chain, new energy vehicles have greater opportunities, but they are also more "cost-intensive."

The huge investment of 10 billion is just the beginning in the new energy vehicle industry. If you want to truly enter the supply chain of new energy vehicles, you cannot do so without sufficient financial strength. However, seeing that the new energy vehicle industry is in full swing, Luxshare Precision has made up its mind to expand into the automotive industry.

In 2023, Luxshare and GAC Group jointly established Luxshare Automotive Technology, in which Luxshare Precision and GAC each hold 45% of the shares. However, since its entry into the market, Luxshare Precision's automotive business has not contributed much to revenue. In 2023, the revenue of automotive interconnection products and precision components was 9.252 billion yuan, but the revenue share was only 3.99%.

It is obvious that Luxshare Precision's automotive business cannot yet drive the "consumer electronics" business. In addition to the automotive business, Luxshare Precision is also constantly digging deeper into the communications business and entering the field of AI servers.

In an investor communication memo in April this year, Luxshare Precision stated that it can provide a complete set of solutions worth approximately RMB 2.09 million for NVIDIA GB200 NVL72 single cabinets, including electrical connections (copper cables, connectors), optical connections (optical modules), power management, heat dissipation and other products.

By the end of June, Intel acquired a 3% stake in Dongguan Luxshare Technology Co., Ltd., a subsidiary of Luxshare Precision, with a subscribed capital of 17.66 million yuan. This also allowed Luxshare Precision to further enhance its communication technology attributes and open up more room for imagination.

However, in terms of revenue share, the communications business still faces some similar dilemmas as the automotive business. In 2023, Luxshare Communication's revenue from interconnect products and precision components will be 14.538 billion yuan, accounting for only about 6.27%.

At present, although the tie-up with Apple has stabilized the profit scale, Luxshare Precision's profit margin in front of Apple is still shrinking step by step. With the overall weakness of the industry and the intensification of competition, the gross profit margin of Luxshare Precision's consumer electronics business has continuously declined from the peak of about 20% to about 10% in 2023.

This also directly led to Luxshare Precision's revenue growth rate in 2023 dropping to 8.35% for the first time, becoming the lowest level since its listing. In the earlier years of 2021 and 2022, its revenue growth rate increased by 66.43% and 39.03% year-on-year respectively.

While getting a ticket to Apple, can the reconstruction of the automotive and communications supply chains help Luxshare Precision further enhance its "status"? For Luxshare Precision, challenges have never gone away. In the future, Luxshare Precision's road to "de-Appleization" is still long and arduous.

Author | Li Dou

Editor | Sun Chunfang

Operations | Liu Shan