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Recently, Foxconn signed a major agreement with Henan Province, planning to invest 1 billion yuan to build a 700-acre headquarters building in Zhengzhou, and to place its new energy vehicle business in Zhengzhou Airport New District.

After reading some online comments, I found that Foxconn is widely criticized...

For example, they say that Guo Taiming is ignorant of the immensity of heaven and earth, saying that "building factories in mainland China is just giving mainland China a free meal."

In recent years, they have been clamoring to open factories all over the world, starting with the United States, claiming to invest 10 billion US dollars to build the "Eighth Wonder of the World". As a result, in less than two years, the United States took the lead in breaking the contract and revoked the "tax reduction" benefits.

Later, they went to India and wanted to transfer a quarter of Apple's foundry capacity to India. However, they did not expect that the quality of India's labor force was uneven. The pass rate of Apple mobile phones assembled in India was only about 50%, resulting in the production capacity being slow to increase, and they were left with no choice but to cry.

Now that it has returned to the mainland, is Foxconn turning over a new leaf and admitting its mistakes?

Is this the case?

This aroused Jun Lin's curiosity, and he planned to take a closer look to see if he could find some investment opportunities.

The operating entity of Foxconn's business in mainland China is "Industrial Foxconn" listed on the A-share market. In the first quarter of this year, its revenue increased by 12.09% and its net profit increased by 33.77%, which looks good.

However, this company does not include Foxconn's mobile phone OEM business, and its main business is communication network equipment, cloud computing servers, etc.

Foxconn Industrial Internet’s performance in the past few years was not good, but it has been able to turn around in the past two years, mainly thanks to the explosion of AI.

As a core supplier of NVIDIA's AI servers, Foxconn Industrial Internet accounts for approximately 40% to 50% of the global AI server assembly share.

What about the mobile phone OEM business?

Foxconn's parent company listed in Taiwan is called Hon Hai Precision Industry (TW: 2317).

In 2023, Hon Hai Precision Industry's revenue was NT$6.16 trillion (approximately RMB 1.4 trillion) and its net profit was NT$142.1 billion (approximately RMB 31.3 billion).

The data looks not bad.

However, in the past decade, Hon Hai Precision's revenue has increased but its profit has not. As early as 2014, 10 years ago, it achieved a net profit of NT$182.4 billion.

Since then, the company has gradually declined, with its performance always struggling around the NT$100 billion level.

The main reason is that Apple's OEM business, which was once very profitable, has gone from being dominated by one company to being competed for by many, and the profit margin has gradually declined.

Half a month ago, Junlin wrote about Luxshare Precision and analyzed that:

"Currently Luxshare Precision is Apple's largest OEM for wireless headphones and smart watches, accounting for 60%-70% of Apple AirPods' OEM share and 40% of Apple Watch's OEM share.

In terms of the foundry share of Apple's core product iPhone, Luxshare Precision has been continuously eroding the market share of Taiwanese manufacturers, gradually rising to a position on par with Foxconn.

According to industry data, Luxshare won the iPhone OEM assembly business for the first time in 2020.

The approach is acquisition.

Previously, Apple mainly outsourced iPhone assembly to three Taiwanese factories, namely Foxconn, Pegatron, and Wistron, with shares of 64%, 31%, and 5% respectively.

As Wistron's business shrank and its market share became only a fraction, it began to consider withdrawing. The related factories in mainland China were bought by Luxshare for 3.3 billion yuan in 2020.

In the next few years, Luxshare's share in iPhone OEM continued to expand.

In 2021, the company captured a 40% share of the iPhone 13 Pro, and its share in iPhone assembly increased to 10%;

In 2023, the company will receive 20% to 25% of orders for the iPhone 15 series, corresponding to the company's share of iPhone assembly increasing to 20%, surpassing Pegatron;

In the same year, the company spent 2.1 billion yuan to acquire 63% of the shares of Kunshan Shishuo, a subsidiary of Pegatron, to expand production capacity;

In 2024, the company expects to receive 35% to 40% of orders for the iPhone 16 series, and has snatched all assembly orders for Apple's highest-end iPhone 16 Pro Max from Foxconn."

From the above analysis and combined with other information, we can know that Pegatron first obtained Apple’s mobile phone OEM business in 2017.

In the following years, the market share continued to expand, gradually squeezing out one-third of the proportion originally belonging to Foxconn, which was an important turning point that led to the decline of Foxconn's related businesses.

Luxshare entered the market in 2020 and exceeded 20% of the market share in 2023, further squeezing Foxconn's living space.

Now, Foxconn's title of "King of Apple Mobile Phone OEM" has faded a lot, and all the orders for the latest Apple products such as headphones, watches, and headsets have fallen into the hands of Chinese companies.

In just a few years, the Apple supply chain has changed so much that it is really sad.

In the A-share market, there has always been a saying that "Luxshare Precision, Goertek, and Lens Technology are the three giants of the Apple supply chain." So, apart from Luxshare, are there any highlights of the other two companies?

Let’s first look at the financial comparison of the three companies in the past year or so:

In terms of size, Luxshare Precision has the largest revenue scale.

In terms of revenue in 2023, Luxshare Precision > Goertek > Lens Technology. Luxshare's revenue of 231.9 billion is even greater than the sum of Lens Technology and Goertek.

In terms of profit performance, Luxshare also stands out, with a net profit of 10.9 billion, which is 2.5 times the sum of Lens Technology and Goertek.

Among the three companies, Goertek performed the worst.

Although it ranks second in terms of revenue scale, its profitability and growth potential have widened the gap with the other two companies, and it is lagging behind significantly.

Although Lens Technology has the smallest revenue scale, it has excellent profitability, with a gross profit margin of 16.63% and a net profit margin of 5.58% in 2023, which are better than Luxshare's 11.58% and 5.28% respectively.

In terms of growth, the growth rates of 23.42% last year and 379.02% in the first quarter of this year both outperformed Luxshare.

What happened to Lens Technology in the past two years? Is it going to overtake Luxshare?

Let’s start about ten years ago.

In 2015, Luxshare's revenue just broke the 10 billion yuan mark, while Lens Technology's revenue was 17.2 billion yuan and Goertek's was 13.6 billion yuan.

Lens Technology is the leader, Goertek is second, and Luxshare is at the bottom.

But in the following years, judging from their respective business performances—

Luxshare Precision began a rapid growth, with an average annual revenue growth rate of around 40% and its scale expanding rapidly.

More than 20 billion in 2017, 30 billion in 2018, 60 billion in 2019, 90 billion in 2020, 150 billion in 2021, 210 billion in 2022, 230 billion in 2023…

One step a year at a time, moving up headlong.

Goertek's revenue growth rate ranks second, at an average of about 30% per year, which is actually not bad, but it is not very stable and has experienced two periods of negative growth.

Lens Technology has the slowest growth rate, at around 10% per year.

In 2016, revenues declined and were surpassed by Luxshare. In 2017, it recovered rapidly, but stagnated again in 2018.

After its revenue was surpassed by Goertek in 2019, the gap has been widening, and its current size is only about half of Goertek’s.

What are the differences between the businesses of these three companies?

Jun Lin’s previous article analyzed that Luxshare’s success is mainly due to its two major capabilities: one is its ultimate operational management capability, and the other is its strong M&A integration capability.

Over the past decade, Luxshare has made more than ten major acquisitions, each of which was to enter a new business.

Subsequently, through changes in management, it improved its operational management capabilities and continuously expanded its share in the Apple system.

Starting from connecting cables to wireless headphones, mobile phones, smart watches, and VR devices, it has gradually ascended to the throne of "King of OEM" step by step.

This long-term expansion capability that combines management and capital, which can be called a "hexagonal warrior", is unparalleled in the country.

As for Goertek, it is weaker than Luxshare in all aspects.

Goertek's original business was acoustic electronic products. In 2010, it entered the Apple supply chain, supplying speaker modules, microphones, and wired headphones to the iPhone and iPad, and achieved rapid development.

From 2019 to 2022, Goertek obtained AirPods OEM orders, and its revenue increased fourfold from more than 20 billion to 100 billion, which was its highlight in recent years.

But the problem is that Goertek's management capabilities are not as good as Luxshare's.

This resulted in the yield rate of AirPods being lower than that of Luxshare, and its order share was gradually surpassed by Luxshare. Finally, in 2022, Apple cut orders for a certain model, resulting in a decline in revenue and a collapse in performance.

It lost to Luxshare in its most powerful acoustic electronic products, and later tried to diversify and focus on the XR device track.

It’s a pity that after all-in investment for many years and spending a lot of money, no actual results were seen.

The market has been looking forward to the story of XR devices (VR, AR) for many years. Giants such as Google, Meta, and Apple have spent a lot of effort, but the technology is not mature and the market cannot take off, so there is nothing they can do.

The road to innovation is not easy to take, and this is exactly the dilemma faced by Goertek.

The development of Lens Technology in the past decade is actually similar to that of Goertek, both of which focus on one field.

Lens Technology focuses on glass. It entered Apple's supply chain in 2006 and has been focusing on glass for more than ten years.

From producing glass protective screens for the first generation of Apple iPhones, to producing glass for its tablets, laptops, watches and other product lines, to supplying display glass panels for Apple's latest smart head display Vision Pro in 2023...

In more than ten years of cooperation, Lens Technology has participated in the design and production of every Apple product, and the depth of cooperation is very close.

In March this year, Apple CEO visited China and met with the heads of three Apple supply chain companies, BYD, Lens Technology, and Everwin Precision.

These three companies are all long-established suppliers of Apple and have been cooperating with Apple for more than ten years.

Market rumors say that they will all receive more orders from Apple in the future.

It can be seen that Lens Technology has very profound capabilities in glass-related businesses and will not face the same dilemma as Goertek being abandoned by Apple.

But over the years, Lexile has had two problems:

First, it lacks the strong M&A expansion capabilities like Luxshare, and has never been able to get out of the narrow track of glass over the years.

Second, it lacks the same track luck as Goertek, which was able to seize the explosive growth opportunity of AirPods.

Glass is actually not a good track. As a functional part for appearance, it lacks the same multiple or exponential high growth opportunities as internal microelectronics and chips.

This is also the core reason why Lens Technology's long-term growth potential has gradually lagged behind Luxshare and Goertek.

So why has Lens Technology's growth momentum picked up again in the past year or so, and it seems to be doing well again?

Let’s look at the data. As of 2022, Lens Technology’s sales to Apple reached 33.14 billion yuan, still accounting for 70.96%.

However, in 2023, the company's sales to Apple declined, with sales reaching 31.5 billion yuan and the proportion falling to 57.83%.

Where does the increase come from?

Comparing the financial statements for 2022-2023, we can see that:

Revenue from the second-ranked customer increased significantly from RMB 1.563 billion to RMB 8.472 billion, and the share increased significantly from 3.35% to 15.55%.

Combined with several information mentioned in the financial report:

In 2023, the revenue of smartphone and computer business will be 44.901 billion yuan, a year-on-year increase of 17.50%, accounting for 82.40% of the total revenue;

New energy vehicles and smart cockpit business revenue was 4.998 billion yuan, up 39.47% year-on-year, accounting for 9.17% of total revenue;

The revenue of smart headsets and smart wearables business was 3.104 billion yuan, a year-on-year decrease of 12.29%, accounting for 5.70% of the total revenue.

The head-mounted display business is experiencing negative growth, so that should be ruled out first. Although the new energy vehicle business has a high growth rate, its revenue share is still less than 10%, which is impossible.

Therefore, the second largest customer must still be mobile phone customers.

The financial report also specifically mentioned one point:

"According to a TrendForce report, shipments of foldable phones are expected to reach 18.3 million units in 2023, up 43% year-on-year, with a penetration rate of 1.6%. Shipments are expected to continue to grow by 38% to 25.2 million units in 2024, with a penetration rate of 2.2%."

In other words, Lens Technology is implying that the main incremental orders from its second largest customer will come from foldable screen mobile phones.

From the perspective of the domestic market, Huawei has been the most popular in the foldable screen mobile phone market in the past two years, accounting for almost half of the market share.

And judging from the rapid growth in market share after Huawei’s return to the market last year, it can be judged that the probability that the second largest customer is Huawei is very high.

In other words, Lens Technology's recent strong performance growth is mainly due to finding its "second spring" in Huawei.