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text | kiki

in the 13 years since he became apple's ceo, the most watched of cook's overseas trips has undoubtedly been his "china trip."

according to incomplete statistics, cook has visited china more than 20 times in total, and in the past two years, one of the important itineraries in his "china trip" is interaction with "apple supply chain giants." during his "shanghai trip" in march this year, cook once again emphasized: "for apple's supply chain, i think there is no place more important than china."

four months later, apple coo jeff williams also frequently traveled between beijing, shenzhen and dongguan, visiting apple supply chain factories such as foxconn and lingyi intelligent manufacturing. standing in front of the production line of foxconn guanlan factory, he lamented the "remarkable changes" in chinese manufacturing, seemingly reaffirming the value of china's apple supply chain.

in order to squeeze into the apple supply chain and make more parts for apple, the apple supply chain has also suffered a lot. first, goertek chairman jiang bin heard that apple cut orders and immediately led his team to the united states to save the crisis. later, wingtech technology and o-film, which were kicked out of the apple supply chain, struggled to survive. the story of prosperity and decline is not uncommon in these companies.

in order to get rid of the so-called "apple addiction", in the past few years, the "apple chain" has, on the one hand, relied on and reused the experience of the consumer electronics industry chain through "endogenous growth", vertically integrated its own business, sought customers other than apple, and laid out higher value-added businesses; on the other hand, it has accelerated its expansion into other fields through "external expansion" through mergers and acquisitions and other means.

at present, affected by the release of apple's new products and the transformation of the apple supply chain itself, the apple supply chain giants seem to have walked out of the hard days of the past. taking the three major "apple supply chain" companies in the a-share market as an example, in the first half of this year, luxshare precision (002475.sz) and lens technology (300433.sz) both handed in a report card of "increased revenue and increased profits", and goertek (002241.sz) also had a significant improvement in profits.

the transformation has begun to bear fruit, and apple supply chain giants are not content to just be oems. in a recent media interview, wang laichun, chairman of luxshare precision, mentioned the outside world's stereotype of "oem":"this is a kind of self-deprecation. if you fly with the phoenix, you must be a beautiful bird."

the supply chain is not a static competition, but a dynamic game. from an industry perspective, we can no longer simply understand the apple supply chain business as oem. this article mainly answers three questions:

1. what did the collective recovery of the apple supply chain rely on?

2. after years of de-appleization, how is your “side business” doing?

3. how to understand the new ambitions of apple’s supply chain companies?

1. collective recovery: inseparable from self-help efforts

apple fans are lining up to purchase new products such as the iphone 16. wall street predicts that apple's "super replacement cycle" is coming. while consumer electronics terminals are bustling with activity, after nearly a year of silence, the "apple chain's three giants" in the a-share market seem to have finally waited for their "highlight moment."

from the perspective of performance fundamentals, the performance recovery trend of luxshare precision, lens technology and goertek has a certain degree of certainty. in the first half of 2024, luxshare precision and lens technology both jumped out of the vicious circle of "increasing revenue but not increasing profits". although goertek's revenue decreased by about 11% year-on-year, its net profit in the first half of the year increased by 190% year-on-year. these positive fundamental signals have also ushered in a wave of valuation repairs for the apple chain.

there are two basic logics driving the performance and stock price reversal of apple supply chain giants. the first is to stand on the industry cycle. in the first half of this year, the entire downstream demand for consumer electronics has recovered and the industry has finally ushered in a long-awaited rebound. prior to this, the global consumer electronics industry had been in a slump for more than three years.

mobile phone manufacturers have also felt the change in water temperature. last year, xiaomi group president lu weibing gave an optimistic forecast that the global mobile phone market will have reached the bottom in 2023, and it is estimated that the global market will grow by 5% in 2024.

according to idc data, in the second quarter of this year, global shipments of smartphones, laptops and tablets all achieved positive year-on-year growth. canalys' latest research also pointed out that the smart personal audio market, including tws, wireless headphones and wireless earphones, rebounded strongly in the second quarter of this year, with total shipments increasing by 10.6% year-on-year.

the second is to look inward, which is also inseparable from the efforts of apple chain companies to save themselves.

on the one hand, through vertical integration, apple supply chain giants have gradually expanded from single component business to high-value businesses such as assembly of other categories or whole machine outsourcing. as the scale effect becomes more prominent, the performance of revenue and profit has also been improved.

lens technology, the "glass king" whose main business is cover glass, is a typical case. in 2020, lens technology acquired catcher technology, a well-known mobile phone case processing factory in taiwan, and acquired two manufacturers, catcher taizhou and catcher taizhou, thereby entering the metal structural parts processing and assembly supply chain of major customers. in 2021, lens technology officially entered the mobile phone assembly market, investing 3 billion yuan to build a factory in xiangtan, and won the oem order for xiaomi mobile phones just after it was put into production.

starting from 2023, lens technology's mobile phone assembly business has drawn a visible growth curve - it suffered a loss of 240 million yuan at the beginning of 2021, turned losses into profits for the first time in 2023, and in the first half of 2024, the revenue of lens technology (xiangtan) co., ltd. accounted for more than 30% of the total revenue.

on the other hand, unlike the so-called "de-appleization", apple supply chain companies are also following apple's relocation and forming deeper ties with it.

take goertek as an example. in order to continue its cooperation with apple, goertek registered a company in vietnam as early as 2012. at the end of 2022, after losing a batch of apple headphone orders, goertek issued an announcement to transfer 11 apple production lines to vietnam, accounting for about 70% to 80% of apple's production lines.

this year, goertek has further increased its investment in vietnam, planning to invest 280 million yuan in vietnam to establish a wholly-owned subsidiary to produce consumer electronics products such as airpods, smart watches, vr/ar devices, etc. in the first half of 2024, goertek's 1.225 billion yuan in attributable profits to shareholders of the parent company, of which 700 million yuan was contributed by the vietnamese company.

in summary, this round of recovery of apple chain companies is driven by both good timing and good people.on the one hand, the industry has finally survived the cyclical crisis, and on the other hand, the past advance planning and efforts to save itself have brought visible results.

but the short-term recovery does not mean that apple chain companies have completely escaped the crisis. overall, on the one hand, in terms of revenue share, apple is still one of the main customers of the above-mentioned companies. on the other hand, the dependence on large customers has reduced bargaining power, and the revenue and profit growth of the above-mentioned three companies can no longer return to the past era of rapid wealth.

taking gross profit margin as an example, although the gross profit margins of luxshare precision, lens technology and goertek have improved in the first half of this year, compared with the gross profit margins of around 20% in the past, they are still at a historical low.

this is also a double-edged sword for the apple supply chain - you can only drink the soup but not the meat. apple always grabs the highest point of profit, and the apple supply chain companies have no say in the industrial chain. it is precisely because of this realization that the stories of the side businesses of the apple supply chain companies have already begun.

2. internal and external expansion: the sideline business that is still worrying

while the world was watching the new sales performance of iphone 16, luxshare precision, the "no. 1 in the apple supply chain", quietly did something big - on september 17, luxshare precision bought a german automotive parts giant leoni for 4.1 billion yuan. wang laichun, who appeared in nuremberg, germany, also had a smile on her face. this "queen of oem" made another key move for luxshare precision's automotive business.

luxshare precision acquires leoni image source: leoni official website

in order to get rid of dependence on apple, the "de-appleization" of apple chain companies has long been a pre-announced conspiracy.

through internal and external expansion, on the one hand, it is "internal", relying on and reusing the experience of the consumer electronics industry chain, internal incubation, opening up new product frameworks to enter new fields. on the other hand, it is through "external", using capital means such as mergers and acquisitions to accelerate expansion into other fields.

among apple's supply chain companies, luxshare precision is the only one that is adept at using the "endogenous and exogenous" model.

in its automotive business, luxshare precision has laid out its automotive connector-related business as early as 2008. since then, through a series of acquisitions, it has gradually formed a product layout of multiple categories including automotive wiring harnesses, connectors, smart cockpit domain controllers, etc. in 2012, through the acquisition of fujian yuanguang electronics co., ltd., luxshare precision entered the field of automotive cable production; in 2013, it bought the german automotive plastic parts company suk and entered the supply chain of luxury cars such as bmw and mercedes-benz; in 2018, it acquired the global body control system division of zf group and entered the field of smart cars.

in the following years, luxshare precision cooperated with chery and officially crossed over from parts manufacturing to vehicle manufacturing, accelerating the realization of the dream of becoming a tier 1 (first-tier supplier to car manufacturers).

for apple supply chain companies, the reason for accelerating their entry into the market is also very simple. under the wave of electrification and intelligence of new energy vehicles, different from the traditional tiered supply chain management method of automobiles, in order to adapt to the needs of rapid iteration and production volume, the reuse of the supply chain between automobile manufacturing and mobile phone manufacturing has also opened up a way.

terry gou, the founder of foxconn and luxshare precision's "car-making predecessor", once said: "since we can make iphones, why can't we make electric cars? it's just an iphone with four wheels."

an industry insider mentioned that apple supply chain companies have the following three advantages when entering the new energy vehicle field:the first is the ability to combine software and hardware, the second is the ability to quickly mass produce, and the third is the ability to link and respond to brands. these are the advantages that the above-mentioned companies have accumulated under the hammer of the apple supply chain.

however, how the advantages can be transformed into visible growth remains to be seen, and these future stories cannot dispel the current "side business anxiety" of apple's supply chain.

first, from the perspective of business volume, the "sideline business" of apple supply chain companies is still difficult to become the main business, and the revenue contributed to the overall performance growth is limited. as of the first half of 2024, although luxshare precision's automotive-related business revenue increased by 48% year-on-year, it accounted for less than 5% of its revenue, and lens technology's smart car and smart cockpit revenue accounted for less than 10%.

secondly, under the logic of "endogenous and exogenous", apple supply chain companies began to increase investment and use capital leverage to accelerate transformation. this is a more efficient way, but it also places higher demands on the company's operational capabilities.

therefore, the "side business" of apple supply chain companies is a longer-term business, and this side business marathon has just begun.

3. new ambition: from division of labor chain to value chain

the essence of business is efficiency. from the apple chain's wealth-making story to its current search for a new direction, the ups and downs of the apple chain are, to a certain extent, a true epitome of the changes in supply chain flow.

supply chain expert lin xueping once described the birth background of such enterprises as the centralized growth of supply chains in the global 1.0 era. under the design of excellent multinational companies such as apple, a division of labor model combining low-cost manufacturing with high-efficiency trade has been formed. chinese apple chain enterprises are indeed engaged in oem manufacturing business.

but don’t forget that the supply chain is not static. behind the apple chain is the cruel law of survival in the jungle. as the leader of the chain, apple has eliminated and screened out batches of companies. in this process of alternation between the old and the new, it has also provided rich nutrients for the development of china's industries.

wang laichun, chairman of luxshare precision, feels very aggrieved when faced with the "oem identity". in a recent media interview, she said bluntly: "what is oem? it is the (business model) that has no market analysis, no technical accumulation, and no way to solve customer pain points. that is called oem. when talking about chinese companies, they always mention oem, which i feel is quite aggrieved."

talents without ideals are not sad. the new ambition of all apple chain companies that are unwilling to be oems is:from a supporting role to a leading role, he escaped the embarrassment of only being able to join the "division of labor chain" and became a person with real say in the "value chain".

with new ambitions,at least for now, apple supply chain companies have begun to focus on three directions:

first, a clearer identity oem does not mean producing products that others do not want to make, but producing products that others cannot make. apple supply chain companies are improving their respective competitiveness by occupying technology and manufacturing advantages in niche areas.

second, through more diversified product layout , consolidate the advantages of the main business, improve vertical integration capabilities, and occupy a position in new areas in advance.

third, a more radical expansion of the ecosystem at present, apple supply chain companies are strengthening upstream and downstream collaboration in consumer electronics and new fields through more aggressive capitalization methods. whether it is luxshare precision's continued acquisitions in the automotive supply chain or goertek's recent spin-off of its subsidiary goertek microelectronics to go public in hong kong, they are all leveraging capital leverage to achieve overtaking.

the ideal is good, but compared with the endless stream of new consumer electronics products, the iteration of the supply chain is longer and more complicated, and there is rarely an overnight success. for apple supply chain companies, every step is carefully planned, and what supports them is not only capital ammunition and the support of local industries, but also long-term patience and investment. only in this way can they truly get rid of the fate of oem.