Xiaomi called the board apple, where is the bottom line

On January 3, 2022, The intraday share price of Apple (AAPL), which is listed on the NASDAQ in the United States, once touched $182.94, with a total market value of $3,001.314 billion, becoming the only company in the world with a market value of more than $3 trillion.

The reason why Apple can become the "ceiling" of the market capitalization of listed companies in the world today is intriguing. Among them, in addition to the stimulation of returning to the first place in the Sales Ranking of China's smartphone market after 6 years (from the statistics of the well-known market research institute CINNO Research in October 2021), the net profit margin is actually a very good reference indicator.

According to Apple's 2021 fiscal year (2020/10-2021/9) annual report, during the reporting period, Apple's revenue reached $365.817 billion, net profit reached $94.68 billion, and net profit margin was 25.8%, once again sitting on the throne of "the world's most profitable company".

What is the 25.8% net interest rate? We can take a look at xiaomi, the domestic brand that competes most with Apple in global smartphone shipments in recent years. In the last two quarters, although Xiaomi has surpassed Apple in terms of shipments, once ranking second in the world, throughout the 2021 fiscal year, Xiaomi's net profit margin was only 3.7%, less than a fraction of Apple's.

Some people may say that Lei Jun's 5% hardware comprehensive net interest rate red line earlier locked in Xiaomi's net profit space, but even if we look at the financial reports of luxury companies such as LVMH and Hermès, Apple's 25.8% net profit is still too much. Public data shows that in fiscal 2021, LVMH and Hermès net profits were 11.3% and 21.3%, respectively, compared with Apple, the gap objectively exists.

In the eyes of many people in the industry, Apple's extraordinary net profit margin comes from many aspects, but one of the most important points is Apple's control of factories and supply chains. The latest news from overseas media is that Apple has begun trial production of the iPhone 13 at Hon Hai Group's (Foxconn) factory in Chennai, India, and is expected to produce new machines in India in February 2022 for use in India's domestic and overseas markets; at the same time, in the past two years, Apple has moved all 9 production chains to India...

As we all know, India's relatively low labor costs go a long way toward keeping Apple's ultra-high profits. Therefore, when Apple has made a large-scale layout of factories and supply chains in the Indian market, many Local Supply Chain companies in China, which are closely related to Apple, are undergoing a rebirth test. Last year's news report focused on the "Apple eliminated 34 Chinese supply chain companies" incident is a lesson from the past.

According to reports, in the second quarter of 2021, Apple made a lot of 96.1 billion yuan in the Chinese market, which was a lot of money; however, almost in the same period, Apple suddenly jumped out of the contract and excluded 34 Chinese local supply chain companies from the procurement sequence, leaving no time for these companies to transform and develop. After that, companies such as OFILM, which had worked with Apple for several years, plunged more than 90% in net profits, and their market value fell from 70 billion yuan at its peak to more than 30 billion yuan, and had to be divested and restructured.

In this context, domestic supplier companies need to get rid of their dependence on Apple and seek greater development. Domestic brands, including Huawei and Xiaomi, have also undertaken the task of "rescue" of local supply chains to varying degrees. Last year, Xiaomi set up a joint research and development center to export the new materials, new processes and advanced manufacturing technologies of Xiaomi's Beijing Yizhuang Smart Factory to Lens Technology to help the latter build the world's leading consumer electronics smart factory. The company, called Lens Technology, is one of the 34 local Supply Chain companies in China that were originally excluded by Apple.

At the same time, on the Xiaomi 12 series mobile phone released not long ago, Lei Jun, founder, chairman and CEO of Xiaomi Group, proposed that Xiaomi officially benchmarked Apple, and eventually surpassed Apple step by step, and Xiaomi dared to compete head-on with Apple, in addition to self-developed technological innovation, there is also a leading role in the millet supply chain to drive the growth of domestic supply chains. It is reported that xiaomi 12 new products are integrated into the efforts of nearly 60 domestic supply chain partners, and the localization level of core devices is far more than in the past. It is reported that in terms of the core screen, the AMOLED flexible screen of Xiaomi Mi 12 is exclusively customized and developed by the domestic enterprise TCL Huaxing Optoelectronics, which not only passed the highest level certification of the international evaluation agency DisplayMate A+, but also created many new world records.

In the view of local head brands such as Xiaomi and Huawei, in the process of the development and growth of domestic mobile phone manufacturers, the breakthrough and innovation of domestic supply chain enterprises are indispensable. To this end, domestic mobile phone manufacturers have also stepped out of the new model of empowerment of industrial investment layout.

Public data shows that in the past few years, Xiaomi has invested in more than 360 companies and set up a special industrial investment team, focusing on the upstream industrial chain of 5G-related RF devices, artificial intelligence, third-generation compound semiconductors, and advanced manufacturing equipment. Up to now, Xiaomi has invested in about 100 innovative technology companies through the industry fund, covering 100% of the core components of mobile phones, of which 54% have been imported into cooperation.

In fact, the various attempts of domestic mobile phone brands to revitalize local supply chain enterprises are not only very timely, but also extremely necessary. In the long run, the depression of the local supply chain will also hit the development and growth of our domestic mobile phone industry to some extent. As a result, a domestic mobile phone brand industry headed by Xiaomi is self-evident in the importance of absorbing domestic supply chains.

Objectively speaking, this track that benchmarks and competes with Apple is likely to be the most difficult track. Because benchmarking Apple means that local brands have to compete with extremely strong companies. Although domestic mobile phone brands represented by Huawei and Xiaomi have made great breakthroughs in the high-end market and core technology fields, the challenges in the future are still full of suspense.