Apple Parasite: Making money while trying to escape

Author/ Author of "Finance and Economics" Weekly Kang Jialin Ma Ce

Editor/ You Yong

The news of "fruit chain" leading company Lixun Precision Car Has finally been confirmed. On February 11, Luxshare Precision issued an announcement that Luxun Precision intends to jointly establish a joint venture with Chery New Energy, specializing in the research and development and manufacturing of new energy vehicles.

According to the agreement, Luxshare Precision and Chery Automobile will establish a joint venture subsidiary by May 2022. Luxshare Precision will invest 10 billion yuan in car manufacturing to purchase a stake in Chery Automobile, with the goal of becoming the industry's leading Tier1 manufacturer (the first-tier supplier of the depot).

Foxconn, an old rival of Luxshare Precision, has laid out earlier in the automotive business. In January 2021, Foxconn and Geely formed a joint venture to oem for automobile and mobility companies, and on the occasion of Gou's 71st birthday in October, Foxconn released three pure electric models produced by itself.

Fruit chain giants are also forced to develop new businesses, because they do not want to be choked by Apple.

Once upon a time, there was a famous saying in the mobile phone industry chain: those who get Apple win the world. The benefits of entering Apple's supply chain are obvious, because Apple's requirements are high, and it will be easier to get the approval of other partners to supply Apple, and the capital market will often give a higher valuation. So, for a long time in the past, the manufacturing industry has been very positive about Apple's supply chain.

According to Apple's list of suppliers in 2020, the number of Chinese mainland companies in the top 200 suppliers accounts for nearly one-third. The A-share market has a "Apple concept stock" saying, as long as a company enters Apple's supplier list and becomes a member of the fruit chain, it will get enough attention and voice in the industry and even the capital market.

There are many well-known cases, in the past decade, the stock price of Luxun Precision, which oems iPhones and watches for Apple, has increased by nearly 30 times, desai batteries have turned over salted fish, and the performance has crushed the old rival SCUD, and Xinwei Communications has a solid position in the 5G antenna field after cooperating with Apple. The aura of the fruit chain has become a shot in the arm to boost the IPO of enterprises, and this year, there are also Qiu Ti Technology subsidiaries to break through the ChiNext board, and Bern Optics sprints to the Hong Kong stock market.

However, for fruit chain giants such as Luxun Precision and Foxconn, there has always been a dilemma in relying on Apple to "eat": in the dividend period of smart phones, they can rely on Apple to make a lot of money; but excessive dependence on Apple will be subject to people, and enterprises will fall into the bottleneck of growth.

Success is also apple, defeat is also apple. Many fruit chain companies are looking for a way out.

Choked by an apple

At the beginning of 2022, Apple's stock price exceeded $3 trillion, which was the same. Behind this is a beautiful performance support. In 2021, Apple achieved full-year revenue of $378.35 billion, up from $294.1 billion in 2020, an increase of 11.2% year-on-year, and net profit of $34.63 billion, an increase of 20.2% year-on-year.

However, it is not difficult to find from Apple's financial report that Apple's core growth point today is no longer on the hardware closely related to fruit chain enterprises. According to Apple's earnings report, the gross profit margin of its iPhone hardware has fallen all the way to about 60% from its peak in 2009, 74%.

The revenue brought by the software ecology to Apple is increasing year by year. AppStore, Apple Arcade, Apple Music, ApplePodcasts and iCloud are launched in more and more countries and regions, and Apple's service revenue continues to hit record highs, with revenue in the services segment as Apple's second largest source of revenue reaching $53.8 billion in fiscal 2020, with gross margins reaching 68.4%.

This situation has caused Chinese companies that rely on Apple's supply chain to survive to experience performance fluctuations and stock prices diving.

The A-share "fruit chain brother" Luxshare Precision is not as good as in previous years, although from 2016 to 2020, Luxun's revenue has achieved double-digit growth, and reached the maximum growth rate in 2019. However, the comparison can be seen that Luxshare Precision's revenue and attributable net profit have shown signs of slowing down after 2019.

Apple, as its largest customer, accounted for 69% of Luxshare Precision's revenue in 2020. Apple's slightest hint of turmoil, the impact of The News' stock price was immediate. In addition, the industry analysis pointed out that the position of Lixun FOUNDRy was not stable, and the major shareholders repeatedly cashed out as if there were exit plans, which prompted the cumulative decline of The stock price of Lixun Precision in 2021 by more than 8.8%.

Luxshare Precision is not alone. Since 2022, the leading stock price of the A-share fruit chain has also crashed in a single day, and Goertek shares have fallen by more than 7% on January 5. Goertek's intelligent acoustic machine plate is a pillar of performance, extremely dependent on Apple's TWS performance, last year by the weak AirPods shipments, the gross profit margin of the plate fell sharply, once fell into the dilemma of increasing revenue and not increasing profits.

When Apple maintains rapid growth with the ecological and service sector, the fruit chain giant only has Apple's thigh, and it is not surprising that it is not optimistic about the capital market.

"The so-called core competitiveness of the vast majority of fruit chain companies is actually not the product technology itself, but apple's orders." A capital person who has been concerned about the electronics industry for many years told Caijing Tianxia Weekly that fruit chain companies are very easy to be pinched by Apple. In the view of this person, becoming a member of Apple's supply system may get performance improvement, but what is lost is the right to speak, and many times it is all about Apple's face, "because Apple controls the sales lifeblood of these companies."

OFILM had a bloody lesson. OFILM entered Apple's supply chain through mergers and acquisitions in 2016, providing mobile phone lens modules. The cooperation between the two sides once made OFILM's performance soar, until 2020, OFILM's revenue also reached 48.4 billion yuan. But the building collapsed in the blink of an eye.

In March 2021, OFILM issued an announcement that it had received a notice from a specific overseas customer that it planned to terminate its procurement relationship with the company and its subsidiaries, and the subsequent company would no longer obtain existing business orders from a specific customer, and this specific customer was Apple. Affected by this, OFILM's stock price not only plummeted, but also lost more than 2 billion yuan in a single quarter.

In fact, long before OFILM was eliminated from the supply chain by Apple, the fate of the two Taiwan companies had already sounded the alarm for other "friendly businessmen" in Apple's supply chain. Taiwanese enterprise Chenhong is considered to be one of the pioneers of the capacitive touch screen industry, and was the original exclusive supplier of Apple touch screen. The company is best known for creating a touchscreen known as "clear glass projected capacitive technology" for Jobs's first-generation iPhone released in 2007.

In order to win such a screen, Chenhong is said to have spent 6 years and invested more than NT$1.2 billion. Among them, the hardships are only known to it, and at the press conference that year, Jiang Chaorui, chairman of Chenhong, was also in tears.

Chenhong and Apple can be said to have achieved each other. Chenhong solved jobs's big problem at that time, without Chenhong, the release of the original iPhone did not know how long to postpone. Because of such a good story, the outside world originally thought that it would be a beautiful marriage, but then Chenhong's fate took a sharp turn.

In order to balance and avoid the risk of a single supplier, Apple asked Chenhong to transfer the production process to two other touch screen manufacturers, including Shenghua Technology. Chenhong also had no choice, and in 2012, Apple turned to other touch technology paths and switched to an embedded touch screen on the iPhone 5, which completely affected the development of Chenhong. In the same year, Chenhong lost 70% of Apple's orders. Chenhong's chief financial officer once lamented, "This industry is like marriage, there is no committion( commitment)!" ”

In fact, Shenghua Technology, another Taiwanese company that obtained the Chenhong process, was also eliminated by Apple in this wave of technological changes. It was saddled with heavy debt, and eventually sold assets to exit the touch panel manufacturing market, and there are still many factories for sale.

A former Apple supplier company official told Caijing Weekly that the real supply chain relationship is in dynamic change, and even Foxconn, which has worked closely with Apple for so many years, is also facing Apple's checks and balances.

Apple is a master of supply chain management and knows the art of checks and balances. When choosing suppliers, Apple is accustomed to configuring 2-3 suppliers of similar levels for each type of part, forcing suppliers to balance each other, and suppliers will be ruthlessly kicked out by Apple if the product or management level declines, if there is no other major customer protection, and then collapse and exit in the industry.

Li Xun, the market leader of a domestic antenna equipment manufacturer, told Caijing Tianxia weekly bluntly that his team had discussed supply matters with Apple many times, but it was always a breath of relief. Several contacts down, in order to ensure the stability of gross profit, Apple has been pressing costs in the early stage, and now raw materials are bullish all the way, and the mobile phone environment is not as crazy as in the past, "The internal has been passive, and there is indeed no bargaining power." ”

CCTV has also done a fruit chain survey before, calling for reducing dependence on Apple, laying out in many fields, and achieving breakthroughs and development, so that it can go more long.

Recognize that many fruit chain companies that are pinched by Apple are planning transformation.

Tough transformation

Foxconn has long planned the road to transformation. It knows very well in its own heart that despite the name of the world's first-class foundry, it is still an indisputable fact that Foxconn is at the bottom of the industrial development production chain.

"As early as 10 years ago, Foxconn tried to transform into its own brand products." A former Foxconn executive and president said that Foxconn has many of its own products, including mobile phones, motherboards, and even logistics, but everyone has not heard of it, "it is too bad."

As for why Foxconn's autonomous strategy has been silent and stagnant, he attributed the core reason to Foxconn's factory-style management system. "For example, let a bunch of people in charge of the factory manage the market, and within two days they rebelled." The person told the "Finance and Economics" weekly that the market personnel who can survive in the Foxconn system are not qualified market personnel, and the only people who can survive are basically factory people.

His meaning is obvious, Foxconn's strong OEM attributes and labels have hindered the development of its own brand. "Many independent products are actually cooperation between Foxconn and partners, so many times Foxconn is not really able to be completely autonomous." In his view, foxconn is difficult to retain creative talents, and it is always a short board in research and development capabilities and technological innovation breakthroughs. The idea of foundry plus independent brands walking on two legs has not really been realized so far.

After Gou faded out of the decision-making level in 2019, the new chairman Liu Yangwei delineated the transformation direction of a number of hot concepts for Foxconn, covering the industrial Internet, 5G, the Internet of Vehicles, and new energy. In a previous report to shareholders, Liu Yangwei once pointed out that Foxconn wants to reborn the original "labor-intensive" model, and will focus on investing in the three major industries of "electric vehicles, digital health and robots" in the future.

Foxconn is moving fast in the field of electric vehicles. Just nine months after establishing a joint venture with Geely, on October 18 last year, Foxconn officially released the electric vehicle brand Foxtron at the technology day of its parent company Hon Hai Group, and also launched three pure electric models.

Not only Foxconn, the rapid growth of new energy vehicles has made many fruit chain companies see the hope of getting rid of Apple dependence.

In June 2021, Apple precision structural parts supplier LingYiZhi Manufacturing announced that it intends to acquire 95% of the equity of Zhejiang Jintai Electronics Co., Ltd. held by it from Shanghai Lingyi Intelligent Technology Co., Ltd., thereby entering the field of new energy vehicles.

And the latest entry into the new energy vehicle track of Luxshare Precision, is even more ambitious. On February 13, Wang Laichun, chairman and general manager of Luxun Precision, said in the institutional conference call that Luxun Precision will take 3-5 years to become the world's leading manufacturer of auto parts Tier 1 (Tier 1 supplier).

In addition to building cars, other fruit chain companies have also tried their best to get rid of their dependence on Apple. As an important foundry of Apple headphones, Goertek has been trying to develop diversified businesses. An insider close to Goertek revealed that many business lines within the company have held innovation meetings on a regular basis, and "risk diversification" is a high-frequency word when brainstorming.

Through joint ventures and the acquisition of foreign audio technology companies, Goertek has been laid out in VR acoustics, but the current new plate has not yet formed benefits. The above-mentioned person bluntly said that Goertek expects to use the gimmick of the meta-universe to pull another department that focuses on intelligent hardware, "can only say that there is a certain gain."

Lens Technology, which supplies Apple with mobile phone cover glass, faces the same problem. Due to the reduction in the gross profit margin of small and medium-sized protective glass, the stock price of Lens Technology has fallen from a high of 41.4 yuan in early 2021 to about 14 yuan today. Thinking bitterly, Lens Technology began to cast a net layout in the fields of photovoltaic glass, smart wearables, consumer electronics metals and other fields, but it has not yet reached the specific implementation stage.

Can't get rid of Apple

Although many fruit chain companies have opened diversified businesses, people in the industry are not all optimistic.

A person in the capital industry believes that "diversified development is conducive to increasing the anti-risk ability of enterprise operations, but for the industry you enter, whether you have a competitive advantage and market discourse power is unknown." ”

In his view, mature industries rely on customers, and at present, some companies that expand new businesses and enter new markets cannot have enough knowledge and understanding of new industries, resulting in insufficient product competitiveness or inability to form market price advantages, then the huge investment in the early stage may not bring good expectations.

The reality is that on the one hand, fruit chain companies must strive to open up new business, on the other hand, they still need to hug Apple's thighs, which will make them feel more secure.

For its part, Foxconn has always wanted a piece of Apple's car business. Luo Zhongsheng, who served as a senior vice president of Foxconn Technology Group, recalled that five or six years ago, when Gou visited Apple, Cook stopped talking to him about smartphones, "just talking to him about cars, showing him apple cars' research and development centers." ”

The reality is that Foxconn's competitive pressure is very high, and it has neither vehicle manufacturing qualifications nor manufacturing experience. The time for mass production of the Apple Car is getting closer and closer, after news that Apple will launch a car around 2025.

Zhang Xiang, an analyst in the automotive industry, told Caijing Tianxia Weekly that whether it can continue to win Apple's car orders is related to whether Foxconn's relationship with traditional large customers can continue.

Throughout 2021, Foxconn is in the make-up stage of car building. Just at the beginning of the year, Foxconn intervened to "rescue" Byton Automobile, which was in suspension due to cash flow shortages, and byton Nanjing factory was an important condition for attracting Investment from Foxconn, and Byton had obtained new energy vehicle production qualifications.

Just two weeks later, Foxconn and Geely announced a 50:50 joint venture to "provide foundry production and custom consultancy services to global automotive and mobility companies." When announcing the mass production plan, Gou, who has not been out of the mountain for a long time, personally went to the platform, which shows Foxconn's attention and anxiety.

At the same time, Foxconn has announced cooperation with international parts companies and automakers such as Nidec, Stellantis, Lordstown, Fisker, etc., to "plant flags" in the chain throughout Asia. With qualifications and factories, it is expected that the car-making business can really run in 2023, and it just happens to be stuck in Apple's car-making time node.

But Apple repeatedly tested in the inspection of suppliers and did not bet on Foxconn. In addition to Magna, whose voice has been higher than Foxconn's, Hyundai has also confirmed that it is in the negotiation stage with Apple.

Luxshare Precision is also considered. The same as Foxconn, Luxshare Precision chose to establish a joint venture with traditional car companies, with the intention of minimizing risk, which is also the common choice of mainstream manufacturers in the industry, under the current situation that traditional brands have been seized by the head, the choice for Luxun Precision is actually very single.

However, the automotive industry is not more complex than the mobile phone manufacturing industry, oem and the track is crowded, and whether it will be difficult to step into at this time is the focus of the industry's doubts.

It is not difficult to find that although the fruit chain giants are trying to get rid of their dependence on apples in the supply and OEM of electronic products, when apples enter new fields, these companies have become the most active group, and they all want to drink a mouthful of soup and eat a piece of meat.

The throat of the fruit chain giant is still firmly pinched by the apple.

(Li Xun is a pseudonym in the text)

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