Less than two years into Apple's iPhone supply chain, BOE is about to be kicked out?
Recently, according to South Korean media The Elec, BOE has hardly produced OLED panels for iPhones since February this year. A source revealed to The Elec that one of the reasons for this phenomenon is that BOE changed the design standards of OLED panels, resulting in a yield rate that did not meet Apple's requirements, so apple suspended supply.
In the follow-up report, some domestic media further interpreted it as BOE being kicked out of apple supply chain (hereinafter referred to as "fruit chain").
In response to relevant rumors, the alphabet list asked BOE for verification, and did not get a response from the other party.
Sun Yanbiao, chairman of Chaodian Think Tank, told Alphabet List that after he himself verified with BOE executives, the Korean media report "is actually an overseas competitor spreading rumors," for large companies such as Apple and BOE, there must be strict agreements in the project promotion process, "the signed technical specifications will not be changed at will." Sun Yanbiao said.
Many industry insiders contacted by the alphabet list are also skeptical of boe rumors of cutting off Apple's iPhone. Major General Ding, an industrial economy observer and founder of Nail Technology, believes that as a new enterprise that has joined Apple's iPhone supply chain after Samsung and LG Display, "(BOE) is equivalent to moving someone else's cheese, and from this point of view, it is not excluded that competitors intend to amplify some problems in the cooperation between BOE and Apple." ”
From the technical point of view, BOE's OLED screen has been verified by many parties in the market, the latest application case is Huawei's new generation of folding screen Mate Xs 2, and its external folding screen solution supplier is BOE. "(BOE)'s technical strength is no problem, and it is normal to have some run-in with some important customers in terms of specific cooperation details." Major General Ding pointed out in the analysis that between supply chain enterprises and brand customers, there is a lot of cooperation in product research and development itself, which will also involve some customized research and development, and there will be technical run-in or improvement in the process of project promotion, "This is a normal phenomenon, because any product technology solution cannot be a universal solution that any enterprise can use, so I don't think the outside world needs to over-interpret this rumor." ”
The experience of being kicked out of the "fruit chain" by the media first like BOE has never appeared in Apple before. This is because the cooperation between Apple and suppliers is very confidential, and the outside world basically does not get specific information, "whether the cooperation is smooth or there is a problem, Apple will not take the initiative to publicly evaluate." This is also another reason why people in the industry such as Major General Ru Ding are suspicious of Korean media reports.
How tightly does Apple control its supply chain? A recent example has occurred in Apple's car project. In January 2021, in response to rumors that Kia is expected to oem Apple cars, Hyundai Motor executives said that negotiations with Apple are still in the early stages.
Bloomberg then reported that Apple chose to terminate the cooperation because it was dissatisfied with Hyundai's leaks to the outside world, which led to a lot of reports on Apple Car.
Keeping Apple's name secret in supplier reports is already an unwritten rule. The Wall Street Journal reported in 2014 on a real case of a company getting into trouble by mentioning Apple's name.
At the time, GT Advanced Technologies, which specializes in providing sapphire screen protectors for smartphones, accidentally mentioned Apple's name and received a lawsuit from Apple for providing details of a confidentiality agreement with the customer. Apple required GT Advanced Technologies to pay a $50 million fine for each breach of confidentiality, when the total amount of the fine was not disclosed. After the lawsuit, the company was also blacklisted by Apple.
The other side of BOE's rumored kicking out of the "fruit chain" is its increasingly tight bondage with Apple. In April, well-known Apple analyst Mingji Guo revealed that BOE has signed a supply agreement with Apple on the iPhone 14 and will start supplying OLED panels in June, and the supply is expected to reach 50 million pieces, accounting for about 25% of the supply of iPhone 14 displays.
Sun Yanbiao even broke the news to the alphabet list exclusively, saying that the flexible OLED panel used in Apple's upcoming folding screen mobile phone is also one of the suppliers.
A
In 2017, BOE was included in apple's supplier list and has cooperated so far.
From iPad, MacBook to Apple Watch, BOE gradually expanded the cooperation lineup with Apple's product line, until 2020, BOE finally landed on the list of suppliers of Apple's core product iPhone, becoming the first OLED panel manufacturer in China to break into Apple's iPhone supply chain.
During the pursuit of Apple, as Japanese and Korean companies gradually withdrew from the LCD panel industry and transformed into more advanced fields such as OLED, BOE's LCD business began to sit firmly in the top position in the world.
According to the research agency Omdia data report, since 2018, BOE has been occupying the first position in the world's TV panel shipments, when BOE surpassed LG Display (18.3%) for the first time with 18.4% of shipments, and by 2020, it ranked first in the world in the share of shipping area, achieving double first in shipment volume and shipping area.
Taking the share of TV panel shipping area as an example, in 2018, the top three in the world were LG Display (21.6%), Samsung (17.1%), BOE (15.5%), and by 2021, the top three became BOE (24%), Huaxing Optoelectronics (18.2%), LG Display (12.3%), and Samsung only had 3% of the share, falling to the ninth.
After the first use of OLED screens on the iPhone X in 2017, Samsung was once the exclusive supplier of Apple's OLED screens, but this obviously did not conform to the laws of Apple's supply chain. After that, Apple began to intentionally introduce more OLED suppliers, LG Display, BOE gradually joined.
Multiple productions of the same part are common routines for Apple to control risks and reduce costs. On the one hand, one manufacturer has a problem with the supply, others can be replenished in time, improving the stability of Apple's supply chain; on the other hand, because Apple strictly controls the supplier's production equipment, the supplier's production line needs to be supplied to Apple separately, in order to prevent being kicked out of the fruit chain, suppliers will compete with each other, so that Apple has sufficient negotiating space.
This is also one of the reasons why media analysis such as The Elec believes that even if production is suspended, BOE will not be removed from OLED panel suppliers by Apple, because keeping BOE as a supplier facilitates Apple to lower the price of Samsung and LG Display, which are also panel suppliers.
With Apple's technical certification, BOE is making rapid progress in the OLED market. By 2021, CINNO Research reports that BOE accounts for 9% of the 668 million shipments of AMOLED smartphone panels worldwide, ranking second in the world, second only to Samsung's 72%, but higher than LG Display's 7%.
The rapid growth of BOE is clearly squeezing the living space of LG Display, especially in the context of the current decline in smartphone shipments. Data for the first quarter of 2022 released by market analyst Canalys showed that global smartphone shipments were 311.2 million units, down 11% year-on-year, ushering in a continuous decline.
As an innovative category, folding screens have become one of the few counter-trend growth points in the smartphone industry in the past two years. According to Omdia statistics, by the end of 2021, the cumulative shipment of folding screen smartphones in the world will reach 11.5 million units, and the shipment volume in 2021 alone will be 9 million units, achieving an annual growth rate of 309%.
Omdia predicts that by 2026, the global folding screen smartphone market is expected to reach 61 million units, accounting for 3.6% of the total smartphone market.
Mobile phone manufacturers have set their sights on the growth prospects of this market segment. As of the end of April, nearly 20 folding screen mobile phones from mainstream mobile phone manufacturers including Samsung, Huawei, Honor, Xiaomi, OPPO, vivo and other mainstream mobile phones have entered the market, leaving only Apple, a big player, who has not yet entered the game.
In January this year, the media broke the news that Apple has tested a number of foldable iPhone prototypes internally, and the first folding screen mobile phone will be released as soon as 2023.
According to Sun Yanbiao revealed to the alphabet list, BOE's flexible OLED screen will be the first to be installed in Apple's upcoming folding screen products.
For LG Display, which has a relatively single customer structure and relies heavily on Apple, its scramble with BOE for Apple orders has undoubtedly become more intense.
According to Omdia' forecast, Samsung's OLED market share will decline to 65% in 2022, and BOE's OLED market share will exceed 10% for the first time, continuing to widen the gap with LG Display. Two years ago, LG Display's OLED market share was still 12.3%, stabilizing BOE's 8.7%, ranking second in the world.
B
Part of the reason why a rumor can trigger excessive interpretation from the outside world is that BOE has a clear gap with Samsung in terms of OLED, whether in terms of market share, number of production lines or technical maturity.
Compared with Samsung, which accounts for more than 70% of OLED revenue, BOE's OLED business is still not profitable, and its LCD panel sales in 2021 are more than nine times that of AMOLED.
And as a rising star, due to the technology gap, BOE may have to bear the price pressure after depreciation of Samsung and LG Display production lines in the future.
In November of the same year after being included in the iPhone supply chain list, it was reported that BOE had not passed the OLED panel test of Apple's iPhone 12 series. However, subsequent reports from Interface News shattered the rumors, saying boe had started supplying Apple with oled screen panels for the iPhone 12 in December.
Another dilemma that has caused concern to the outside world is that the market price of LCD panels in BOE's core business has begun to fall. Witsview data shows that as of December 2021, the average price of LCD panels has been reduced by more than 30%, and the price of some size panels has even appeared.
Affected by this, BOE's revenue and net profit in Q1 of 2022 have slowed down, and the stock price has continued to decline. According to BOE's financial report data for the first quarter of 2022, its first quarter revenue was 50.476 billion yuan, an adjusted year-on-year increase of 0.4%; the net profit attributable to the mother was 4.389 billion yuan, an adjusted year-on-year decrease of 16.57%. A number of brokerages predict that BOE's net profit will decline in 2022, and revenue will also face a single-digit percentage year-on-year increase, a trend that will continue at least until 2024.
At this time, it was exposed to kick out the "fruit chain", which undoubtedly cast a new shadow on the future of BOE. After all, in BOE's further increase in market share and further shortening the gap with Samsung and other heads in the OLED industry, brand endorsements and global orders from Apple are an important thrust for BOE to achieve the above goals.
In the past decade, many Chinese companies have embarked on the fast track of development by joining the "fruit chain", such as Lens Technology, a panel manufacturer that joined the "fruit chain" in 2015, and Apple once contributed more than half of its revenue.
Due to Apple's extremely high shipments and strict standards for suppliers, being shortlisted for the "fruit chain" means large orders and widespread recognition by the industry. The Apple symbol bound to the high-end is also a golden signboard in the field of supply chain.
Backed by Apple, in the past decade, from the fuselage, panels, lenses, to the final assembly link, a number of domestic supply chain manufacturers have grown rapidly. According to statistics, since 2011, the overall revenue compound annual growth rate of the domestic apple industry chain has been about 35%, and the compound annual growth rate of net profit attributable to the mother has been about 20%, even exceeding Apple's own growth rate.
As the "head goose", Apple has stimulated the "vitality of the goose group" of domestic suppliers, and since then, these suppliers have also contributed important forces to the rise of domestic brands. But on the other hand, behind the rapid growth of the "fruit chain" is a 30% ultra-high elimination rate, according to CCTV reports, in 2021, 34 companies were "kicked out" of the ranks of Apple suppliers, and the performance of enterprises plummeted.
The most recent example is OFILM. Due to being removed from the list of fruit chains, OFILM's net profit in 2020 turned from profit to loss of 1.85 billion yuan, and the net profit attributable to shareholders of listed companies in 2021 was -2.625 billion yuan, and its market value fell from more than 80 billion yuan to less than 20 billion yuan.
C
In addition to the ultra-high elimination rate, domestic companies have to face a new round of global adjustments in Apple's supply chain.
On Apple's fiscal second quarter 2022 earnings call, Apple CEO Tim Cook mentioned that the impact of supply chain issues on Apple will reach $4 billion to $8 billion. Among the two major reasons for supply chain tension, one is the clichéd shortage of chips across the industry, and the other is the damage caused by the epidemic. Cook said that the most important factor causing Apple's tight supply is the supply chain from the Shanghai area, and the fluctuation range of $4 billion to 8 billion is based on the current factory resumption of work to varying degrees.
While Cook said that the progress of the resumption of work in Shanghai gives Apple "reason to remain optimistic", in the face of rising uncertainty in the global supply chain, Apple is considering further dispersing production capacity to more countries and regions to avoid risks. According to the Economic Times of India reported on April 11, Apple said in a statement that it has begun to produce the iPhone 13 at Foxconn's Indian factory.
In the first quarter of 2022, Apple's foundry in India produced nearly 1 million iPhones for sale in the country, and shipments increased by 50 percent.
According to the Indian news agency IANS through Business Insider, the 50% increase in production capacity was generated under the "Make in India" incentive, and India gave tax incentives on the production and sale of this part of the product.
The impact is passed on to the more marginal domestic suppliers, who clearly face greater uncertainty risks than Apple. In fact, in recent years, many "fruit chain" enterprises have begun to diversify their operations to minimize "apple dependence".
Some manufacturers have set their sights on other companies in the same industry, according to CCTV, in 2021, Huawei has become the first major customer of the "fruit chain" enterprise Lens Technology. In addition, the four major domestic mobile phone manufacturers of "Huami OV" are also important customers of BOE.
Recently, Yu Chengdong, managing director of Huawei, CEO of terminal BG, and CEO of smart car solution BU, revealed that Huawei's mobile phone supply will be greatly improved this year, which is undoubtedly good news for many domestic suppliers who are also Apple and Huawei.
In addition, many "fruit chain" companies have begun to look for a second growth curve outside the mobile phone industry. Goertek chose to cut into the VR and AR business, and established its leading position in VR acoustic design and optical lens design through acquisitions and mergers and acquisitions, and currently occupies 70% of the global market for high-end head-mounted display devices.
New energy vehicles have also become another option for "fruit chain" companies to get rid of Apple dependence. Liu Xingliang, a member of the Information and Communication Economic Expert Committee of the Ministry of Industry and Information Technology, said in an interview with CCTV that the "fruit chain" enterprises have already accumulated some technology in the field of mobile phones, which is an advantage for them to move to the field of new energy vehicles.
In the chain of the consumer electronics industry, Apple is still an important customer of many manufacturers, but the honeymoon period between Apple and domestic "fruit chain" companies is coming to an end, and the scene of joining the "fruit chain" to obtain a daily development dividend ten years ago may be gone.
For suppliers who are still in the "fruit chain", how to squeeze out the surplus value of apple orders to catch up with competitors and get rid of "apple dependence" through diversified operations is a major issue that these enterprises have to face in the future development.