Image source @ Visual China
Text | To understand finance and economics, the author | Yang Yang, Editor | Xia Yijun
Follow apples to eat meat, which is the consensus of smart phone industry chain enterprises. Far away, Foxconn's "big money" has made a lot of money, and recently There are successful cases such as Luxun Precision's "holding thick legs" to quickly save up a market value of 200 billion yuan, etc., all of which confirm Apple's "value radiation".
Nowadays, catching the car of Apple's industrial chain is still the pursuit of most industrial chain enterprises. But another fact is that fruit chain companies are seeking business diversification, trying to reduce their dependence on Apple, and even some companies have voluntarily stopped business cooperation with Apple.
The reason for this change is that the cost performance of the "fruit chain" business is becoming lower. Compared with the past, the profits of fruit chain companies are getting thinner, and the business risks are getting bigger.
From the perspective of the profits of fruit chain enterprises, most enterprises do not increase profits by increasing revenue, and the gross profit margin of products shows a downward trend. Fruit chain profit thinning of course there are industry reasons, in the past period of time, the global shortage of semiconductors, raw materials rose in the cost of a lot of fruit chain enterprises to bear. But the more important reason is that Apple changed its supply chain policy, before, Apple left enough profit margins for suppliers to conduct scientific and technological research and development to form a product premium, but after product innovation reached a bottleneck, Apple began to reduce supplier profits and seek profit maximization.
At the same time as the profit is thinning, the business risk of the fruit chain is also getting larger. Taking inventory risk as an example, Apple transferred its own inventory pressure to suppliers through the JIT inventory management model, and inventory was easy to digest when consumer hardware sales were good in the past, but recently, the consumer hardware replacement cycle has been delayed, the inventory risk of the fruit chain has risen, and the inventory ratio (inventory/total assets) has continued to increase.
From the above point of view, the fate of fruit chain enterprises is largely "wrapped up" by Apple. And if you want to get rid of this situation and form your own technical barriers, you may be the only way for the chain enterprises to break the situation.
01 "Fruit Chain" walks at the crossroads
Apple's supplier list has always been a seat contested by various manufacturers and has attracted market attention. Becoming an Apple supplier often means your own performance, or even a rise in stock prices.
Today, the tickets for the Apple industry chain are still in demand, but compared with the past, there have been some subtle changes in the Apple industry chain. From the perspective of the capital market, fruit chain companies seem to be less popular, from 2019 to the beginning of 2022, the stock price of A-share Apple concept stocks rose by nearly 90%, but since this year, Apple concept stocks have fallen by more than 17%, far exceeding the A-share market decline (6%).
It is not difficult to understand the decline in Apple's concept stocks, on the one hand, because the mobile phone replacement cycle is prolonged, the upstream industry chain is bound to be affected, but more importantly, the cost performance of the Apple industry chain is becoming lower.
Judging from the fruit chain's own business actions, the fruit chain has also reduced its dependence on apples, and even the phenomenon of individual companies actively withdrawing from the apple industry chain has emerged.
From the perspective of the entire Apple industry chain, most of the relevant companies have begun to rely on Apple's single customer to reduce their dependence on Apple. For example, the fruit chain enterprises into automotive electronics, has been the consensus of the industry. Taking Luxun Precision as an example, the company and Chery New Energy jointly established a joint venture company to carry out the research and development and manufacturing of new energy vehicles.
Of course, a large part of the reason why fruit chain enterprises enter the automotive industry is that after the company has developed to a certain scale, it has diversified its business choices. However, some Apple industry chain enterprises began to actively withdraw from Apple's orders, or some can explain a certain problem.
At the beginning of June this year, according to the "Business Times", Apple's foundry "Renbao" decided not to take on the Apple Watch and iPad, and the team serving Apple has been disbanded, and the personnel have been transferred to other product lines or business units.
One of the most obvious reasons why the fruit chain gradually reduces its dependence on apples is that the fruit chain often falls into the dilemma of becoming apples and losing apples. The latest typical case is OFILM, which once became the world's largest mobile phone module market share after cutting into the Apple industry chain. However, due to the exclusion of the Apple industry chain last year, the company's revenue has been cut.
See here there may be investors will say, fruit chain enterprises are eliminated from the industrial chain, or their own products have problems, as long as they honestly work for Apple, the technology and cost performance, the company may have a good development.
But the problem is that even if the fruit chain enterprises are not excluded from the risk of the industrial chain, the "cost performance" of the Apple industry chain is also becoming lower.
02 The dilemma of the fruit chain: the profit is thinner and the risk increases
The days of eating meat with apples continue, but the "meat" eaten by the fruit chain is not as delicious as in the past. To put it bluntly, the profits earned by fruit chain companies are getting thinner and thinner, and the risks to be taken are increasing.
From the perspective of the profits of fruit chain enterprises, in 2021, most of the A-share fruit chain enterprises have a state of increasing revenue without increasing profits, according to the Central Broadcasting Network, in 2021, only one-third of the net profits of fruit chain enterprises achieved positive year-on-year growth. If the profitability of representative fruit chain enterprises in recent years is compared vertically, related enterprises have also shown a downward trend in gross profit margins.
The thinning profits of fruit chain enterprises are both the reasons for the change of Apple's supply chain policy and the reasons for the industry.
From the perspective of Apple's own changes, Apple's attitude towards supply chain costs is different. In the past, Apple gave suppliers a certain cost premium to eventually form a product premium. Specifically, the birth of the iPhone requires a large number of "unrealized" processes, which means that the downstream industry chain needs to do a lot of technological innovation around Apple's needs. Therefore, previously, Apple only introduced a small number of supply chains in various parts, and gave suppliers a large profit margin, so that they had enough profit margins for scientific research.
But product innovation always hits a bottleneck, at which point Apple begins to squeeze supply chain costs to maximize profits. A typical performance is that Apple began to continuously lower the price of suppliers, and Lin Zhi, chief analyst of international market research agency WitDisplay, once pointed out that Apple in order to reduce costs, further compress the profit margins of suppliers, bringing greater cost pressure to it.
In addition, some industry insiders said, "Apple's supply chain management is to continuously introduce new suppliers in the open, produce catfish effect, and drive down supply chain costs in a competitive way." ”
From the perspective of the industry, in the past period of time, the shortage of semiconductors and the rise in raw material costs have further affected the profits of fruit chain enterprises. Specifically, although the price of raw materials has risen, the price of apple products has not increased, and there is even a trend of price reduction, and the gross profit margin of Apple in 2021 has risen. Combined with the declining profit margin of fruit chain enterprises, the rising cost of raw materials is most likely borne by fruit chain enterprises.
After the profit margin is reduced, the business risk of fruit chain enterprises is increasing, which is reflected in two points:
One is inventory risk. Apple shifts inventory pressure to suppliers, with Apple's inventory ratio (inventory/total assets) of less than 0.2% in 2021, while the inventory ratio of fruit chain companies is generally between 5% and 20%.
Apple's way of shifting inventory pressure to suppliers is to adopt the JIT production model, in this mode, Apple will timely predict the changes in downstream orders, make a small number of frequent purchases to suppliers, if the product sales are better, Apple will send the product to the demand side in time before the product is out of stock. If product sales decline, Apple will automatically reduce production, or even stop production, and the company will not generate inventory and dead goods, reducing waste.
However, apples can purchase a small amount of frequent purchases from the fruit chain, and the fruit chain is difficult to purchase a small amount of frequent purchases from its suppliers, if the inventory is not prepared in advance, the fruit chain is difficult to quickly reflect the orders of apples, and the fruit chain also needs centralized procurement to reduce costs. When the consumer hardware consumption trend is good, the inventory is easy to digest, but now in the case of the delay in the consumer replacement cycle, the inventory risk of the fruit chain is rising, as shown in the following figure, the inventory ratio of related enterprises also shows an upward trend.
Second, the risk of heavy asset investment of fruit chain enterprises is becoming larger. An electronic analyst at a brokerage company mentioned that the fruit chain needs heavy assets to invest in new production lines, but the production line has the process of capacity climbing yield improvement, and it does not make money in the early stage, and after stability, it depends on the life cycle and order volume of the product. However, weak consumption has led to poor performance of hardware orders, which has exacerbated the risk of fruit chain production line investment.
All of the above has forced the fruit chain to reduce its dependence on apples, and the emergence of external market opportunities has made it possible for the fruit chain to reduce apple dependence.
Previously, some insiders showed that although Apple squeezed the cost of the supply chain, the profit of Apple's mobile phone was much higher than that of Android machine, so the profit left to suppliers was still higher than that of Android machine, because cooperation with Apple was the most preferred choice of fruit chain for a long time, but the recent rise of new energy vehicles and Google and Meta plus hardware made Fruit Chain have more business choices. For example, Goertek has become the largest supplier of MetaVR headsets.
So, while seizing external opportunities, from the perspective of the fruit chain itself, how should enterprises increase their own certainty?
03 How to break the fruit chain?
Although fruit chains have made efforts to develop new businesses and seek to reduce their dependence on Apple, fruit chain companies want to be not coerced by the next "Apple", and they also need to exercise their internal strength while seizing new industrial opportunities to enhance their own certainty.
Summarizing the development of successful fruit chain enterprises and referring to relevant supply chain enterprises, the following path may be a way for fruit chain enterprises to increase their business certainty:
First of all, products with high added value and high technical barriers in the industry need to transform from cost advantages to technical advantages and form their own technical barriers. Liu Yuan, chief analyst of the consulting agency Ictime, once said that in 2021, because of the lack of core and materials, Apple considered the cost problem and lowered the price of some suppliers with strong substitution, while the suppliers with technical advantages made a lot of money.
BOE is one of the cases, BOE is in the semiconductor display industry with high thresholds, few suppliers, and only a few manufacturers such as Samsung and BOE have high standards of delivery capabilities on the market. As a result, although most of the fruit chain enterprises in 2021 have increased revenue and not increased profits, BOE has not been affected by technical barriers, and its net profit in 2021 has achieved triple-digit growth.
Of course, not all products have high technical barriers, and some non-industrial core products, even if they want to carry out hard-core research and development, have limited final research and development space. Such products may be a better choice for industrial extension and industrial integration layout.
For example, Luxshare Precision, this company started with connectors, also known as plugs or sockets in China, can connect the current and signal of two devices, and there are thousands of connector manufacturers in China. However, after Luxun Precision relied on connectors to gain a firm foothold, the company continued to implement horizontal layout and vertical layout integration, of which the horizontal extension from PC to consumer electronics, communications and automotive fields, vertical deepening its industrial chain, from components, to modules to the layout of the whole machine.
The benefits of the industrial integration layout to the company are: the multi-category extension has also brought greater business space to the company, and the company's revenue CAGR in the past three years has reached 53%, maintaining a high growth. The company's integrated layout also makes the company's self-made parts cost lower than procurement, which brings cost advantages to the company, so that the company's net profit CAGR in the past three years has reached 62.5%, even faster than the revenue growth rate.
From the above point of view, although fruit chain enterprises can achieve a higher growth rate with the help of external forces such as apples and new energy vehicles, fruit chain enterprises can only go further in the future after forming their own specific barriers.
Disclaimer: This article (report) is based on the information that has been published or the information provided by the interviewee, but the author of the understanding of finance and economics and the author of the article does not guarantee the completeness and accuracy of such information. In no event shall the information contained herein (the report) or the opinions expressed constitute investment advice to any person.