Text | Zhang Ziyi
Editor|Peng Xiaoqiu
Global mobile phone sales fell to freezing point last year, the lowest since 2013. Smartphone sales are sluggish, and ODM companies that "work" for mobile phone manufacturers such as Samsung, Xiaomi, and OPPO have also reached a turning point in their development.
In the past few decades, it is the golden period of smart phone development, domestic mobile phone manufacturers from "China Cool Union" to "Huami OV", continuous iteration of smart phones, and constantly rolled out product lines, have promoted the rapid development of the ODM industry behind mobile phone manufacturers.
ODM manufacturers can be understood as "OEM" or "outsourcing", they develop and design and produce products for brand manufacturers according to the product concept, specifications and functions of single manufacturers of intelligent hardware brands, which can cover the whole process of product design, development, production and operation.
Through the ODM/IDH ("independent design company", only develop and design products, do not provide manufacturing) model, mobile phone brand manufacturers can quickly, in large quantities, and at low cost to put the latest technological innovations into production.
Huaqin Technology, Longqi Technology and Wingtech Technology have thus become the three giants of global smartphone ODM.
However, both gains and losses. The sluggish scene of the consumer electronics market has not improved, and Huaqin Technology and Longqi Technology, which are under pressure on capital flow, have submitted prospectuses, looking forward to knocking on the door of A-share listing and opening up financing channels.
Although its ODM business market share has declined a lot, its long-sleeved dance in the capital market has enabled the company to successfully acquire Nexperia and Guangzhou Delta, and its business focus has shifted to semiconductors and optical modules.
Longqi Technology shares the same fate as Xiaomi
36Kr once told the listing story of Huaqin Technology in the report "The strongest "migrant worker" behind the global mobile phone manufacturers, with an annual income of 80 billion yuan".
Like Huaqin Technology, Longqi Technology is also waiting to be listed.
Longqi Technology is waiting for a response from the Shanghai Stock Exchange. In the global smartphone manufacturer ODM ranking, Longqi Technology rose from third to second place, which must be thanks to Xiaomi.
Xiaomi is a leader in promoting product lines using the ODM model.
According to data from Huatai Securities, Xiaomi's external commissioned design accounted for 74% as early as 2020, corresponding to shipments of 114 million units, the largest in the industry.
The three ODM giants have all OEM different product lines for Xiaomi. On the development path of Wingtech Technology, Xiaomi has had a strong stroke.
In 2013, Xiaomi's "Redmi" swept the low-end market at a price of 799 yuan, becoming a phenomenal product that was popular at that time. The manufacturer behind it is Wingtech Technology.
The cooperation with Xiaomi and the success of Redmi attracted customers from Huawei and Lenovo at that time, and established its giant position in the ODM industry.
In the development story of Longqi Technology, Xiaomi also plays an important role.
In March 2015, Xiaomi increased its capital to Longqi Technology by 45 million yuan through Tianjin Jinmi and Suzhou Shunwei, each acquiring 10% of the shares. Even in the prospectus, the former still holds 9.13%, and the latter holds 8.18% of the shares, maintaining the status of the top ten shareholders.
In addition to being an important shareholder, Xiaomi has deepened cooperation between the two companies in the production of products.
Since 2020, the cooperation model between Longqi Technology and Xiaomi has gradually changed from IDH to ODM, and Xiaomi and its affiliates have since become the company's largest customers.
In the following three years, the average annual sales of Xiaomi and its affiliates accounted for more than 40%, and in 2019 it was only 12.52%.
Although the cooperation is close, the "OEM" feature of ODM makes enterprises do not have much say in the face of large customers.
First of all, from the perspective of average gross profit margin, Longqi Technology's gross profit margin to Xiaomi is only about 7.22%, which is not only lower than the overall 7.57% of Longqi Technology, but also lower than the industry's 14%.
Longqi Technology Prospectus
Secondly, the accounts receivable turnover rate of Longqi Technology is also significantly lower than that of comparable companies in the same industry, only 3.66 times in 2021, while Huaqin Technology and Wingtech Technology were 5.13 times and 6.71 times respectively in the same period.
Among the accounts receivable of Longqi Technology, the proportion of accounts receivable balance to current assets has been increasing in the past four years, reaching 51.62% by June 2022, of which more than 62% are from Xiaomi.
Longqi Technology is quite dependent on Xiaomi. Although Xiaomi's market share is the third in the world, IDC data shows that Xiaomi's market share in 2022 fell by 19.8% year-on-year, and the fourth quarter fell by 26.3%. Fatigue is evident.
Longqi Technology Prospectus
In 2020, Longqi Technology proposed the "1+Y" development strategy, planning to develop smart products other than smartphones. However, in the composition of the company's business revenue, the dependence on the smartphone business has deepened, and the proportion has a trend of increasing year by year, and the proportion of smart phones will reach 84.06% by June 2022.
In contrast, in the product line of Huaqin Technology, the proportion of smart phones in revenue has a downward trend, and the proportion of revenue of laptops and tablets is slowly increasing, accounting for a total of 47.75%, exceeding the proportion of mobile phones.
Huaqin Technology Prospectus
There are no laptops in the product line of Longqi Technology, and laptops account for a certain proportion of the product lines of Huaqin Technology and Wingtech Technology.
Counterpoint data shows that 91% of the world's laptops are produced by ODM/EMS manufacturers, and the penetration rate is quite high.
In September last year, Huaqin Technology announced the joint development of next-generation server products with Intel. Wingtech Technology allocated and reduced the funds raised several times last year, and finally reduced the annual output of the original smartphone production line from 30 million units to 18 million units, while the annual output of notebook computers increased by 8 million units.
In addition, as the industry's No. 1 company, Huaqin Technology's revenue reached 83.759 billion yuan in 2021, while Longqi Technology only 24.596 billion yuan. The difference in size between the two is considerable.
Whether the identity of the second in the Longqi technology industry is stable and how long it can be stable is a question mark.
Whether it is Huaqin Technology or Longqi Technology, in the process of waiting to knock on the door, the main purpose of the fundraising is to plan to build consumer electronics smart terminal projects and increase the production capacity of smartphones.
The status quo is that in the iteration from 4G to 5G, no epoch-making products like the Iphone 4s have been born, smartphones have entered the era of stock games, sales decline is inevitable, and ODM companies that share solidarity with mobile phone brand manufacturers are also facing the dilemma of development.
Is going upstream the optimal solution?
In the comparison of peers listed in the prospectus of Longqi Technology, Wingtech Technology's gross profit margin of 16.17% can be called a ride.
Limited by the characteristics of the "foundry" of the ODM industry, the overall gross margin level of the industry is not high, and it is more hard money to earn. Taking Huaqin Technology as an example, when the revenue reached 83.759 billion yuan in 2021, the net profit was only 1.043 billion yuan. In comparison, in 2021, Wingtech Technology's revenue was 53.759 billion yuan, and the non-net profit reached 2.201 billion yuan.
The improvement of gross profit margin and net profit are inseparable from its newly developed semiconductor business.
Longqi Technology Prospectus
Backdoor listing is an important milestone in the development of Wingtech Technology.
In 2016, Wingtech Technology successfully entered the capital market with backdoor Zhongyin shares. With the help of the capital market, Wingtech Technology's financing channels have been broadened, and Chairman Zhang Xuezheng has targeted the upstream of the mobile phone industry chain - semiconductor companies.
At that time, after Nexperia was spun off from NXP, it was acquired by Jianguang Asset Management and many capitals.
Nexperia, formerly known as the standard products division of NXP, the global automotive electronics chip giant, has more than 60 years of semiconductor industry experience and is the world's top semiconductor standard device supplier, focusing on logic, discrete and MOSFET markets. In 2017, in response to the antitrust scrutiny faced by the Qualcomm acquisition, NXP spun off the business unit and established Nexperia.
In 2018, Wingtech Technology successfully acquired 33.66% of the equity of Nexperia held by Hefei Guangxin; In December 2019, with the help of financial leverage and a series of complex and meticulous capital operations, Wingtech Technology spent 26.8 billion yuan to win 74.46% of the shares of Nexperia, staging the feat of "snake swallowing elephants"; In 2020, Wingtech Technology completely completed the wholly-owned acquisition of Nexperia in March, July and September, costing a total of 34 billion yuan.
From Southwest Securities
During the acquisition process of Nexperia, Wingtech Technology leveraged more than 30 billion yuan of sky-high transactions with 1.7 billion yuan of its own funds, and financed through a combination of various financing channels, including bank borrowing, the introduction of equity funds, share payment, supporting financing, third-party borrowing and other ways to finance, and the capital operation is very complicated.
If Wingtech Technology is not listed, it is impossible to achieve the above acquisition, and it is difficult to enter the upstream of the industrial chain.
Longqi Technology is an example. The company has invested in many semiconductor companies, such as its investment in Kaiyuan Communication Technology, Zhejiang Xingyao Semiconductor, Shanghai Fourier Semiconductor, etc., the shareholding ratio is not high, most of them are still in the early stage of development, so the benefits that can be brought and the benefits to their own industries are relatively limited.
On the other hand, the investment income contribution of Longqi Technology is limited. In the past four years, the investment income has been about 70 million yuan. In 2019, it accounted for 73.21% of the net profit attributable to the parent company, and the proportion gradually decreased since then.
And Nexperia, acquired by Wingtech Technology, according to Omdia data, ranked the eighth largest power semiconductor company and the sixth largest power discrete device company in the world in 2021.
From Huaan Certificate
In the third quarter report of Wingtech Technology in 2022, the semiconductor business achieved revenue of 11.948 billion yuan, accounting for nearly one-third of the total revenue; The semiconductor business, with a net profit of 2.74 billion yuan, was also the only business that achieved positive growth and profitability in the first three quarters. The company said that the automotive sector is the main source of the company's semiconductor revenue, accounting for about half.
Although the ODM business of Wingtech Technology reached 28.109 billion yuan, it suffered a net loss of 404 million yuan due to the sluggish demand for consumer electronics. In addition, the gross margin of 42.7% for semiconductors was much higher than the 8.7% gross margin for the ODM business.
In addition to semiconductors, Wingtech Technology entered the field of optical modules through mergers and acquisitions.
In April 2021, Wingtech Technology and Gree acquired OFILM's Apple business (Guangzhou Delta Imaging Technology Co., Ltd.). Among them, Wingtech Technology invested 2.1 billion yuan in exchange for 70% of the equity, and the remaining 30% was invested by Gree with 900 million yuan. However, the business failed to contribute profit in the third quarter report of 2022 and was in a loss state.
Similar to the electronic component distributors previously reported by 36Kr, the ODM industry is also an industry with a significant Matthew effect, which has risen rapidly during the rapid development of the industry, and the road to the capital market is also quite bumpy, are facing the dilemma of "low gross margin", and are deeply affected by the sluggish demand for consumer electronics.
In 2017, the electronic components distribution leader Weier Co., Ltd. briefly fought with Wingtech Technology, and both companies once took a fancy to Haowei Technology, one of the world's leading camera CMOS image sensors, but it was finally won by Weier Co., Ltd. at a cost of more than 10 billion yuan.
Interestingly, after Weier shares and Wingtech Technology embarked on the capital market, they all used their capital advantages to realize the migration of the upstream of the industrial chain.
In contrast, the listing of Longqi Technology and Huaqin Technology is somewhat imminent.
Of course, the times will give enterprises development dividends, luck is also a wealth code, but the time shifts easily, always continue to win vitality.
(36Kr trainee analyst Wang Yufei also contributed to this article)