Based on the commercial reality of multiple constraints, fruit chain companies need to think more about their mid- and long-term "destiny" while developing rapidly with the help of Apple - how to use Apple's dividends to "strengthen the body", so as to gradually reduce the pressure on Apple Dependence on Apple and walk out of the development path independent of Apple.

  Securities Times reporter Roman

  On the first trading day of 2022, Apple’s stock price hit a record high of $182.88 per share, and its total market value once exceeded $3 trillion.

Behind this trillion-dollar market value has also created the growth myth of a large number of Chinese "fruit chain" companies.

  From memory chips, OLED screens, lens modules to precision components, glass cover plates, and middle frame of the fuselage... With Apple as the axis, it has driven the rapid growth of Chinese supply chain companies in the technology industry.

There was a saying in the industry: "Whoever gets the apple wins the world".

Entering the "fruit chain" and becoming an Apple supplier means not only the rapid increase in revenue brought by a large number of orders, but also the industry's recognition of the company's strength and high valuation in the capital market.

  A typical example is Luxshare Precision, a Dongguan electronics factory that provides connectors for Apple. It entered the Apple industry chain for the first time in 2011, and now it has occupied more than half of Apple’s AirPods headsets, becoming a consumer electronics giant with an annual revenue of 100 billion.

The company's operating income has grown at a compound annual growth rate of 49% in the past 10 years. Its stock price has risen more than 20 times since 2011, with a total market value of 250 billion yuan.

  However, the representative of another fruit chain company, Ou Feiguang, was kicked out of the Apple supply chain list, giving the fruit chain company some "warning".

Due to being removed from the fruit chain list, Oufeiguang's net profit in 2020 turned from profit to loss to 1.85 billion yuan, and it is expected to lose another 1.9 billion to 2.7 billion yuan in 2021.

After "working" for Apple for 4 years, the cumulative net profit was negative, and the stock price also fell by 72% from the peak.

  Ou Feiguang sounded the alarm for his peers, and Apple's supply chain is like a shackle with honey.

While fruit chain companies are developing rapidly with the help of Apple, they need to think more about their own medium and long-term "destiny" - how to use the "Apple Dividend" to strengthen their health, so as to gradually reduce their dependence on Apple and get out of Apple's independence. development path.

  "Fruit chain" company sample

  On January 29, OFILM released the 2021 annual performance forecast, predicting a net profit loss of 1.9 billion to 2.7 billion yuan in 2021.

The main reasons for the loss include: the termination of purchasing relationships by specific overseas customers, the decrease in shipments of H customers' smartphone business, which resulted in a significant year-on-year decline in the shipments of various products of the company, and the comprehensive inspection and provision for impairment of various assets.

  The "specific overseas customers" not named in the announcement were pointed out by the market as being Apple.

As early as mid-July 2020, it was reported that OFILM was kicked out of the list of Apple suppliers.

The secondary market also reacted in advance, and the company's stock price began to retreat rapidly from a high of 23.62 yuan per share.

Until March 12, 2021, Oufeiguang confirmed the news, at which time the stock price had been cut in half.

  After being removed from the list of Apple suppliers, Oufeiguang provided an asset impairment loss of 2.77 billion yuan in the 2020 financial report, and the asset impairment loss of Apple-related business was as high as 2.58 billion yuan, accounting for 93.04%.

  This directly led to a sharp decline in Oufeiguang's 2020 annual performance. The net profit attributable to shareholders of listed companies was -1.945 billion yuan, a year-on-year decrease of 481.39%; the net profit after non-deduction was -2.06 billion yuan, a year-on-year decrease of 741.89%.

  Wang Jing (pseudonym), an analyst in the electronics industry of a securities firm, told reporters that Apple provides financial and technical assistance to suppliers' production equipment, but the production line will be separately allocated to Apple, and the ownership of equipment and software belongs to Apple, and even an inventory Assets must also be handed over to Apple.

This also explains why OFILM has made provision for all asset impairment losses related to specific customers after stopping cooperation.

  Oufeiguang currently accrues asset impairment losses, which may have laid the groundwork as early as 2016.

At the end of 2016, OFILM spent US$243 million to acquire Sony's factory in Guangzhou to produce iPhone modules, obtained advanced packaging technology, and cut into Apple's supply chain.

In 2017, the stock price of OFILM increased by 50% and hit a record high of 26 yuan per share.

In 2019, OFILM ranked first in the world in terms of market share of mobile phone modules.

  From 2017 to 2020, the operating income of OFILM was 33.791 billion yuan, 43.028 billion yuan, 51.97 billion yuan and 48.35 billion yuan respectively.

In OFILM's overall revenue, the proportion of revenue brought by Apple has increased from 19.35% in 2018 to 30.01% in 2020, and OFILM has become more and more dependent on Apple.

  However, during the 4 years of “working” for Apple, OFILM has increased its income without increasing its profits.

In 2017, it realized a net profit of 820 million yuan, a year-on-year increase of 14.5%. In 2018, it lost 519 million yuan, a year-on-year decrease of 163%. In 2019, it turned losses into profits and realized a net profit of 510 million yuan, a year-on-year increase of 198%. In 2020, it lost 1.945 billion yuan. , down 481.39% year-on-year.

  In this way, Apple's money is not easy to make.

Chen Hang, chief analyst of the electronics industry of Southwest Securities, told reporters that in the entire mobile phone lens industry chain, the technical barriers and industrial added value of modules are at the end, and the approximate order is: CMOS sensor > lens > voice coil motor > filter >Module.

The more at the end of the industrial chain, the lower the gross profit and the weakest bargaining power.

  Looking at Oufeiguang's 2018-2020 financial report data, the company's overall gross profit margins were 12.32%, 9.87%, and 10.91%, respectively, while the gross profit margin of Apple's business was significantly lower than the overall gross profit margin, 7.69%, 8.52%, and 8.7%, respectively.

OEM for Apple, the profit is meager.

  Oufeiguang's experience may have brought some warnings to its peers, but for fruit chain companies, it is still a great "temptation" to be able to join the Apple industry chain.

Wang Jing told reporters, "Since the launch of the iPhone 4 smartphone in 2010, Chinese supply chain companies have grown rapidly in the technology industry. They have enjoyed the dividends of iPhone sales and price growth, and they have also fallen into Apple's value trap."

  Apple's Honey

  On the first trading day of 2022, Apple’s stock price hit a record high of $182.88 per share, and its total market value once exceeded $3 trillion.

This volume is equivalent to the fifth largest economy in the world if it is compared with the GDP of various countries in the world.

  When Apple's market value exceeded $3 trillion, the Chinese supply chain was an indispensable part of Apple's ecosystem.

  For example, Goertek is a leading acoustic company and a supplier of Apple's acoustic components and wired headphones. Desay Battery provides support for Apple's terminal battery equipment. To Apple mobile phone camera module or even iPhone assembly.

  Becoming a top Apple supplier means considerable financial returns.

This can also be reflected in BOE's 2021 annual performance forecast.

As a new addition to the fruit chain in 2021, BOE has a net profit of 25.826 billion yuan, a year-on-year increase of 412.86%, making a lot of money.

  Securities Times reporters counted data from 19 core Apple suppliers. Since 2011, the compound growth rate of the overall revenue of the apple industry chain in mainland China has been 35%, and the compound growth rate of net profit attributable to the parent has been 30%.

  For example, Luxshare Precision, Goertek and Lens Technology, known as the three Musketeers of Apple's supply chain A-shares, have grown up with Apple.

In 2010, Luxshare Precision and GoerTek entered the Apple supply chain at the same time. The revenue of Luxshare Precision that year was only 1 billion yuan. As of 2020, its operating income has reached 92.5 billion yuan, a 92.5-fold increase in 10 years; The scale increased from 2.6 billion yuan to 57.7 billion yuan, an increase of 22 times.

The net profit of the two has risen by 62 times and 9.5 times respectively in the past 10 years, to 7.225 billion yuan and 2.848 billion yuan in 2020.

  Lens Technology is the core supplier of Apple's glass cover. In 2015, Apple contributed 47% of its revenue, and achieved a revenue of 17.2 billion yuan and landed on the Growth Enterprise Market.

As of 2020, Lens Technology's revenue reached 36.9 billion yuan.

Net profit increased from 1.5 billion yuan in 2015 to 4.9 billion yuan in 2020, an increase of 3.3 times in 5 years.

  With the increase in the number of orders, Apple's revenue share in the above-mentioned companies is also increasing.

Among the top five customers disclosed by Luxshare Precision from 2017 to 2020, the sales of the largest customer (actually Apple) were 8.349 billion yuan, 16.079 billion yuan, 34.65 billion yuan, and 63.843 billion yuan, accounting for the proportion of total annual sales They were 35.58%, 44.85%, 55.43%, and 69.02%, respectively.

More than 20% of GoerTek's main revenue comes from Apple.

  In addition to Luxshare, Goertek and Lens Technology, Apple is also the largest customer of Lingyi Zhizao, Dongshan Precision, Changying Precision and Desay Battery, and plays a pivotal role in it.

Changying Precision stated in its 2017 financial report that the growth of its international major customer business will provide continuous impetus for the company's future development. The 2018 financial report disclosed that international customers accounted for more than 30% of its revenue.

  Wang Jing said, "Apple uses its huge volume to support the orders that these supply chain companies rely on. And the sales volume of orders is also directly reflected in the stock price of the secondary market."

  Relying on Apple, these fruit chain companies have not only obtained considerable financial returns and high valuations in the capital market, but also have modern management experience, industry-leading technical capabilities and business integration capabilities, as well as a larger customer base.

  According to the Securities Times reporter, Apple will help suppliers build production lines, and will also arrange internal personnel to settle in the foundry, responsible for program designation, production guidance, quality inspection and other related processes. Apple's strict quality control requirements have improved the strength of suppliers. and market competitiveness.

  For example, Largan, a fruit chain company, passed Apple's stringent product certification with its superior product performance and high yield, and provided lenses for the first-generation iPhone in 2007.

Since then, Largan has grown together with Apple in the process of continuous iteration. In response to Apple's demand for continuous lens upgrades, Largan has extended its customers to other mobile phone manufacturers and has become the global leader in mobile phone lenses.

  Liu Qiang, an electronics industry analyst at Kaiyuan Securities, said that Apple's excellent supply chain management capabilities will also be transferred to suppliers.

In the cooperation with Apple for more than 10 years, Luxshare Precision has controlled costs through refined management and implemented the "business unit + major customer strategy".

Several important development stages of Luxshare Precision are strategically guided by major customers, tap Apple's needs, and expand product categories, so as to achieve a vertical layout in the field of consumer electronics precision processing.

  Of course, things have two sides. While enjoying Apple's "dividends", fruit chain companies also suffer from Apple's "shackles"-like control.

  Apple's Shackles

  Apple's latest fiscal 2022 first quarter report shows that Apple's quarterly revenue increased by 11% year-on-year to US$123.95 billion (equivalent to 789 billion yuan), the highest single-quarter revenue in history, with a net profit of US$34.63 billion (equivalent to 220.4 billion yuan) Yuan), the gross profit margin is as high as 43.76%.

In the past 10 years, Apple has maintained an ultra-high gross profit margin and stabilized it in the range of 35% to 45%.

  An important reason why Apple has been able to maintain a high gross profit margin is that it has almost strict cost control on downstream manufacturers.

Wang Jing told the Securities Times reporter that Apple's ERP system (Enterprise Resource Planning) is what Apple values ​​most. In fact, the ERP system of Fruit Chain is also provided by Apple.

Because in the ERP system, manufacturers have to purchase raw materials such as chips from suppliers designated by Apple. The procurement, circulation, production, yield, and delivery of materials will all be reflected in the ERP. The entire process does not allow any black box operations, including chips and antennas. , headphones and other major components must be fully controlled by Apple, and the process is transparent.

In this way, Apple can accurately calculate the cost price of a product, and then leave a certain profit margin for the fruit chain company.

  In the entire industry chain, Apple took most of the profits.

Apple's net profit in the first quarter of 2022 is equivalent to 3.4 times the sum of the net profits of the 46 A-share fruit chain companies in 2020.

However, while Apple is making a lot of money, suppliers get more hard-earned "processing fees" from Apple.

  Under the control of a strong Apple, the gross profit margin of fruit chain companies also tends to decline.

The gross profit margin of consumer electronics products, which accounted for nearly 90% of revenue, fell from 23% in 2015 to 17.85% in 2020, and the gross profit margin of electronic components products, which accounted for 95% of revenue, fell from 23% in 2014. From 27% in 2012 to 16.08% in 2020, the gross profit margin of Desay Battery's main product, battery modules, dropped from 17% in 2012 to 8.67% in 2020.

  In addition, with strong supply chain management capabilities, Apple's average inventory in the past decade is only 1.63% of operating income.

Behind this near "zero inventory" is the transfer of inventory pressure to upstream and downstream.

Wind data shows that the average inventory of 46 fruit chain companies in 2020 is 4.1 billion yuan, reaching 16% of the average annual revenue.

For example, Luxshare, Goertek, and Lens Technology accounted for more than 25% of their revenue before the peak season.

  In addition to high inventory, there is also high investment.

Wang Jing said that a big price for the fruit chain company is that it needs to invest heavily in new production lines, but the production line always has a process of ramping up the production capacity and improving the yield rate. It does not make money in the early stage, and it depends on the life of the product after it stabilizes. Cycle, but the cycle of electronic consumer products is not long.

If the production line is behind, it is easy to be kicked out of the list or cut orders by Apple if the technology is not updated.

Therefore, these companies have to keep investing in Apple's production line, so many consumer electronics companies will see various fixed capital increases since their listing, and the cash flow is not very good.

  An electronics industry analyst Chen Li (pseudonym) told reporters, "Don't look at Luxshare Precision's annual revenue growth so fast, but Luxshare's free cash flow is negative in most years. After all, this company is short of money."

  Dismantling Luxshare's cash flow statement, from 2016 to the third quarter of 2021, Luxshare's disposable free cash flow was -253 million yuan, -3.358 billion yuan, -2.014 billion yuan, 1.103 billion yuan, -629 million yuan Yuan and -892 million yuan.

Only in 2019 the company had positive disposable free cash flow.

  Another corroborating data is that since the listing of Luxshare Precision in 2010, it has raised a total of 199.2 billion yuan from the capital market. The financing methods include direct financing, equity refinancing, and indirect financing.

  On the other hand, Apple's net cash flow from operating activities in 2021 will reach US$104.038 billion (equivalent to 700 billion yuan), and free cash flow will reach US$93 billion (equivalent to 622.785 billion yuan).

  "Everyone in the industry jokes that Apple's trillion-dollar market value is due to A-share investors, because these fruit chain companies need a lot of investment in the early stage in order to invest in Apple's production line, but they don't have that much money, so they can only be determined in A-shares. The increase in fundraising will ultimately benefit Apple. In the end, these companies are more of a tool to cooperate with the production of the Apple chain.” Wang Jing said.

  Chen Li told reporters that Apple has absolute right to speak on the production line of Fruit Chain Company. The control software and ERP system on the production line are provided by Apple, so all the data from material entry, production line assembly, component quality testing to sales channels , Apple can conduct real-time monitoring, and the foundry's autonomy is greatly reduced.

From another point of view, except for the equipment and workers, which are owned by the manufacturer, the rest is controlled by Apple.

  Even so, there are still a large number of suppliers lining up to be included in the fruit chain list, which is constantly depressed by the gross profit, and the pressure on inventory is a sacrifice that needs to be made for business development.

As long as it can enter the Apple supply chain system, it means more business opportunities.

  Then, based on the commercial reality of multiple constraints, fruit chain companies need to think more about their mid- and long-term "destiny" while developing rapidly with the help of Apple - how to use Apple's dividends to "strengthen your body" to gradually reduce Dependence on Apple, go out of the development path independent of Apple.

  Seeking an "independent" path

  Based on this, it is a strategy for many fruit chain companies to hedge risks by not putting their eggs in one basket and seeking independent development while “working” for Apple.

  Oufeiguang, which has been deeply "hurt", has already disclosed in its 2021 semi-annual report that the smart car industry will enter a golden period of development. Increase resource allocation.

While developing core businesses, we are actively expanding new businesses, and deploying optical and optoelectronic businesses in VR/AR (virtual reality), industry, medical and other fields. At present, new businesses are still in the period of introduction and investment and construction.

  During the reporting period, the operating income of the smart car business was 413 million yuan, a year-on-year increase of 78.22%, and the comprehensive gross profit margin was 14.83%. Microelectronics.

  Apple suppliers such as Luxshare Precision, Lens Technology, and Changying Precision also chose to focus on smart cars as a key area of ​​deployment.

On February 14, Luxshare Precision announced the formation of a joint venture with Chery New Energy.

It is worth noting that in this cooperation, Luxshare does not manufacture cars, but cooperates with Chery to develop another new industry - the vehicle ODM model, commonly known as "original design OEM".

On February 21, Luxshare Precision launched a huge increase plan, and planned to raise 13.5 billion yuan in non-public offerings, of which 2 billion yuan was planned to be invested in new energy production lines.

  In the field of new energy vehicles, Lens Technology's main products include central control assemblies, B-pillars, dashboards, charging piles, etc.

According to public information, Lens Technology's vehicle-mounted product project in Huanghuayuan District, Changsha is expected to be completed this year, and the automotive project in Shanghai Lingang is also actively advancing.

  A chief analyst in the electronics industry told reporters, "We believe that the past ten years have been the golden decade of mobile phones, and the next is the golden decade of automotive electronics + semiconductors. Not only the consideration of multiple business complementarities, but also the impact of smart cars on the supply chain. It will also bring greater support for demand and profits. Take optical lenses as an example. Currently, the number of lenses required for mobile phones is about 3, but the number required for smart cars is more than 10. In view of the higher safety requirements of cars, Gross margins will also be better than smartphones.”

  Goertek is a representative enterprise in the development of new business.

Last year, the popularity of the metaverse concept has caused the industry to refocus on VR/AR.

Since 2020, the rapid growth of Goertek's VR/AR business has attracted market attention.

It pointed out in the annual report that the growth in demand for emerging smart hardware products such as VR will become the main driving force for the company's performance growth.

  In 2021, the VR/AR business will make a significant contribution to Goertek.

In the first half of 2021, Goertek's VR/AR-based smart hardware business revenue has exceeded 11.2 billion yuan, a year-on-year increase of 210.83%, accounting for 37% of revenue, second only to the smart acoustic machine.

In the third quarter of 2021, the revenue of Goertek's intelligent hardware business was 22.235 billion yuan, a year-on-year increase of 119%, which has become the company's main growth driver.

  Some industry insiders pointed out that Goertek's VR/AR layout is to hedge against the shock of Apple's industry chain and achieve partial "removal of Appleization".

  An institutional electronics analyst told the Securities Times reporter that compared with the mobile phone industry chain, virtual reality and new energy vehicles "have a promising future".

The transformation of enterprises in the mobile phone industry chain into automotive electronics or VR/AR is based on the accumulation of technology in components and structural parts.

Regardless of the car central control screen, touch module, or the internal structure of VR/AR, they all have similarities with the components in mobile phones, and the transformation is logical.

  It is undeniable that "fruit chain companies" have a greater chance to switch to a new track than other companies, which is not unrelated to the fact that they have been effectively trained when they "work" for Apple and have greatly improved their precision manufacturing capabilities.

  Of course, it will take time to test whether the "fruit chain companies" can finally walk out of an independent path without being restricted by Apple.