BOE and Apple “pinch each other”

The grudge between BOE and Apple continued from the beginning of the month until the end of the month. Despite opinions and opinions from the outside world, neither side came to a conclusion on this farce.
$Apple (AAPL.US)$

As we all know, Cook is a supply chain control freak. In his management philosophy, the supply chain is the bottom line that Apple cannot challenge. Although the dust has not settled on this rumor, Apple's situation seems to be even more embarrassing compared to BOE. At the beginning, the reason Apple listed BOE as one of the “fruit chains” was to ease the centralization of the supply chain.

Prior to BOE, Apple's panel supply was firmly in the hands of Samsung and LG. According to a Bloomberg report, Samsung Display and LGD, a panel manufacturer under LG, have supplied a total of 110 million OLED panels to Apple in the past year, mainly for the iPhone 12 and the iPhone 13 series models newly released last fall. It is worth noting that in the past year, Apple only purchased 170 million panels in total.

In other words, Samsung and LG have taken on a total of 64% of Apple's orders. This figure is simply a nightmare for Cook. Whether BOE has offended Apple's financiers, everything is still unknown, but in these two years, seeing the ups and downs of the global supply market, Apple is probably the most difficult one. Apple's caution and “piety”

Apple always likes to maintain a close relationship with the supply chain. For a long time, outsiders were curious about Apple's supply chain. It wasn't until 2012 that Apple first published a list of suppliers. This list was also an audit report on supplier irregularities. At the time, 156 companies were selected.

Since 2013, Apple has published a list of the top 200 core suppliers almost every year. These 200 companies account for almost 97%-98% of Apple's procurement, production, and assembly expenses. Apple's strict control of the supply chain is reflected in every detail, and suppliers are not even allowed to take the initiative to “climb the dragon and support the phoenix.”

The most typical example happened to Kia. In January of last year, there was a rumor that Kia was about to OEM an Apple car. After a few days of hustle and bustle, Kia was soon revealed by the media that Apple was dissatisfied due to leaks, and was therefore forced to terminate the cooperation. It's no secret that Apple doesn't like to appear in public reports from suppliers.

As early as 2014, the “Wall Street Journal” mentioned that GT Advanced Technologies, a company that specializes in providing screen protectors for mobile phones, accidentally mentioned Apple in its public report and involved some details of the confidentiality agreement. Not only was it sued by Apple, but it was also pulled into the supply chain blacklist.

Why is Apple always careful about the supply chain? This doesn't seem to fit the “personality” of an international tech giant. But looking back at Apple's many years of history, the answers are probably not difficult to find.

Before 2012, topics surrounding Apple in the tech world couldn't bypass the supply chain. According to reports, the reason why Apple is silent about the supply chain is because the same component often uses multiple suppliers at the same time. Although they all support Apple technology, there are inevitably minor differences.

Furthermore, Apple suppliers are usually required to produce customized parts, and Apple's quality standards for mobile phone components exceed the industry by more than five times. According to reports, Apple's approval rate for good components is only 80%. During the long three-year iPhone market development cycle, supplier secrecy is Apple's indirect protection for technological innovation.

Apple “defends” the supply chain and cannot help but drip. According to industry sources, Apple usually sends a large number of mobile phone engineers to component factories for joint development. Even if it's just an assembly factory, Apple still has nearly 2,000 engineers stationed at Foxconn. A new Apple report shows that the company has made several changes to its foundry partner safety guidelines to help prevent information leaks.

The guidelines stipulate that all videos “showing the prototype and damaged defective parts” must be kept for at least 180 days.

Second, Apple's supply chain secrecy principles are largely derived from Jobs. To this day, Apple is still adhering to Jobs-style product launches. As far as Apple is concerned, surprise is a marketing method that gathers fruit fans are eagerly awaiting, and all unreleased product details have also invisibly become one of Apple's valuable assets in the consumer market. Confidentiality has been fooled by Apple. Previously, the Apple Park Gift Shop sold a shirt. There was a sentence printed on it: “I visited the apple orchard, but that's all I can say.”

On the other hand, the supply chain has had a huge impact on Apple. In a conference call for Apple's second fiscal quarter of 2022, Cook mentioned that supply chain issues will affect Apple by $4-8 billion. With caution, Apple has been at the top of the Gartner Global Supply Chain Top 25 list for 7 consecutive years. It's easy to see that Apple's devotion to the supply chain is not unpaid; I hope this prudence remains the same. Are supply chains “fighting back” Apple?

The past ten years have been the most glorious decade for Apple's supply chains. It's easy to take advantage of big trees. Under the cover of giants, every link involved in the supply chain has made a lot of money. According to some data, since 2011, the overall revenue of the domestic apple industry chain has grown at a compound annual rate of about 35%, and the compound annual growth rate of net profit to the mother is as high as 20%.

The domestic company Apple Aura has attracted the most attention. In ten years, the number of Apple concept stocks has exceeded 100; 45 companies have entered the A-share market alone, with a market capitalization of over 2.6 trillion dollars. Some of them have quickly become fruit chain myths. For example, there are reports that this company once relied on Apple to increase its revenue 90 times in ten years.

However, the fruit chain halo has clearly faded quite a bit during these years.

While Apple is fragmenting its supply chain and excessive centralization, suppliers are also aware of the weakness of giants. Over the past few years, fruit chain manufacturers have continued to pack eggs in baskets. In 2021, “Lansi Technology”, one of Apple's suppliers, reached a cooperation with Huawei; coincidentally, BOE also had a Huawei on the left and a Xiaomi on the right.

Beginning to leave Apple's comfort zone, there is no shortage of companies that are shining brightly within the second growth curve. Take Goertek as an example. This company chose VR and AR businesses. Currently, it occupies about 70% of the global market for high-end head-mounted display devices. From sitting back and enjoying the glories of giants to diversified transformation, what actually changed the situation once and for all?

First, the strict elimination rate of fruit chains has always been a sharp sword hanging over the entire supply chain. According to public information, there is an elimination rate of up to 30% behind Apple's selection of suppliers. In 2021 alone, 34 companies were relentlessly abandoned by Apple. As a result of Ou Fei Guang being removed from the fruit chain list, net profit in 2020 changed from profit to loss of 1.85 billion yuan, and net profit attributable to shareholders of listed companies in 2021 - 2,625 billion yuan. Its market value fell from over 80 billion yuan to less than 20 billion yuan.

Apple's supply chain elimination mechanism intensified after Cook came to power. In order to double the self-discipline of the entire supply chain, Cook once reduced the number of parts suppliers from 100 to 24. Notably, Apple warehouses also limit backlogs. In September 2018, Apple's inventory turnover rate reached a low of 37.2 times.

Become a fruit chain team. It's easy to get selected, and it's hard to stick to it. Many companies don't dare to slack off at all. Take BOE as an example. The company has maintained a 7% R&D investment ratio for the past three years, of which R&D expenses reached 9.441 billion yuan in 2020. This has led to an embarrassing situation where BOE's profits are difficult to profit.

BOE's revenue for the first quarter of 2022 was $50.476 billion, and net profit to mother was 4.389 billion yuan, a year-on-year decrease of 16.57% after adjustment. Since the third quarter of 2021, BOE's net profit growth rate has begun to decline. Perhaps today's Apple will no longer be able to support a worry-free business.

Lixun too. According to the 2021 Lixun financial report data, the proportion of Lixun's most important consumer electronics business in total revenue fell from a high of 90.52% to 83.90% in the first half of the year, and the revenue growth rate of the consumer electronics business slowed markedly. Having tasted the hidden sweetness of the giants, they also inevitably endured suffering. Apple is no longer a myth about getting rich in supply ten years ago, and all parties can't wait to start searching for the next “financier.”

There are no eternal friends in the business world, only eternal interests. Will Apple let go of “Made in China”?

Of the tens of millions of fruit chains, China accounts for half.

According to the list of Apple's top 200 suppliers in FY2020, there are 96 Chinese manufacturers, accounting for almost half. The United States, Japan, and South Korea all rank behind our country. According to Technode data, factories in China account for about 48% of all factories in Apple's supply chain, close to half, and 297 factories.

The high share ratio between Samsung and LG made it difficult for Apple to sleep at one point. Instead, they threw olive branches to Beijing and Oriental. The domestic fruit chain is so intense, and Apple's desire to get rid of China has been in the works for a long time. Over the years, Apple has spread to areas other than those made in China more than once; India and Vietnam are among them.

Among them, India's fruit chain is developing most rapidly. On the one hand, since the Indian government launched an incentive plan of up to 5.4 billion US dollars in 2020, India's mobile exports may increase 50 times within five years. As of March of this year, total exports may exceed 5.92 billion US dollars.

On the other hand, as the second-largest smartphone market in the world, India contributed about 4% of Apple's market share last year. At the same time, Apple is also the fastest growing brand in the Indian mobile phone market. Over the past few years, there has been a marked increase in fruit chain manufacturing in India. In 2020, India accounted for 1.3% of Apple's global manufacturing base; by the following year, this figure had become 3.1%.

Although it is far different from China, the growth rate of India's fruit chain should not be underestimated. According to reports, India's share is expected to increase to 5% to 7% by 2022. It is undeniable that diversifying supply risks goes far beyond companies; Apple's attitude towards manufacturing in China can be described as both loving and fearful.

In addition to India, Apple is also starting to favor Vietnam. According to public information, Apple has 31 original equipment manufacturing partner factories in 14 provinces and cities in Vietnam, with about 160,000 employees. Over the years, with the turbulence in the global supply chain, Apple's intention to further control the supply voice has become more obvious. Diversifying potential crises is one aspect. Seeing the gradual progression of the cost of raw materials for mobile phones and car construction, if Apple wants to reduce production costs, it must have the capital to negotiate with suppliers.

In 2020, Apple even began using money to “buy” people's hearts. For example, providing JDI with 200 million US dollars in capital so that it can produce OLEDs to compete with companies such as Samsung. This is not the first time that Apple has spent money on supply. As early as 2015, Apple invested 170 billion yen to help JDI get through difficult times by building a factory.

Under various actions, can the fruit chain be transferred smoothly from China?

What is certain is that it is unlikely that you want to move the supply chain on a large scale in a short period of time. S&P Global Ratings has mentioned the importance of Made in China to Apple in its report. After staying in the country for many years, the cost of supply chain transfer will naturally not be small. After all, more than 90% of Apple products, such as iPhones, iPads, and MacBook laptops, are manufactured in China.
$Lens Technology (300433.SZ)$