Category: Electronics

Luxshare Precision (002475.SZ) released its 2023 interim report on 28th August, revealing a year-on-year increase of 19.53% in operating revenue, amounting to RMB97.971 billion. Net profit after deduction of non-recurring profit and loss attributable to ordinary shareholders of the company soared by 22.48% to RMB4.154 billion.

The company also forecasted its performance for the third quarter, projecting a 10% to 20% increase in net profit attributable to ordinary shareholders of the company for the first three quarters of 2023, with an expected range of RMB7.04 billion to RMB7.68 billion.

The interim report highlighted significant improvements in Luxshare’s profitability and further optimization of multiple financial indicators. Furthermore, the company’s diversified business strategy is yielding impressive results, with continuous growth in its communication business and automotive business, providing a strong impetus for stable development.

Strong revenue and net profit growth with significant gross profit margin improvement
Positioned as a solutions provider, Luxshare leverages its robust technical strength and innovative capabilities to offer comprehensive solutions across the industrial chain. This positioning allows the company to seize more market opportunities, such as in the era of intelligent electric vehicles. It integrates its accumulated experience and advantages in communication and electronics, propelling the company onto a fast track towards becoming a global top ten Tier 1 player in the intelligent electric vehicle field.

In the first half of 2023, Luxshare demonstrated “double-digit growth in revenue and net profit”. The company’s growth rate of net profit excluding non-recurring profit and loss surpassed that of revenue, signifying an improvement in revenue quality. This increase can be attributed to Luxshare’s higher positioning in the supply chain and continuous cost reduction and efficiency improvement in management.

Luxshare has implemented systems such as SAP, PLM, MES, and WMS, and through digital transformation and upgrading, it has further optimized its management and production processes, thereby improving operational efficiency in lean manufacturing and supply chain management.

Some research reports noticed that for three consecutive quarters, Luxshare’s “cash receipts from the sales of goods and the rendering of services” exceeded “cash payments for goods purchased and services received” hinting at an increase in gross profit margin. It is worth to notice that, the company’s gross profit margin in the first half of the year was 10.64%, while the Q2 gross profit margin was 11.27%, indicating an improvement from the previous quarter.

Moreover, Luxshare’s cash flow statement showed significant improvement in the first half of 2023, with net cash flow from operating activities surging by 263.74% to RMB8.814 billion.

Advancement across diverse business sectors
The ongoing acceleration of diversified layout formed Luxshare Precision unique operational advantages and fostered a positive development pattern across multiple platforms. With the consumer electronics business as the backbone of Luxshare Precision, the company presented an over-industry-level performance in the first half of the year.

Despite a global decline in the smartphone market, Luxshare Precision’s consumer electronics business has maintained strong growth momentum. The upcoming launch of Apple’s new iPhone 15 series is expected to provide additional growth opportunities for the company.

Meanwhile, Luxshare Precision’s communication business is the fastest-growing sector in recent years. The company has devised a mixed development model of “core components + system-level products” to boost business growth comprehensively, which turned out well and received high recognition from top customers at home and abroad.

In the automotive business, Luxshare Precision achieved over 50% growth in the first half of the year. The company continues to expand its automotive portfolio, forming strategic partnerships with major players such as Chery, GAC, and Huawei.

In addition, Luxshare Precision was included in the Fortune Global 500 list for the first time, representing a significant achievement for enhancing the company’s brand value and influence, as well as for the technology manufacturing industry in China.

In summary of the performance in the first half of 2023, Luxshare Precision is highlighted in its improved management efficiency, enhanced asset quality, and advanced development of the three major business sectors. With the release of Apple new products and expansion of partnerships in the automotive industry, the company is well-positioned to continue its growth trajectory.

Earlier this month, Apple announced its 2023FY third quarter results. Despite the slight decline in total revenue, combined with latest industry analysis, there are still three highlights worth noting: the strong demand in the Chinese market, the huge potential of iPhone 15 and the boost from wearable devices.

Strong demand in the Chinese market
Currently, the top five markets for the iPhone are China, the US, Japan, the UK and India. iPhone sales in emerging markets rose year-over-year, with double-digit growth overall, while Apple’s Chinese market has changed from a 3% decline to an 8% growth year-over-year.

In addition, many third-party institutions released relevant research reports followed by Apple’s results. According to TechInsights’ latest research report, China surpassed the US being the largest single market for iPhone for the first time, indicating the strong consumer demand in the Greater China region.

The huge potential of iPhone 15
Apple’s average selling price (ASP) hit a record high in the quarter, driven by higher sales of the iPhone 14 series of Pro models. This lays a good foundation for future iPhone 15 sales. The iPhone 15 is expected to be equipped with a new 3nm chip and type-c interface, which may cause a wave of replacements. According to The Elec citing industry sources, Apple plans to increase iPhone production by 3.2 million units this year.

iPhone 15 will also be manufactured by Foxconn, Luxshare and Pegatron. According to Wedbush Securities analyst Dan Ives, recent assessments of the supply chain in Asia indicate results that future iPhone revenue may exceed current expectations. Ives attributes this positive outlook to a “clear uptick” increase in demand in Greater China, coupled with higher average selling prices. With abundant supply and the highly anticipated release of the iPhone 15 in September, Apple is poised for a favorable outlook that instils investor confidence.

In addition, according to the analysis of well-known electronics analyst Ming-Chi Kuo, Apple’s 2024 iPhone shipment target is 250 million, which is greater than Samsung’s 220 million shipment target, which means that Apple is expected to earn the world’s largest smartphone shipment in 2024.

R&D expenses have witnessed an almost 10% year-on-year increase, as revealed in a Reuters interview with Apple’s CEO Tim Cook. The majority of increased investment has been allocated towards the development of AI technology. Anticipated to have a profound impact across Apple’s product line, the technological advancement could serve as a compelling reason for consumers to consider purchasing the new iPhone 15, set to be released later this year.

Wearable devices could give its revenue an additional boost
This time, Apple’s wearable business and service business have both achieved growth, becoming a bright spot in performance. In terms of new products, Apple may dig into the potential of health monitoring on the follow-up model of AirPods. Equipped with new sensors, the next-gen AirPods may not only support body temperature measurement, but also is expected to bring hearing aids.

At the same time, rumors said that Apple is developing a special edition watch for the 10th anniversary of the launch of the Apple Watch next year. It might include a thin and light body and a new magnetic suction strap buckle, etc., which are expected to bring continuous high-speed growth to wearable devices. The foundries of Apple Watch are mainly Luxshare Precision and Foxconn. Regarding the headset supply chain, it is currently known that Luxshare Precision, Yangming Optical, and Foxconn’s GIS have been selected, and Luxshare Precision will be responsible for the final assembly.

During the conference call after the results, Tim Cook mentioned that the revolutionary Apple Vision Pro is the most advanced personal electronic device ever created and is expected to be sent to customers’ hands early next year.

Earlier market reports indicate that Luxshare Precision has successfully secured contract manufacturing orders for three models of the iPhone 15 series. This marks the first time that Luxshare Precision has obtained contract manufacturing orders for three models ahead of the annual release of the new iPhone, notably including the iPhone 15 Ultra. The iPhone 15 Ultra is a new high-end model to be introduced this year, and securing the iPhone 15 Ultra order further confirms Luxshare Precision’s manufacturing capabilities being well recognized by Apple.

It is worth mentioning that it is said the iPhone 15 series will be equipped with a rear camera lens featuring a 48-megapixel resolution. Cowell, a subsidiary of Luxshare Precision, is one of the major suppliers providing camera modules.

2023 has been a rewarding year for Apple investors as the stock has soared over 40% during the past seven months, driven by the resilience of the company’s iPhone sales. It is rare to see a company still appear to be non-affected by the poor global economic conditions and even grow stronger and stronger. The comprehensive upgrades of the iPhone 15 are also expected to bring certain benefits to the manufacturers involved in the iPhone supply chain.

In February 2023, ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. The number of users exceeded 100 million in just two months, making it the fastest software ever to have 100 million active users. Microsoft and Google have also launched New Bing and Bard to follow the tide.

According to the analysis AI and Compute published by OpenAI, since 2012, the amount of compute used in the largest AI training runs has been increasing exponentially with a 3.4-month doubling time (by comparison, Moore’s Law had a 2-year doubling period). Since 2012, this metric has grown by more than 300,000x (a 2-year doubling period would yield only a 7x increase).

With the explosive growth of computing power and data demand, the evolution of traditional pluggable optical module technology is challenging to support the sustainable development of data centers in the context of high computing power. Therefore, more advanced co-packaged optics (CPO) technology has been brought to the stage to cope with the rapid growth of computing power demand.

CPO technology is an advanced heterogeneous integration of optics and silicon on a single packaged substrate. The transmission rate will be increased by more than eight times to cater for the increasing data processing demand.

Top tier companies are gradually become in need of CPO product. The demand on 800G optical module reached over 7,000,000 in May this year, as Nvidia and Google have updated their demand planning guidelines for 800G optical modules in 2024.

In China, the state has issued a series of policies to support the development of CPO technology. In addition, the stock market also reflected real emotion with China’s CPO concept stocks performing extremely well in the first half this year. The most significant increase was Linktel Technologies, with a cumulative soar of 768.83% in 1H2023.

HGtech and Cambridge Industries Group (CIG) are companies marching into the CPO industry. HGtech is currently developing 200G and 400G optical module before looking into 800G optical module and CIG just began to small produce 800G optical module and schedule to deliver more in the rest of the year to cope with their customer needs.

Another example goes to Luxshare Precision, which is well-known for manufacturing iPhone and AirPods for Apple. In addition to the consumer electronics sector, the communications sector has also been its main focus.

Luxshare Precision has been tapping into various communication technologies, including the above-mentioned CPO technology. Its 400G optical modules have already been put into mass production. Meanwhile, its 800G silicon optical modules are being shipped in small quantities. With the advantages of low power consumption, high reliability, high yield and low cost, Luxshare Precision wins a leading position in CPO technology globally.

In 2012, Luxshare Precision entered the communications market through the acquisition of Keertong Industrial. In 2021, the acquisition of TIME Interconnect helped Luxshare Precision further improve its product portfolios of the communications business. Benefiting from the increasing demand, Luxshare Precision’s communication business revenue for the first time exceeded RMB10 billion, to RMB12.834 billion, showing a year-on-year increase of 292.55%.

Equipment and data center are two sections that Luxshare Precision is now focusing on in the communications segment. For the equipment segment, Luxshare Precision has been able to realize technological iteration and comprehensively enhance its ability to empower customers’ value by relying on the precision manufacturing capabilities cultivated from small nano-scale components in the consumer electronics field, as well as a thorough understanding of acoustic, optical, electric, thermal, magnetic and radio frequency.

For the data center segment, Luxshare Precision, through its advantages in high-speed transmission and its current forward-looking layout in heat transfer, continues to enhance its ability to provide comprehensive solutions in multiple categories.

On top of its existing technology as well as products, R&D innovation is always in the important position of enterprise development, and the company has invested a total of RMB20.834 billion in R&D in the past three years. In terms of R&D achievements, Luxshare Precision has accumulated 4,526 invention patents, an increase of 46.47% compared to the end of 2021.

The steady growth of R&D investment and the continuous enhancement of technology accumulation will certainly help Luxshare Precision achieve breakthroughs in digital applications.

In the recently announced 2023 Fortune Global 500 released on Wednesday, Luxshare Precision appeared on the list for the first time. Meanwhile, it also ranked 138th on Fortune China 500 this year. In addition, Luxshare Precision has been included in the list of Top 50 Forbes China Most Innovative Companies 2022, by virtue of its continuous innovation and leading technology.

It is obvious that Luxshare Precision, with its strong R&D capabilities and achievements in the communications segment, is well-positioned to maintain sustainable growth and achieve a new level.

Earlier this month, Bloomberg’s Mark Gurman revealed Apple’s plan to incorporate more health tracking features into its audio products.

According to Mark Gurman’s newsletter, Apple is working on a new hearing test feature that will play different tones and sounds to allow the AirPods to determine how well users can hear and help them screen for hearing issues.

In addition, Mark Gurman revealed that Apple plans to add more health sensors to the AirPods hardware, such as measuring body temperature through the ear canal. This feature would allow AirPods to collect more accurate data than the Apple Watch Series 8 and Ultra models, which collect data through the wrist while users sleep, and expand the use to determine whether the wearer is experiencing cold or other illnesses.

Two years ago, Apple applied for a patent allowing temperature sensors to be integrated into handheld or wearable devices. Apple explicitly mentioned the applicability of this patent to earphones and other portable electronic devices. It is well known that Apple sets the trend for consumer electronics, and each iteration of its products tends to spark a wave of consumer enthusiasm. Based on Apple’s historical release patterns for the AirPods series, the next generation of AirPods is expected to be launched in the fall of this year. Although the mentioned features still need to be determined to realize in the next AirPods, the relevant Apple suppliers are already taking action for it.

Currently, China’s TWS earphone industry has developed a relatively mature supply chain structure with upstream component manufacturers, midstream ODM manufacturers and downstream brand manufacturers, many of which are public-listed companies. On the smartphone manufacturer side, Android-based TWS products are experiencing shorter update cycles, with approximately 2-3 months between the release of new models.

At present, manufacturers in China, such as Honor and Vivo, have already launched wireless earphone products with temperature measurement capabilities. This indirectly confirms the industry supply chain’s achievements in China and shows the potential to support the realization of features like temperature monitoring in Apple’s next AirPods.

According to Chinese media, Luxshare Precision, one of the leading companies in the consumer electronics industry in China, disclosed in its 2022 annual report that the project of “R&D of TWS headset body temperature monitoring and heart rate monitoring functions” is completed.

According to the public document, Luxshare Precision currently presents in three major areas: consumer electronics, automotive electronics, and communication electronics. Luxshare Precision obtained the core component supply and assembly qualification for Apple’s AirPods in 2017. Until now, it still holds the highest share of production orders for Apple’s AirPods.

Luxshare Precision is not the only dominant player in the market. It is saying that the leading earphone automation production technology in China is only mastered by Luxshare Precision and Goertek, and it may take about 5 years for other earphone suppliers in China to catch up. In addition, Foxconn is another competitor for AirPods orders.

However, Apple has set extremely high standards for its supply chain. In November 2022, Goertek issued a risk warning, stating that the company had received a notification from a major overseas customer to suspend production of one of its intelligent acoustic products. It is assumed that the lost order is from Apple’s AirPods Pro.

After Apple removed the 3.5mm earphone jack from the iPhone 7 in 2017, the TWS earphone market experienced rapid growth. In 2021, global shipments of TWS earphones reached 300 million units. In 2022, the number of total shipments was 288 million units.

In 2022, Apple’s TWS earphone shipments reached 91 million units, capturing a global market share of 31.8%. Despite the flourishing wireless earphone market with numerous players, Apple, as the pioneer, still holds significant influence in terms of market share.

From the perspective of development trends, Apple’s every new function upgrade will stimulate market consumption, and companies involved in the supply chain, such as Luxshare Precision, Goertek, and Foxconn, are also likely to benefit from Apple’s success.