Xiaomi foundry "Longcheer Technology" officially disclosed that it will start subscribing after the Spring Festival, that is, on February 21, 2024.
As the main foundry of Xiaomi smartphones, from 2020 to the first half of 2023, Longcheer Technology's smartphone product revenue accounted for eighty percent of the company's total revenue, of which sales from Xiaomi increased from 68 in 2020$9.1 billion to $13.3 in 20225.7 billion yuan, accounting for half of the company's total sales, and the net profit from Xiaomi also increased from 56.8 billion yuan increased to 96.7 billion yuan, accounting for 54% of the company's total profit.
In 2023, Xiaomi's annual mobile phone shipments will reach 14.6 billion units, becoming the world's first domestic mobile phone, but Longcheer Technology's revenue in the first half of the year fell by 29% year-on-year, and the proportion of sales from Xiaomi fell to 3783%, and the proportion of net profit fell to 2662%, and predicted that the company's full-year revenue will decline by 14 year-on-year74%。
In response to the decline in revenue, most companies will rely on their own technology to cut into other tracks and achieve "two-legged walking", but Longcheer Technology seems to be more energetic with mobile phone foundry, and has chosen a path to go to the end on the road of mobile phone foundry.
In this IPO, Longcheer Technology wants to raise 1.8 billion yuan for the Huizhou intelligent hardware manufacturing project, the Nanchang intelligent hardware manufacturing center reconstruction and expansion project, the Shanghai R&D center upgrade and construction project and supplementary working capital. Among them, the Huizhou intelligent project has been invested in 38.8 billion yuan, Nanchang intelligent project has been invested 16.7 billion yuan, and the R&D center project has also been invested 07.4 billion yuan, according to Longcheer Science and Technology plan, the above three projects need to invest 800 million yuan, 400 million yuan, and 200 million yuan respectively to complete, and at least 30.8 million new mobile phone production capacity will be added every year.
Compared with the other two ODM comparable companies provided by the company, Huaqin Technology, which went public last year, has begun to build a product structure of "smart phone + laptop" + "consumer electronics" + "enterprise-level data center products + automotive electronics + software"; Wingtech Technology has realized the diversified layout of smart phones + laptops + automotive electronics + AI servers.
On the other hand, Longcheer Technology, which has 80% of its revenue from smartphone foundry, still focuses on the field of smartphone foundry, and the current downward trend of the smartphone industry is inevitably suspicious of Longcheer Technology's layout.
Holding shares does not represent Xiaomi's attitude
After several rounds of inquiries, netizens who pay attention to Longcheer Technology know that Xiaomi is the major shareholder of Longcheer Technology and the largest customer of Longcheer Technology, and related party transactions are involved between the two. The company involved in the IPO is involved in related party transactions, usually considered by the outside world to be independent enough, Longcheer Technology has repeatedly emphasized that the company does not rely on Xiaomi, but the revenue data shows that the performance of Longcheer Technology, and the sales of Xiaomi are closely related, in addition to Xiaomi, Longcheer Technology is also more dependent on Lenovo, Samsung and OPPO and other companies, the process of new user development is slow.
In 2023, Xiaomi's mobile phone shipments will become the world's largest domestic mobile phone, but Longcheer Technology's revenue in 2023 will decline year-on-year. The company's revenue from Xiaomi in the first half of the year was 408.6 billion yuan, only for 2020-2022. 59%, the decline is more obvious, it can be understood that the two sides intend to reduce performance exchanges, focusing on the proportion of sales of other customers of Longcheer Technology, or it may be that Xiaomi has found a more suitable business, such as Industrial Fortune Union.
Regardless of the specific reason, judging from the results, in the case of declining sales to Xiaomi, Longcheer Technology's performance is indeed declining at the same time, and according to the cooperation agreement signed by the two parties, 2024 is crucial for Longcheer Technology.
Although Longcheer Technology and Xiaomi have been cooperating since 2013, according to the latest sales contract signed by the two parties, the effective date is February 1, 2020, valid for four years, and the two parties will automatically renew it for one year without objection.
So how should Longcheer Technology behave in order to continue to obtain OEM contracts from Xiaomi? According to public information, the mobile phone that Longcheer Technology gave to Xiaomi is the Redmi series, which is the most cost-effective Xiaomi product series, which means that the gross profit of Redmi itself is not as good as the flagship series products, so Xiaomi can only strictly control the gross profit of the entire production chain, which means that the gross profit of related enterprises is not high.
In this regard, although Longcheer Technology has always emphasized that the gross profit margin of Xiaomi's sales is in the normal range, it also admits that the gross profit margin of the company's AIoT products has declined, mainly due to the large shipment volume and contribution revenue of the Redmi Watch project and the low gross profit margin.
Compared with peers, Longcheer Technology's gross profit margin in 2022 will be 850%, among the six comparable foundries, it is only slightly higher than the sales of Longcheer Technology, which is nearly 17 times that of Longcheer Technology, but the huge scale gap is destined to Longcheer Technology and Industrial Fortune Union not to compete in one dimension.
From the perspective of total assets, Longcheer Technology is only one-third of the penultimate (Huaqin Technology), from the perspective of Longcheer Technology, perhaps this is the main reason why Longcheer Technology's IPO continues to increase mobile phone production capacity and invests all its R&D energy in this track, but unfortunately it is not in line with the development trend of the industry.
The peer is walking on two legs
Although the scale of Huaqin Technology Company is more than 3 times that of Longcheer Technology, it is still not enough to see compared with industry giants such as Industrial Fortune Union and Lixun Precision, so the company directly builds a "2+N+3" product structure around AIoT products.
Compared with Longcheer Technology, Huaqin Technology's AIoT product line includes automotive electronic products, AI servers, etc., while Longcheer Technology's AIoT products account for less than one percent, and most of them are still low-margin Redmi series products, in other words, Huaqin Technology has relied on its own accumulation of 2500 patents to cut into the new track outside of smart phones and wearable devices, while Longqin Technology continues to hold 647 patents and work hard in the field of mobile phone foundry.
In contrast, Huaqin Technology is currently keeping up with the development direction of the times, but Longcheer Technology wants to challenge the status of industry giants such as Industrial Fortune Union and Luxshare Precision in the backward track, I don't know how long the company's capacity expansion cycle will be, in order to shake the position of Industrial Fortune Union in the field of mobile phone foundry, Lixun Precision in the field of smart watch foundry, in addition to these two industry firsts, the two subdivisions of the track also have such as BYD, Goertek, Wingtech Technology and other enterprises that are significantly higher than Longcheer Technology, in this almost Red Sea track, Longcheer Technology is difficult to break through.
The most important thing is that smartphones are becoming more and more popular, even if the iteration of 5G technology has created some replacement demand, it is difficult for the entire industry to reproduce the growth rate of 2020-2021, especially now that the average replacement cycle of users has been extended from 18 months to 43 months in 2022.
As a competitive enterprise mentioned by Longcheer Technology many times, Huaqin Technology has actually provided Longcheer Technology with a "standard answer". Huaqin Technology first entered the server market in 2017, opened up OEM production lines for mobile phones, laptops and other products, and then entered the new energy vehicle track in 2019, and now has completed business breakthroughs.
According to Huaqin Technology's third-quarter report, the company's server business achieved revenue of 415.3 billion yuan, a year-on-year increase of 670%, achieved the top Internet customer TH5 mainstream switch winning the bid, and completed the breakthrough of major switch customers; In terms of automotive electronics, Huaqin Technology has covered a number of new energy vehicle products such as intelligent cockpit, intelligent networking, intelligent vehicle control and intelligent driving, and the cockpit domain control 8155 platform will be mass-produced and shipped in 2023.
Another atypical foundry, Wingtech Technology, has a different path from the above-mentioned enterprises, he became the first mobile phone ODM company in China in 2008, but in 2019, he acquired Nexperia, cut into the upstream chip industry, and jointly established the automotive chip research center with Tsinghua University in 2022, acquired the customer's optical module assets in 2021, and set up R&D centers and manufacturing bases around the world. It can be simply understood that a chef not only only cooks, but also wants to farm the land and directly realize the freedom of raw materials.
What is incomprehensible is that Longcheer Technology should be well aware that the AIoT track is in a period of rapid development, because the company's production and sales rate of smartphones and tablets in the first half of 2023 is less than 100%, while the production and sales rate of AIoT will reach 10449%。Judging from the data, Longcheer Technology has begun to sell the inventory of AIoT products, but does not want to expand production capacity, but is bent on increasing the production capacity of mobile phones with production and sales of less than 100%, which is somewhat inconsistent with general business logic.
If you have to find a reason why Longcheer Technology's AIoT production line does not expand, you may have to go back to the company's previous announcement that "the Redmi Watch project shipments and contribution revenue are large and the gross profit margin is low, resulting in a decline in the gross profit margin of AIoT products", after all, companies don't like products with low gross profit margins.