In the golden decade of the electronics industry, China has only half a step beyond Foxconn

2009 was a special starting point for China's electronics industry, with three important things happening.

The first was the release of the third generation of iPhone, and the smartphone market was just one step away from a complete explosion; the second was that global electronics giants under the financial crisis began to plan to get rid of high-cost Japanese and Korean suppliers; the third was the introduction of the China Electronics Industry Revitalization Plan led by the State Council, and the electronics industry ushered in a historical policy turning point.

The exquisite resonance of the three historical opportunities has ushered in a golden decade of growth for China's electronics manufacturing industry, which has grown into the world's consumer electronics manufacturing center. More than 70% of smartphones are made in China. A large number of electronic parts and components companies have grown bigger and stronger, and it has led to the explosion and rise of many mobile phone brands, planting the red flag all over the world.

At the end of 2008, a Foxconn girl left a selfie in the iPhone she was inspecting. The rise of the industry that has become popular all over the world is also reflected in the strong stock price. In the past ten years, the electronic industry index has risen by as much as 450%, which is 6 times the increase of the market in the same period. Behind this is the emergence of countless big bull stocks. Sunny Optical has risen by 300 times, AAC Technologies has risen by 65 times, while Goertek and Luxshare Precision, which have risen by 9 times, are not even on the list.

But after ZTE and Huawei were sanctioned by the United States in 2018, people suddenly found that many core areas of the electronics industry were still being strangled by others, and the stock prices of the electronics industry chain were collectively halved in less than a year. This inevitably makes people wonder: After the golden decade, how far has China's electronics industry come?

To answer this question, we may have to trace back to the division of the electronics industry structure and first find two benchmarks: Foxconn, which is engaged in assembly, and Samsung, which is engaged in research and development.

Foxconn has millions of employees, high revenue, and low profits. The company's annual revenue is about 150 billion US dollars, equivalent to 60% of Apple's revenue, but its market value (40 billion US dollars) is only 4% of Apple's. The fundamental reason is its weak position in the industry chain: for many years, Foxconn's net profit has remained around 3%.

Samsung, which has cutting-edge technology, is completely different. Samsung Electronics' revenue in 2018 exceeded $200 billion. It seems to be on the same level as Foxconn, but it has a crushing profit. Samsung's gross profit margin is as high as 40%. After deducting various expenses such as R&D and marketing, its net profit is still as high as $34 billion, more than 8 times that of Foxconn.

Those who work with their minds rule others, and those who work with their hands are ruled by others. Foxconn, which sells labor, is always at the end of the industrial chain, while Samsung, which has technological barriers, will not be completely strangled even if it faces a trade dispute between Japan and South Korea.

If you want to know how far Chinese electronics manufacturer Foxconn has come on the road to becoming Samsung Electronics, let us start with the mobile phones in our hands and see step by step where Chinese manufacturers have reached after ten years of journey in the large parts such as audio, light and electricity of mobile phones.

01Camera

Why China produces 70% of the world's mobile phone cameras

But there is no well-known manufacturer?

If you ask what is the biggest selling point of high-end mobile phones nowadays, it is undoubtedly the photo-taking function comparable to that of a camera. Behind this is the increasingly expensive camera module. In the new iPhone flagship, the camera module costs as much as US$73, making it a part more expensive than the chip.

The huge lens module has become the standard for flagship phones.

Mobile phone cameras are a $30 billion market, with 90% of their value concentrated in three components: modules, lenses, and image sensors (CMOS).

1. The most upstream of the camera industry is the image sensor (CMOS), which is the fattest and largest piece of cake in the entire industry chain. The market size is over 15 billion US dollars and has a high profit margin of 50%.

2. The midstream lens market has certain technical barriers, with gross margins up to 70%, which is sometimes more profitable than sensors. The market size is about 4-5 billion US dollars, much smaller than image sensors.

3. The lens module assembly at the bottom line is a hard job that employs a large number of people to package lenses, chips and other parts. Although the market is comparable to that of lenses, the profit margin is only 1/5 of that of lenses.

According to statistics, China produces 70% of the world's cameras, but in the camera market, the most well-known brands are still Leica from Germany and Sony from Japan. Why is there no well-known Chinese manufacturer? The answer lies in the industrial chain structure.

There is no doubt that Chinese companies dominate the module market. More than 70% of the world's 5 billion camera modules are produced in mainland China. However, this is a capital and labor-intensive industry. Simply put, no matter how skilled you are, you still need to be rich. If you have money, you can get in.

O-Film only entered the camera module industry in 2013, but by raising sufficient funds from the capital market, expanding production in large quantities, and using economies of scale, it defeated the industry's veteran Taiwanese companies. In 2016, just three years after entering the industry, O-Film ranked first in the world in terms of the number of modules.

In 2017, Sony, which was disdainful of the 1.5% net profit margin of its camera module business, decided to focus on developing image sensors (CMOS). It then sought to sell its module business in South China, and OFILM took the opportunity to spend more than 200 million US dollars to acquire this business.

However, the successful expansion and acquisition could not allow OFILM to gain a firm foothold. Just one year later, mainland China's connector giant Luxshare Precision acquired Taiwan's Lite-On's camera module business and entered this market, and successfully entered Huawei's industrial chain. The camera module market, which already had low profits, is likely to usher in a new round of battles.

This fierce competition is determined by the lack of technical barriers in the module industry. It is foreseeable that with the increase in China's labor costs, OFILM and other companies will most likely face challenges from companies in Southeast Asia and India in the future.

In the field of camera modules, many players are competing with each other, and it is very lively. However, in the field of lenses, the number of players has suddenly decreased.

Compared with modules, lenses are a profitable business. Largan Precision, a Taiwanese company, has a market share of more than 30%. Although its annual revenue is only RMB 10.88 billion, only one-fourth of OFILM, its profit is as high as RMB 5.3 billion, more than twice the net profit of OFILM in the past five years.

However, Sunny Optical, a long-established optical giant in mainland China, has already launched an attack on this field. Before 2009, Sunny Optical was only able to produce low-end lenses in small quantities. However, after it successively acquired Korea's Power Optics and Japan's Konica Minolta Optical Instruments, its technical strength gradually improved, and with the continuous increase in R&D investment, the situation began to change.

In the past five years, Sunny Optical has been growing rapidly in the lens field at an average annual rate of more than 50%, and its current market share is close to 25%. Although its market share is growing rapidly, Largan's gross profit margin is still nearly 30 percentage points higher than Sunny Optical, and it has an absolute advantage in the high-end lens field. The war is still going on.

In the duel between the two lenses, the mainland delegation is still quite competitive, but when it comes to image sensors, which are one level higher, the situation is more embarrassing.

Image sensors are the core of the entire camera. Sony, which has sold its downstream module business and controls the upstream, is the absolute leader in this field, occupying more than 40% of the market and earning more than US$1 billion in net profit every year.

Sony holds the most patents for image sensors and is the only company in the high-end mobile phone market. Since the iPhone 4s, the iPhone has not used image sensors other than Sony's. Huawei's P30's camera function has amazed the world, relying on the IMX600 series sensors jointly developed by Huawei and Sony. Huawei's flagship Mate series also uses customized Sony sensors.

The focus of mobile phone manufacturers' publicity: image sensors

So, when Huawei and Apple compare their camera functions, in fact, it is just two Sony CMOSs ​​competing against each other.

Following Sony is South Korea's Samsung, which occupies 20% of the market and has many amazing products. For example, the recently released Xiaomi CC9 Pro claims to have 100 million pixels, which is achieved by Samsung's ISOCELL Bright HMX photosensitive chip. Chinese companies lack the right to speak in this field. The main representative manufacturers are GalaxyCore and Sipix, which are difficult to enter the elegant hall. Fudan Microelectronics, which is hotly speculated in the A-share market, is still in the research and development stage.

GalaxyCore and SuperPix are both CMOS sensors that focus on the low-end market. In terms of quantity, the shipments of these two companies, especially GalaxyCore, are very large, even exceeding Sony in terms of volume, and they can sell more than 100 million pieces a month. However, due to the low unit price, they are even classified as "Others" in the statistical chart of the market calculated by sales amount. It can be seen that in the field of image sensors, the high unit price brought by technological leadership is an overwhelming advantage.

In this field with strict technological barriers, China only got one ticket: the successful acquisition of OmniVision Technologies.

OmniVision Technologies is an American company that invented CMOS. However, facing the attack from Japanese and Korean companies, it retreated to the third place in the industry and gradually lost its strength. A Chinese consortium seized this opportunity and bought OmniVision Technologies for $1.9 billion in 2016, and sold it to China's Will Semiconductor this year.

Now we can answer the question of why China produces 70% of the world's mobile phone cameras but does not have a well-known manufacturer: because consumers and manufacturers are not stupid and know that the CMOS sensor behind the lens is the real decisive factor.

From the above, we can see that in the field of optics, companies such as O-Film and QUT Technology apparently produce most of the cameras, but they are actually doing splicing work, and their net profit margin is not much higher than that of Foxconn. Therefore, they have not been able to form brand awareness in the minds of consumers like Sony and Leica.

It can be said that in the mighty camera war, the mainland ostensibly acquired Japanese assets with its left hand and defeated its Taiwanese rivals with its right hand. On the surface, it dominated the camera market, but the only company that really emerged from the Foxconn-like world was Sunny Optical.

02Panel

Made half of the world's screen

I know the benefits of the Nobel Prize

If the camera is the most attractive selling point for consumers, then the screen is the most important and the product that consumers use the longest. A good screen with bright colors and delicate pictures is the most basic pass for high-end mobile phones. The screen on this year's iPhone 11 Pro also cost $69, making it the second most expensive part of the phone.

Screens are widely used. In addition to mobile phones, they are also indispensable for television and computer screens. The related markets add up to more than 200 billion US dollars, which is more than the total revenue of Boeing and Airbus from selling aircraft in one year. It can be said that screens are a pillar industry at the same level as large aircraft.

Of course, this big market is also divided into upstream and downstream

1. The upstream is materials and equipment, with an average gross profit margin of 50% and above, mainly including core materials and equipment such as glass substrates, luminescent materials, and evaporation machines.

2. Downstream is the terminal products, the gross profit margin is generally around 15%, sometimes even lower. Mainly cover glass, display panel, touch panel three terminal products.

China is currently focusing on downstream terminal products. The cover glass is responsible for protecting the screen, the display panel is responsible for displaying the image, and the touch panel is responsible for sensing the user's fingers. The three are stacked like the three layers of a sandwich and together form the mobile phone screen.

Three main terminal products of the screen

In the two markets of cover glass and touch screen, since the threshold is not high, it is basically a civil war among Chinese companies, and the profits are getting lower and lower.

Lens Technology is the leader in cover glass, but it is treading on thin ice. On one hand, O-Film and Holitech, which are considered to be half of the same industry, are constantly increasing their investment, while on the other hand, BYD and AAC Technologies, which are not related at all, have announced their entry in a high-profile manner, turning Lens Technology from the most profitable company on the ChiNext when it was listed into a loss-making company in early 2019.

OFILM, which has crossed over into other industries, also has its share of difficulties. As the leader in the touch screen industry, its profit margin has been cut in half with the entry of competitors such as Holitech, and it is forced to enter the glass cover and camera module industries. However, the multi-line operations brought by the cross-border business also brought pressure from all sides. When product sales encountered difficulties in 2018, both the stock price and financial situation plummeted.

However, the cover glass and touch screen industries are still mainly worried about whether they can make money, while panel companies are worried about whether they can make back their investment.

In traditional LCD screens, the share of mainland China has increased from less than 4% in 2010 to nearly 40% now. The market leader BOE alone accounts for 20% of the market. Behind this growth is BOE's massive capital consumption. Since 2012, BOE has invested nearly 200 billion yuan in expanding production capacity, of which nearly 70 billion yuan was raised from the stock market. The continuous dilution of additional issuance has prevented BOE's stock price from exceeding the listing price for more than ten years after its listing.

The product oversupply caused by massive expansion has caused LCD panel prices to collapse. Even with nearly 10 billion yuan in government subsidies, BOE's net profit in the past eight years has only accumulated to 20 billion yuan, less than 1/10 of its investment. While BOE was planning to defeat its competitors with price wars, Samsung was able to make money by occupying a position in the emerging OLED screen. In 2017 alone, Samsung's panel business profit exceeded 30 billion yuan, which is more than BOE made in 10 years.

While Chinese manufacturers were busy expanding production, Samsung anticipated that thin, flexible, and self-luminous OLEDs would be the future trend. It bought out Japan's Canon Tokki's vapor deposition machines in advance and signed an exclusive agreement with Dai Nippon Printing for fine metal masks. Without these key production equipment, the pursuers had almost no way to catch up by burning money alone. They could only watch Samsung make money from OLED while they were struggling in the LCD price quagmire.

Unlike the fierce competition in the terminal market, the upstream materials and equipment field of panels is somewhat highbrow and is basically a paradise for American and Japanese companies.

In the cover glass industry dominated by China, the glass substrates used to make cover glass are basically dominated by the United States and Japan. For example, more than 90% of Lens Technology's glass plates are Gorilla Glass purchased from Corning. Someone once posted a question online: "Isn't Apple's screen glass made in the United States? Why do I think it is made in China?" China actually only controls the final stage of cutting and polishing the glass plates into glass sheets.

As for the touch screen market where the mainland is beating Taiwan, the three major materials of the touch screen: glass substrate, PET substrate and ITO target. The basic production of glass is mainly controlled by the United States, Japan and South Korea, while the substrate and target are controlled by Japan. The raw material I of ITO target is the key rare earth indium owned by my country, but because we don't know how to process it, high-end ITO targets still have to be purchased from Japanese companies such as Japan Energy, Dongsu, and Mitsui Mining.

The upstream display panel industry is monopolized by Japanese companies.

In the display panel manufacturing process, the main supplier of the key equipment evaporation machine that determines the quality is Japan's Canon Tokki. This key equipment produced only 7 devices in 2017, of which Samsung took 5, and BOE and LG each took one. This directly led to the mainland's inability to quickly catch up with South Korea in OLED production capacity, and Cannon Tokki is just a small Japanese company with more than 300 people.

Evaporation is the most important processing link of the panel, and the other core equipment is the metal mask. Only Dai Nippon Printing produces high-grade masks. Samsung signed a buyout agreement with it early, and BOE waited until the agreement expired in 2017 before it successfully bought it. OLED panels are very dependent on luminous materials, among which blue light materials with the highest gross profit margin (70%), 70% of which comes from Japanese oil company Idemitsu Shinsan.

It can be said that although Japanese companies have suffered a setback in the downstream panel industry, they have made a lot of money in the upstream materials and equipment industry by leveraging my country's expansion of production. If a large number of hidden champions suffer minor disasters, the downstream large companies with tens of billions of dollars will be in great trouble.

The OLED material market is crowded with American and Japanese companies

Why can China make a comeback in the panel terminal market, but struggle in the upstream market?

The reason is simple. In the terminal market with mature technology and heavy asset investment, whoever can use scale effect to reduce the price to the lowest level will be the winner. Data from the third quarter of this year showed that the price of TV panels fell by 30% year-on-year, and the price of mobile phone panels fell by about 15% year-on-year. Obviously, this is a naked price war. Any small-scale, high-cost manufacturer will eventually be swept out of the battlefield.

The mainland relies on the world's second largest financial market and government subsidies to launch large-scale investments that other competitors are afraid of. For example, since 2009, BOE has raised 66.7 billion yuan in private placements, received 10 billion yuan in government subsidies, and then started a crazy investment of burning 4.5 billion US dollars per production line every year. This bulldozer-like advancement is unmatched by other East Asian competitors.

The upstream materials and equipment cannot be solved by burning money and price wars. We need to start from the most basic theory, step by step, trial and error, and explore the most suitable materials and the best equipment. Even if we burn money, it is difficult to see immediate results, and it is not a visible burning of money. We also need to invest heavily in basic theory. Ren Zhengfei, Ma Huateng and other famous entrepreneurs' attention to basic science is indeed well-targeted.

In recent decades, the number of Japanese scholars who have won the Nobel Prize in Chemistry has reached 7, and the number of Japanese scholars who have won the Nobel Prize in Physics has reached 11. The emphasis on basic theoretical aspects has become the most important guarantee for strong R&D capabilities. If someone asks what the practical use of the Nobel Prize is, Japan's strength in materials is the best answer to this question.

In general, the panel terminal industry that China has won has certain technical and capital thresholds, but it still relies mainly on imported equipment + processing of supplied materials to make a living. A bunch of Chinese manufacturers, big and small, are hurting each other in an industry with a net profit margin of less than 5%, which is really helpless.

03Battery

Made car batteries

But I didn't make any money from the mobile phone batteries.

If the screen and lens are the components that most directly catch consumers' attention, then the battery is the part that most affects consumer experience. Ultra-long standby time and "charge for five minutes, talk for two hours" have always been the pursuit of mobile phone batteries.

The battery market is worth more than US$30 billion and is mainly divided into upstream consumer cells and downstream battery modules.

1. The downstream battery module is to purchase the battery cell, put the battery cell and the protective board, the shell, glue it, and affix the trademark to make a plug-and-play battery. The gross profit margin of this part is only around 10%. After deducting the expenses, the net profit is always around 3-4%. This is an industry where you have to turn off the lights and eat noodles if you are not careful.

2. The upstream consumer battery cell industry is a mature market, with annual shipments of approximately 4 billion cells, accounting for half of the battery market value, and a gross profit margin of 20%-40%, making it very profitable.

The consumer battery market is monopolized by four giants

The battery business of Xinwanda and Desay in mainland China is mainly concentrated on the hard work of downstream battery modules. The reason is simple: terminal electronic products need to be matched nearby. This also means that once the production capacity of downstream electronic product assembly is transferred, the orders for battery modules will also be transferred.

Battery module companies will run away, but the core battery cell companies are basically settled in Japan and South Korea. ATL, LG Chem, Samsung SDI, Murata and other four major manufacturers account for more than 60% of the market share.

Among them, the most unfortunate one is ATL New Energy, which was originally founded by Chinese, but was acquired by Japan's TDK in 2004 and became a subsidiary of the Japanese company. Currently, the only large-scale consumer battery cell manufacturers in China are Tianjin's Lishen and Coslight, which mainly serve domestically produced machines.

In addition to battery cells, the change in charging methods is also an important trend, especially with the increasing popularity of wireless charging technology. The industry believes that this will be a market worth tens of billions of dollars in the future.

However, the ones dominating the downstream market of wireless charging are not the two battery module giants, Desay Battery and Xinwoda, but Luxshare Precision, which originated from connectors.

As early as 2014, when wireless charging for mobile phones was not yet popular, Luxshare Precision started research and development of wireless charging for Apple Watch and became the core supplier of wireless charging modules for Apple Watch. Not only did it start early, but it also seized the commanding heights, and the rest of the story was a smooth chapter. From Xiaomi's 99 yuan wireless charger, to Huawei's high-end Mate Porsche version, to the overseas giant Samsung, they all chose Luxshare Precision to manufacture wireless chargers for them.

If we want to summarize the Chinese consumer electronics battery industry, the results may be surprising. In the case of China's strong power battery industry chain, the two giants of consumer electronics battery modules are still just copies of Foxconn, just packaging purchased battery cells. In terms of horizontal business expansion, they have not been able to grab Luxshare Precision. It is true that the old Foxconn has lost its job to the small Foxconn.

04Acoustic Components

Why subvert my

Is this the connector?

Acoustic components are mainly composed of earpieces, speakers, and microphones, three major parts markets.

The earpiece and speaker are relatively traditional acoustic parts, while the microphone is a product with certain semiconductor properties, involving chips. For example, the emerging MEMS microphone is made by packaging chips and is the most popular acoustic device. The shipment volume has increased 18 times in 10 years, with 5 billion units sold a year.

In terms of receivers and speakers, since the assembly of acoustic components is extremely complex, during the rise of smartphones, it still required a lot of manual work rather than automated equipment. As a result, Chinese manufacturers developed rapidly. AAC Technologies and Goertek once occupied most of the market share. AAC Technologies alone had an annual revenue of RMB 8.7 billion.

However, such a labor-intensive industry with a low threshold is bound to attract the pursuit of Chinese counterparts. After Luxshare Precision acquired a stake in Taiwan's acoustics manufacturer Merry in 2017, it made a large-scale cross-border grab for orders. Just one year later, AAC Technologies' profits fell by 29%, and Goertek's profits also fell by 59%, and the stock prices of both companies were halved. Luxshare also grabbed the new hot market of acoustics, 70% of Apple AirPods earphone orders, but Goertek and AAC were helpless.

Luxshare wins major OEM orders for new Apple headphones

In terms of the highest-end MEMS micro-microphones, China's two major acoustics giants have apparently formed a three-way split with the United States' Knowles Electronics.

Knowles Electronics of the United States was once the dominant player in MEMS microphones. In 1969, after the launch of the Apollo 11 spacecraft, astronaut Neil used Knowles' acoustic equipment to amplify his speech from the moon. Knowles has a reputation as a veteran microphone manufacturer and is also the inventor of MEMS microphones. It currently occupies nearly half of the MEMS microphone market.

In China, the emerging Goertek is the second largest manufacturer with an 18% market share, and the established acoustic manufacturer AAC Technologies follows closely behind with a 13% market share.

On the surface, Chinese manufacturers seem to have achieved parity with established American manufacturers within a few years, but in fact, Knowles Electronics can design core MEMS chips independently, while Goertek and AAC Technologies must purchase them from upstream Infineon and Omron. The so-called three-way division of MEMS is actually the three-way division of European and American chips. Even if Goertek starts to ship a small number of MEMS chips, it cannot change the situation.

It should be said that the two giants in acoustics have already penetrated into the upstream of acoustics in many fields. However, on the one hand, there has been no breakthrough in core chips and they still rely on the upstream. On the other hand, the aggressive and aggressive cross-border Luxshare also reflects that the threshold of the industry is far lower than expected. It is still difficult to say how many Luxshares are left between the so-called acoustic overlord and Foxconn.

05 Ending

When you sort out the industry leaders one by one, you will find a subtle phenomenon: every apparent industry leader is actually a vague all-rounder.

For camera leader O-Film, the lens module business only accounts for 61.85% of its revenue, while its traditional strong business, touch film, accounts for 20.51% of the share.

AAC Technologies, the leader in acoustics, only has 48.18% of its revenue from acoustic components, while its later-entered businesses such as motors and glass also account for 40.04% of its revenue.

For the touch screen giant Holitech, the touch screen business only accounts for 47.32% of its revenue, while the camera module business accounts for as high as 20.44%.

Lens Technology has not crossed over, but there is a long queue of people who want to enter its territory. BYD, Lianchuang Electronics and Dongxu Optoelectronics are all eyeing it. Even the acoustic giant AAC Technologies recently invested 12.8 billion yuan in 3D curved glass.

Of course, the most amazing one is Luxshare Precision, which played the whole game. It started with connectors, swept the wireless charging modules, entered the field of acoustic headphones and components, and also made some camera modules. In fact, the market value of this Apple industry chain giant spanning multiple fields is close to three Lenovo Groups, and the expected net profit in 2019 is equivalent to seven Lenovo Groups.

So netizens should stop comparing Lenovo and Huawei. The correct comparison object for Lenovo, a computer assembly plant, may be companies in the Huawei and Apple industry chains. In terms of market value, BOE is equivalent to 2 Lenovos, Sunny Optical is equivalent to 1.9 Lenovos, Lens Technology is equivalent to 0.8 Lenovos, and Goertek is also 0.8 Lenovos. This seems to be a better match. 18th-tier celebrities should stop riding on the popularity of TFboys. The correct comparison object should be Douyin Internet celebrities.

According to traditional theory, the more specialized a company is, the more competitive its products are. Luxshare Precision, which has the most cross-border businesses in China, has become the biggest winner, with a market value higher than the combined market value of the leading companies in the cross-border business. It can confidently send emojis saying that everyone here is garbage. But if you think about it carefully, it has not crossed borders. Isn't it just precision assembly that everyone is competing for? Luxshare is good at this.

The truth behind this embarrassment is that a large part of the so-called powerful Chinese manufacturing is still far from having a technological moat, and what maintains their decent appearance is their processing and organizational capabilities.

Many outstanding companies have begun to try to fill in the four words "Made in China", including Sunny Optical, Xinwangda, and Goertek. They are trying to get rid of the dilemma of having a market share of 70% but a net profit of less than 5%.

If we sort through the financial reports of the leading electronic parts manufacturers, we can find that there are already two echelons of Chinese parts manufacturers:

The second tier: Behind the glamorous market share, it is still a Foxconn-type enterprise

This situation often occurs in companies with a high proportion of production modules. On the surface, their revenue growth is high and they are known as industry leaders, but their net profit margin is less than 4% and their R&D expenditure is only a pitiful 1%-2%. 

The net profit margins of companies like Xinwoda and Desay Battery have fallen below 4%, and while OFILM continues to take the first place, its profit margin has also been falling, falling below 3% in 2015, and even suffered losses in 2018 due to its aggressive market strategy. It is very clear that these module integrators, even if they have taken a step up from mobile phone assembly, are likely to lose out in the fierce competition in the future.

The first echelon: Samsung companies that have moved away from assembly

Such enterprises have begun to spend a considerable amount of money on R&D to continuously improve their process and ensure profit margins. The profit margins can often reach 7%-8%, and R&D can exceed 5%. For example, Luxshare Precision's R&D expenditures reached 7% of its revenue, while Lens Technology's R&D expenditures exceeded 5%.

Going further up, they will enter the field of manufacturing basic components, and the net profit margin will rise sharply. In this deep water area, Chinese companies can hardly be called a complete army.

More than half of China's leading electronics companies have net profit below the 4% red line

To sum up, the conclusion is clear: the golden decade of China's electronics industry was glorious and successful, but it still only had half a foot outside of Foxconn.

In the future, it will definitely be an era of great differentiation among electronic processing companies. The cross-border stock wars relying on module processing capabilities will come to an end, and several companies with the strongest processing organization capabilities will defeat most of their opponents; and the winners who successfully break into the upstream will start a new growth curve. The gap between the two legions will become wider and wider, and eventually what belongs to Foxconn will belong to Foxconn, and what belongs to Samsung Electronics will belong to Samsung Electronics.

This also means the end of the "golden decade" and the beginning of the "gold-digging decade": companies that can break away from the Foxconn model still have room for tenfold growth; companies that cannot escape the fate of low added value will always be stuck in the same place.

The writing of this article was supported by Chen Hang and Wu Wenzhi from the Chen Hang team of Founder Securities, and we would like to express our gratitude to them.