Apple/Huawei supplier Lantech Optoelectronics' IPO on the Sci-Tech Innovation Board: Main business performance fell for three consecutive years

Optics has been the focus of the mobile phone industry in the past few years. From the upgrade of cameras to the upgrade of fingerprint recognition, these two industries have achieved rapid development: on the one hand, it lies in the increase in quantity, such as the development of cameras from single cameras to multiple cameras, and fingerprints have moved from the high-end market to the low-end market and even become the standard configuration of current smartphones; on the other hand, it lies in the upgrading of the industry, such as the further development of cameras in the direction of 3D. The market predicts that Apple's new phone in 2020 will be equipped with a 3D camera, and fingerprints have also developed from the initial capacitive fingerprint to the current under-screen fingerprint, and have already moved down to the mid-range market!

From the perspective of the camera industry and the under-screen fingerprint industry, both use optical principles, which also promotes the upgrading of the optical industry. Recently, according to the author's inquiry, Lantech Optics, a company that has been delisted from the New Third Board, has issued a prospectus on the Science and Technology Innovation Board. Although it has major terminal customers such as Apple and Huawei, its main business has been in a downward trend in the past three years!

Apple/Huawei supplier Lantech Optoelectronics' IPO on the Sci-Tech Innovation Board: Main business has declined for three consecutive years

It is understood that Lantech Optics is mainly engaged in the research and development, production and sales of optical components. Its products mainly include four major product series, including optical prisms, glass aspheric lenses, glass wafers and automotive rearview mirrors. Its customer base includes high-quality partners of well-known domestic and foreign companies such as AMS Group, Corning Group, Magna Group, and Sunny Optical Group. Its products have been widely used in terminal products of many well-known companies such as Apple and Huawei.

It is reported that the optical prism products mainly include long prisms, imaging prisms, large-size imaging prisms, and micro prisms. The long prisms and micro prisms produced by the company using ultra-efficient mass gluing and cutting technology are ultimately used in smartphones. The long prisms are mainly used in the light receiving components of 3D structured light, which can receive structured infrared light and are placed in the face recognition components of FACE ID. The micro prisms can effectively change the light path and effectively increase the imaging effect in a small space, and are mainly placed in periscope lenses.

The company's glass wafer products mainly include display glass wafers, substrate glass wafers and deep-processed glass wafers, among which display glass wafers and substrate glass wafers mainly use high-precision medium and large-sized ultra-thin wafer processing technology. Display glass wafers are mainly cut at downstream manufacturers to make AR optical waveguide lenses, which are ultimately used in AR glasses. At the same time, such products can also be applied to the field of VR glasses; substrate glass wafers are mainly used for bonding with silicon wafers, and play a role in supporting and protecting silicon wafers in the lithography, packaging and other processes of semiconductor manufacturing; deep-processed glass wafers are mainly based on downstream demand. Deep processing such as through-holes and lithography are performed on glass wafers, mainly using WLO glass wafer opening technology and optical-grade high-precision lithography technology. The products are ultimately used in WLO wafer-level lens processing, semiconductor packaging, fingerprint unlocking and automotive LOGO projection.

From the perspective of its performance, from 2017 to 2019, its revenue dropped from 410 million yuan to 334 million yuan, a decrease of 18.5%, and its corresponding net profit dropped from 168 million yuan to 116 million yuan, a decrease of 30%. In terms of revenue, it has been declining for three consecutive years, and in terms of net profit, it has also been declining for three years.

Correspondingly, its gross profit margin is also gradually declining! From 62.17% in 2017, it has gradually dropped to 55.53% and 53.70%, and the decline in three years has reached nearly 10 percentage points!

Judging from its main product, optical prisms, the revenue from this business accounted for more than half of the company's total revenue from 2017 to 2019. However, during this period, both sales and revenue declined significantly, with revenue falling from 272 million yuan to 222 million yuan, a decrease of 18%. At the same time, its sales volume also dropped from 19.55 million units to 16.25 million units, a decrease of 16%.

Although its production and sales rate has been increasing during this period, it was very sluggish in 2017. According to Lantech Optics in its prospectus, there are two main reasons for the low production and sales rate of optical prisms in 2017: First, because the iPhone X launched by Apple in 2017 is equipped with a 3D structured light face recognition function component, the company has become the main mass production supplier of this component in the front face recognition module of the iPhone X with its self-developed double-sided infrared reflection strip prism. As the sales volume of iPhone X is expected to be large, the company will invest most of its production capacity in this product, resulting in a high output of strip prisms and a low production and sales rate.

Second, because the double-sided infrared reflective long prism products are ultimately used in Apple's related products, downstream customers have high requirements for the product's technical parameter indicators. Therefore, when the company first produced the product in 2017, it intentionally expanded production based on intended orders to cope with possible insufficient yields. 

However, from the perspective of Apple customers, Apple continued to adopt a price increase strategy for its products launched in 2018, which to a certain extent limited the market demand for its products. In addition, the increasingly fierce competition in the smartphone market led to a decline in Apple’s mobile phone shipments in 2018. As a result, the company’s sales revenue of Long Prisms declined in 2018.

After entering 2019, not only did Apple's shipments decrease year-on-year, resulting in a direct decline in the company's sales of long prisms, but also the gradual improvement in the production efficiency of its direct customers led to an increase in yield, which in turn led to a corresponding reduction in the company's purchasing needs. Therefore, although the new products released by Apple in the fall of 2019 had good sales in the fourth quarter, the company's corresponding product order volume in 2019 still decreased year-on-year, resulting in a decrease in long prism revenue!

In addition, its automotive rearview mirror business is also declining rapidly. According to Lantech Optics, the decline in production and sales of automotive rearview mirror products in 2019 is mainly due to the fact that automotive rearview mirror products have been sold for many years. In recent years, they have been impacted by intelligent driving systems, vehicle-mounted rearview images and automotive radars, and downstream demand has declined. Based on its own development strategy, the company no longer regards automotive rearview mirror products as the main development direction, shuts down the overall mirror production line of automotive rearview mirror products and transfers related production technicians to other departments. Because the overall mirror production line of automotive rearview mirrors was shut down in June 2019, the company concentrated on producing a batch of related products as stock, so its production and sales rate declined in 2019.

It is worth mentioning that the glass aspheric lens business had an increase of 40.74 million yuan in revenue in 2018 compared with 2017, a year-on-year increase of more than 100%. The reason behind this is that the company's glass aspheric lens products have been expanded into the field of smartphones, and the amount of glass aspheric lenses sold to Sunny Optical Group for smartphone front cameras has increased. The decline in performance of this part of the business in 2019 was due to changes in the design of front cameras of downstream mobile phone customers. New products no longer use glass aspheric lenses, resulting in a decline in the company's sales of imaging aspheric lenses from Sunny Optical!

From the perspective of its customer base, the sales of the top five customers in 2017-2019 accounted for 81.37%, 74.54% and 68.17% respectively, and the customer concentration is relatively high. Among them, the largest customer is AMS Group, and the sales amount accounts for more than 42% of its annual revenue. Next are Corning, Tengyang, Sunny Optical and other customers, and the revenue share is relatively even!

According to Lantech Optics, since Apple proposed 3D face recognition technology for smartphones in 2015, the long prism products developed by the company have been recognized by the AMS Group and terminal manufacturer Apple. They have been officially mass-produced since 2017. At the same time, the company also actively cooperates with the AMS Group to develop and provide a variety of other optical prisms, glass wafers and other optical components.

Based on the mobile phone market: Entering the AR/semiconductor industry

As we all know, the facial recognition solutions currently used on mobile phones mainly include structured light and TOF. Apple, the leader in smartphones, has already used the structured light solution for FACE ID in its entire iPhone X series, while Android phone manufacturers mainly use the TOF solution due to patent and cost reasons.

In comparison, the two solutions have their own advantages and disadvantages: the structured light solution is suitable for close distances and has higher security, while the TOF solution has better performance at medium and long distances. In the future, there may be two face recognition solutions for the front and rear cameras of smartphones. The front camera uses the structured light solution, which is mainly used for unlocking and secure payment; the rear camera uses the TOF solution, which is mainly used for 3D photography and video.