In the book "Huawei Supply Chain Management," it was revealed: "Currently, Huawei's self-produced volume is only about 10%, and 90% is completed by outsourcing factories, including Original Equipment Manufacturers (OEM), Original Design Manufacturers (ODM), and Joint Design Manufacturers (JDM)." Here, the concept of ODM is mentioned.
In the world of smartphones, many people see Samsung, Xiaomi, Honor, and OPPO taking the stage and making a big splash. However, what is unknown is that with the intensification of competition, more and more brand manufacturers choose to outsource product development to ODM manufacturers to maintain their product competitiveness and market response speed.
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Since its rise at the end of the 20th century, ODM (Original Design Manufacturing) has become an indispensable part of the global electronics manufacturing industry. Whether it is a mobile phone, computer, or server, there are many "invisible" orders completed by ODM manufacturers.
Huaqin Technology is the "invisible giant" behind the scenes. In 2023, with a market share of 27.9%, Huaqin Technology topped the global smartphone ODM rankings.
In addition, this year, Huaqin Technology has started a "buy, buy, buy" mode. The semiconductor industry has the latest information that Huaqin Technology not only acquired 80% of the equity of Yi Luda Technology International Co., Ltd. through cash acquisition, but also recently completed the acquisition of Nanchang Chunqiu Electronics to enhance the advantages of AI PCs.
01
The Hero Behind the Scenes
Back in time to 2005, in a hotel in Pudong, Shanghai, more than a dozen people were gathered together to develop a board. This is the scene at the beginning of Huaqin Technology's entrepreneurship.
At that time, China was in a period of surging mobile phone plans, and a large number of plan companies such as Dexin, Ximengtong, and Longqi began to emerge and enter the mobile phone design field. Huaqin Technology was also one of the companies engaged in functional mobile phone IDH services.
At the beginning, Huaqin Technology mainly developed PCBA motherboards. After seeing the trend of intense competition in the IDH model, Huaqin Technology timely switched to the ODM model that integrates design and manufacturing services. Since then, Huaqin Technology, which seized the opportunity, has established a complete R&D system and a systematic management process, established stable cooperative relations with some emerging domestic mobile phone brand manufacturers, and trained the ability to quickly launch differentiated products and efficient R&D.Starting from 2015, Huaqin Technology began to expand horizontally, extending its business reach to AIoT products, TWS earphones, smartwatches/bands, and other categories.
From 2019 to 2020, Huaqin Technology's revenue grew from 35.3 billion yuan to 59.87 billion yuan. Samsung became the largest customer of Huaqin Technology, contributing nearly 30% of the revenue, making Huaqin Technology the hero behind Samsung.
Looking at the financial reports, over the past five years, both revenue and profit of Huaqin Technology have shown an upward trend. Among them, the net profit growth rate from 2019 to 2020 was the highest, and in 2023 compared to 2022, the net profit achieved a 5.8% increase.
Overall, the gross profit margin of smart wearables has the fastest growth rate. Looking at specific business lines, the gross profit margins of notebook computers, tablet computers, and smart wearable products generally show an upward trend, while the gross profit margin of servers fluctuates significantly, with a rapid increase in 2021.
Looking at the top five customers, the major customers of Huaqin Technology include Samsung, OPPO, Xiaomi, ASUS, etc. Over the past four years, the total sales amount of the top five customers accounted for 72.21%, 68.51%, 65.43%, and 64.47% of the annual operating income, respectively, with the sales revenue of the largest customer in each period accounting for about 30%.
As a leading ODM, the changes in the top five customers of Huaqin Technology also reflect the market trends. Regarding the changes in major customers, Wang Zhigang, Vice President and Secretary of the Board of Directors of Huaqin Technology, shared the reasons behind it, saying, "The changes in the top five customers are the structural adjustments made by Huaqin Technology on its own initiative."
Huaqin Technology's structural adjustments are in two aspects, one is the product lineup, and the other is the customer lineup.
In the product lineup, over the past five years, the non-mobile business of Huaqin Technology has developed rapidly. Huaqin Technology, as a company that started with smartphones, has adjusted the smartphone business to only account for 35%. Huaqin Technology has also become one of the few ODM manufacturers in the industry that covers multiple fields such as mobile phones, tablets, wearables, lithium batteries, servers, and automotive electronics.In the customer queue, Huaqin Technology is also continuously optimizing, with the proportion of TOP5 customers dropping from 70% in the past to 60%. Reducing dependence on a single customer makes it more capable of resisting risks during market fluctuations. Especially when the industry experiences volatile cycles, Huaqin Technology is more capable of stable development.
02
Becoming an ODM requires four steps
In 2023, Huaqin Technology's revenue reached 85.338 billion yuan, and its market value also reached 54.4 billion, becoming a well-deserved top domestic ODM.
How did Huaqin Technology become a top ODM? Wang Zhigang introduced: "We interpret and explain ODM with the four characters of ODMM."
The first O is Operation, efficient operational capability. Continuously improve supply chain management capabilities and efficient warehousing and logistics operation capabilities. Huaqin Technology's efficiency indicators such as inventory turnover rate are leading in the industry. Currently, Huaqin Technology has 300-400 digital IT software engineers focusing on software development to adapt to the business optimization and efficiency improvement of global customers, with a high turnover efficiency.
The second D is Development, research and development design, which is also Huaqin Technology's forte. On the one hand, core technology is extended to multiple categories. Through continuous enhancement of research and development design, Huaqin Technology has expanded the hardware technology and embedded software development capabilities accumulated in mobile phones, such as radio frequency, antennas, structure, stacking, etc., to other product fields horizontally. On the other hand, it is to improve the efficiency of research and development. Huaqin Technology also established X-Lab, continuously strengthening basic technology research and development in basic fields such as sound, light, electricity, heat, and radiation. And enhance the construction of research and development capabilities, allowing the research and development cycle to be continuously shortened, bringing more efficient research and development efficiency to customers.
The third M is Manufacturing, advanced manufacturing capabilities. Consumer electronic products need to meet the rigid demand of large-volume delivery, and also need to meet the flexible needs of different customers and different seasons around the world. Therefore, Huaqin Technology has invested a lot of research and development and personnel in the deployment between rigid and flexible needs. In the assembly, packaging, and assembly links, 20% of the equipment is self-developed, and through digitalization and self-made equipment, it continuously strengthens the advantages and barriers of intelligent manufacturing.
The fourth M is Mechanical, precision structural parts. Huaqin Technology continues to integrate the upstream vertical industry chain, and has taken the lead in acquiring two structural part manufacturers, which has gradually increased the proportion of self-supplied materials for the company. Currently, 40% of the structural parts of Huaqin Technology's mobile phone shipments are self-supplied, enhancing cost competitiveness and product competitiveness, and continuously improving the company's operating capabilities.
Now, Huaqin Technology has developed from the initial PCBA model to a global intelligent hardware platform of "2+N+3" ("smartphones + laptops" + "consumer electronic products" + "enterprise-level data center products + automotive electronic products + software").Huaqin Technology's clientele spans major manufacturers worldwide. In the smartphone business sector, Huaqin Technology's clients include Samsung, OPPO, Xiaomi, vivo, and Lenovo; in the tablet and notebook computer business sectors, Samsung, Amazon, Lenovo, Acer, ASUS, and Xiaomi all maintain good cooperation with Huaqin Technology; in the server business, Huaqin Technology is the earliest ODM manufacturer in mainland China to achieve shipments of Nvidia H800 servers.
It can be said that the multiple fields in which Huaqin Technology has laid out are now blooming comprehensively.
03
Three Major Opportunities + AI, How Does Huaqin Technology Lay Out?
Being able to access both upstream production materials and downstream customers, ODMs often have a keen judgment of the market. For 2024, which track will see significant growth, Wang Zhigang mentioned three directions: notebook computers, servers and switches, and automotive electronics.
In the notebook computer business, Huaqin Technology's market share has been continuously increasing. Starting from 2015 in the notebook computer field, based on mainstream products, it has now formed a stable cooperation with customers, enhancing the product cooperation viscosity with customers. Huaqin Technology is also the only mainland company that has broken the monopoly of Chinese Taiwan peers and formed an annual shipment of more than ten million units.
In addition to the traditional notebook computer market, AI PCs have become a market hotspot. According to a Counterpoint report, in the first quarter of 2024, global PC shipments increased by 3% compared to the same period last year. In addition to benefiting from the relatively low market base in the first quarter of 2023, it is also influenced by the rise of AI PCs, the gradual recovery of shipments in various industries, and the joint promotion of a new round of equipment replacement cycles.
Regarding the development of AI PCs, Wang Zhigang is optimistic. He believes: "The PC market is a very mature market, and AI brings changes to the user experience through software and ecosystem. With edge-side models and cloud-based general models, users will have a work assistant to help improve the work efficiency in many scenarios such as meetings and office work. The trend of AI PCs is certain, but the penetration rate in the next one to two years needs further observation." He also mentioned: The development of AI PCs first affects the product design itself of the notebook terminal products. Compared with the past, AI PCs will be more lightweight, with high-end configurations in appearance materials and screen resolution. High computing power hardware configurations also put forward higher requirements for heat dissipation and structural design, especially in the combination of software and hardware, there will be more software ecosystem development requirements for the interconnection of multi-screen products. At the same time, AI PCs have put forward new hardware requirements for future voice, image, gesture, and machine interaction. Huaqin Technology will actively embrace this change and deploy the core technologies behind it, further increasing the market share of core customers.
In the server and switch business, with the wave of AI, the global demand for data center construction is rising, and the demand for equipment such as servers and switches is also increasing.
Huaqin Technology's AI server business is developing rapidly, with rapid growth. In 2022 and 2023, the server field has seen several times growth.On the one hand, Huaqin Technology has released a new generation of data center products, such as the Taihang series and the Qilian series. Among them, the H8230 4U8 card AI server has taken the lead in completing the full adaptation and NVQUAL certification with NVIDIA L20 GPU, and has the ability to deliver in large quantities to partners and customers in a stable manner. On the other hand, Huaqin Technology has always been leading in AI product delivery. The NVIDIA H20 server product was introduced into the top Internet manufacturers earlier and has been promoted as expected, and has been shipped in large quantities in the second quarter.
Regarding the layout of AI, Wang Zhigang further explained: "Whether from a global perspective or a Chinese perspective, the demand for computing power for AI is increasing. The demand for AI servers based on infrastructure will also continue to increase. Huaqin Technology is one of the few companies in the industry that has the ability to achieve R&D and design based on both ARM architecture and X86 architecture, which can match customers' customized development on the computing power architecture."
With the increasing demand for global AI computing power, coupled with Huaqin Technology's accumulated R&D capabilities and supply chain integration capabilities, the market share of Huaqin Technology's servers and switches will continue to increase under the promotion of various positive factors.
In terms of automotive electronics, Huaqin Technology is firmly optimistic. In 2019, Huaqin Technology began to layout the automotive industry, and in 2020, the automotive electronics business department was officially established to fully start the automotive electronics business. Looking at last year's performance, Huaqin Technology's automotive electronics business increased by 110% year-on-year.
Wang Zhigang said that the proportion of the company's automotive electronics-related revenue is still relatively small, just starting, and the scale is not large. "We believe that the future growth space of this business is quite large. In the long run, the automotive electronics business should become a very strong support in the entire business sector of Huaqin Technology."
When talking about the automotive industry, Wang Zhigang also said with emotion: "In the fields of intelligent cockpit and intelligent driving, our core technology has a place to use. However, the car is indeed different from other businesses, there are some special industry standards, car standards, we are also very much in awe of this industry."
At present, Huaqin Technology has its own leading products in the fields of intelligent cockpit, intelligent vehicle control, intelligent networking, and intelligent driving, meeting customers' product needs under the trend of new electronic and electrical architecture, and fully covering multiple fields of intelligent driving and cockpit.
Wang Zhigang said optimistically in the end: "The three new business sectors mentioned just now: notebook computers, servers, and automotive electronics, will all constitute the support points for the rapid growth of Huaqin Technology in the future."
04
ConclusionIn the AI era, Huaqin Technology positions itself as an enterprise providing digital infrastructure for technology companies based on AI in all scenarios, leveraging AI to forge a new path of "soft and hard integration" in the ODM industry.
According to the semiconductor industry's vertical and horizontal understanding, in May of this year, Huaqin Technology was included in the Shanghai and Shenzhen 300 Index for the first time, becoming a rising star. Just a few days ago, Huaqin Technology also announced the acquisition of 80% of the equity of Yiluda Technology International Co., Ltd. through cash acquisition. According to public information, Yiluda Holding has several wholly-owned subsidiaries, and its InBElectronics Limited has been selected as a supplier of Apple Inc. for many years in a row, with OEM products including Apple's Beats headphones. If this acquisition of 80% of Yiluda Holding is successful, Huaqin Technology will be able to enter the "Apple chain" smoothly.
In addition, according to the latest information obtained by the semiconductor industry, Huaqin Technology will complete the merger and acquisition of Nanchang Chunqiu Electronic Technology Co., Ltd. This merger and acquisition of Nanchang Chunqiu Electronics will further strengthen Huaqin Technology's R&D capabilities in notebook computer parts and whole machine development, improve the efficiency of whole machine development, and enhance the self-sufficiency rate of parts to further enhance the overall competitiveness of the product and the profit space of notebook computers. This integration will also further enhance the core advantages of Huaqin Technology's overall AI PC.
Huaqin Technology is rising rapidly in the ODM field, continuously expanding its business boundaries and enhancing its strength. The acquisition of Yiluda Technology International Co., Ltd. this time may just be the beginning.
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