Apple Luxshare AR

Luxshare’s AR deal with Apple: a new opportunity or a sweet burden?

Zijing Fu

posted on March 7, 2023 11:20 pm

Apple has tapped Luxshare Precision to develop its upcoming AR device, marking the company's first time selecting a mainland China supplier for a first-generation product. Apple has relied on Taiwanese suppliers such as Foxconn for first-generation products for decades. 

Apple’s AR device development has been transferred from Pegatron to Luxcaseict, a joint venture that Pegatron holds shares of and is predominantly led by Luxshare, since companies such as Pegatron were “gradually withdrawing" from working with Apple's new business, according to analyst Ming-Chi Kuo. 

The analyst has also commented that "the shipments of Apple's first-generation AR and MR headsets are expected to be extremely low”, so it would be difficult for Luxshare to profit from the new deal. Yet, Luxshare might not be able to afford to turn down the deal, as “Luxshare ICT's growth in 2023 and 2024 depends entirely on Apple's orders.”

The news came out approximately two months after Luxshare Precision was once again caught up in rumors of Apple's order cuts, and the risks of dependence on Apple were evident. The news sent shockwaves through Luxshare's investors. On January 4, Luxshare Precision's stock price plummeted after the market opened, reaching the limit-down price of CNY 28.37 by the close, down 9.99% and with a total market value of CNY 201.9 billion. Compared with the previous day's closing price of CNY 31.52, the market value evaporated by CNY 22.4 billion in a single day. 

Luxshare Precision Industry Co. Ltd., a Chinese electronics manufacturer, has emerged as a key supplier to Apple Inc. in recent years. The company has benefited significantly from its relationship with the tech giant, with Apple contributing to the majority of its revenue. However, the dependence on Apple has also become a double-edged sword for Luxshare Precision.

Luxshare Precision, based in Dongguan, China, is a manufacturer of cables, connectors, and other electronics components. The company has grown rapidly over the years, and its revenue has skyrocketed thanks to its relationship with Apple. During the years 2017 to 2020, Luxshare Precision's revenue from Apple increased from 37% to 69% of its total revenue. In 2021, it reached a staggering 74%. 

The company's relationship with Apple has been beneficial in many ways. Luxshare has been able to secure a steady stream of orders from Apple, which has contributed to its rapid expansion. The company has also been able to expand its manufacturing facilities and invest in research and development, which has allowed it to develop new products and improve its manufacturing processes.

However, Luxshare's dependence on Apple has also become a significant risk factor for the company. Apple is known for its stringent quality standards and tight deadlines, and any failure to meet these standards or deadlines could have severe consequences for Luxshare. Moreover, the tech giant has a history of squeezing its suppliers on pricing, which could affect Luxshare's profit margins.

Despite Luxshare Precision's efforts to diversify its consumer base, the company's reliance on Apple remains substantial. The company acknowledged in its 2020 annual report that "a significant portion" of its revenue comes from a few key customers and that any significant change in its relationship with these customers could have a substantial impact on its business.

Luxshare's dependence on Apple has also made it vulnerable to any negative developments in the tech giant's business. For instance, when Apple announced a delay in the launch of its latest iPhone models due to COVID-19-related disruptions, Luxshare's stock price suffered a significant dip. The delay meant that Luxshare's revenue would also be impacted, as it was slated to supply several components for the new iPhones.

Moreover, if Apple were to switch to a different supplier or reduce its orders from Luxshare, the company would face significant challenges. Luxshare's over-reliance on a single customer could make it vulnerable to any changes in Apple's strategy or business performance. For Apple supply chain companies, the consequences of losing their seats at the table are significant. O-FILM, which was ditched by Apple in March 2021 and has not yet recovered from its huge loss, is a cautionary tale.

This dependence on Apple has also raised concerns among investors, who worry about the company's long-term sustainability. Luxshare has acknowledged these concerns and has been taking steps to diversify its customer base. The company has been actively seeking partnerships with other tech companies and has even acquired other businesses to expand its product offerings. Luxshare has been expanding in the realms of auto manufacturing. 

Currently, Luxshare Precision has over 10 automotive parts factories in China and nearly 10 factories overseas, distributed in North America, Europe, and Africa. According to Luxshare Precision's calculations, it will be among the top 100 worldwide automotive parts suppliers by 2022.

"At present, the consumer electronics business will maintain a growth in quantity, while the automotive and communication businesses will have a higher growth rate than the company's overall growth rate in the existing product lines," said Wang Laichun at an investor event on February 24.