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Embracing the Power of AI: The Rise of Consumer Electronics Giants

In a rapidly evolving technological landscape, Artificial Intelligence (AI) is redefining the benchmarks of success in the consumer electronics sectorAs companies vie for dominance in this fast-paced market, two titans, Huawei and Apple, are leading the charge with their groundbreaking AI-enabled smartphones, the Mate70 and iPhone 16. Their initiatives have sparked an exhilarating wave of innovation and investment throughout the entire industry supply chain.

The benefits from this latest technological wave are evident, particularly for companies linked to these giantsNotable suppliers that have reaped significant rewards from Huawei's and Apple's ecosystems include OFilm Tech, Guanghong Technology, and Furi Electronics associated with Huawei, alongside Luxshare Precision, Lens Technology, and GoerTek connected to Apple.

Upon closer inspection, a striking trend emerges: among the top ten consumer electronics firms on the A-share market, six are suppliers to Apple's supply chainThese include notable names such as Foxconn Industrial Internet, Luxshare Precision, and Lens Technology, among othersConventional wisdom suggests that suppliers in such chains typically possess little negotiating leverage, often operating under tight profit marginsYet, these Apple-associated firms exhibit considerable profits, raising the question—why?

One key factor lies in the prowess these companies possessApple's stringent supplier selection process ensures that only those capable of delivering exceptional technology and rapid production capabilities earn a place in its supply chainConsequently, becoming an Apple supplier is itself a testament to a company's exceptional capabilities and performance standards.

Furthermore, Apple's substantial revenue generation cannot be overlookedKnown as the most lucrative mobile phone company globally, Apple dominated the smartphone market in 2023, selling around 235 million iPhones and capturing roughly 20.1% of global smartphone sales

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However, when it comes to revenue, Apple dazzled, accounting for approximately 50% of the industry's sales incomeIn fact, Apple claimed an astounding 90% share of the profits generated within the global smartphone sector.

This astounding financial success means that although the profit margins of these suppliers might not be astronomically high, the sheer volume of Apple’s lucrative business translates even modest orders into substantial earningsAmong these, Luxshare Precision stands out as the most profit-generating player in the A-share market.

With Apple manufacturing 30% to 50% of its products domestically, Luxshare Precision plays an essential role, particularly in the iPhone 15 series assemblyThe company has captured impressive portions of the assembly contracts, such as 25% for the iPhone 15, 60% for the iPhone 15 Plus, and 30% for the iPhone 15 Pro Max, solidifying its status as a leading supplier in consumer electronics.

In 2023, as the consumer electronics market regained momentum, Luxshare achieved revenue of 174.4 billion yuan from Apple, constituting over 75% of its total revenuesCompared to its peers, such as Lens Technology and GoerTek, Luxshare's financial performance shines brightly, with its net profit reaching 10.95 billion yuan—a year-on-year increase of 19.53%.

Continuing into 2024, Luxshare Precision has maintained an impressive growth trajectory, securing a net profit of 9.075 billion yuan in the first three quarters, reflecting an outstanding year-on-year growth of 23.06%. This robustness can be attributed to the steady flow of orders from Apple, reinforcing the firm’s operational stabilityIn pursuit of fostering its long-term partnership with Apple, Luxshare has consistently ramped up its investment in research and development.

From 2020 to 2023, Luxshare's R&D budget expanded from 5.745 billion yuan to 8.189 billion yuan, demonstrating the company’s commitment to innovation and technological advancement

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Maintaining a research budget of approximately 4% of its revenues has allowed Luxshare to strengthen its technological capabilities, creating substantial barriers for competitors.

With a solid foundation built on innovation, Luxshare is now exploring opportunities beyond consumer electronics, venturing into new domains such as communications and automotive sectors as the market witnesses an explosive growth in AI computational power.

In the realm of communications, AI poses significant challenges related to distributed computing, which necessitates that data be rapidly processed and transmittedIncreasingly, high-speed, stable connections between AI servers and data centers are crucial for efficient operation.

Luxshare Precision has invested years into perfecting its product offerings in this domain, developing a diverse range of critical components, including electrical connections, optical connections, radio frequency communication, thermal management, and power supply solutionsRecently, it joined NVIDIA's supply chain for its GB200 AI server, while also emerging as a key partner for Intel regarding thermal management products.

Industry insiders project that the global AI server market will balloon to $34.7 billion by 2026, with a compound annual growth rate (CAGR) of 17.3% over the 2022-2026 period, suggesting vast potential for growthIn the first half of 2024, Luxshare's revenues from its communication and precision component sectors surged by 21.64% year-on-year, achieving 7.465 billion yuanIts technological edge positions the company well to uphold this growth trend.

Turning to the automotive sector, the burgeoning demand for electric vehicles has created a favorable landscape for Luxshare’s operationsData indicates that the high-voltage wiring harness required for electric vehicles is valued at around 5,000 yuan, significantly exceeding the value of the wiring in traditional passenger vehiclesMoreover, advancements in autonomous driving technologies continue to drive up the value of connectivity solutions in vehicles, with L4/L5 level autonomous driving connectors valued at over 1,500 yuan apiece.

Forecasts reveal that global sales of electric vehicles are set to climb, with expectations of surpassing 45 million units in 2023 and a projected CAGR of 17% from 2024 to 2030, thus invigorating demand for wiring harnesses, connectors, and other automotive electronics.

Since 2012, Luxshare Precision has strategically acquired key automotive electronics components, steadily reinforcing its presence in the automotive wiring and connector markets

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