Leading ODM Vendors Such as Longcheer/Huaqin See a Stampede for IPO: Helping Accelerate the Localization of Industry Chain
As is widely known, the dominant model of the ODM industry has shifted from IDH to ODM after more than a decade of development, with the products expanding from smartphones to tablets, laptops, TWS headsets/smartwatches, etc. Looking ahead, new consumer electronics such as AR/VR and automotive electronics will become important growth drivers for the ODM industry.
When it comes to the ODM industry's development, China has been highlighting homemade substitutes and independent control over the semiconductor and cell phone industry chains in recent years. Actually, ODM vendors can be of great importance to the development of China's semiconductor industry, especially in terms of homemade substitutes, where they can be valuable aides.
Meanwhile, as the industry scale grows and matures, the leading ODM vendors are racing to launch their listing plans. For example, Huaqin and Longcheer are planning to list on the main board of SSE. They are in line with the features of the blue chips on the main board - “mature business model, stable business performance, large scale, and industry representation.”
Longcheer offers a glimpse to the future of China’s ODM vendors: the invisibly emerging champion
The majority of ODM vendors, as we all know, only provide IDH services at the beginning. Then, upon entering the smartphone era, the top-tier Chinese ODM vendors started to zero in on the smartphone sector and began to provide ODM services to their brand-name customers, relying on their whole-machine solution design capabilities, supply chain management capabilities and manufacturing management capabilities developed in the IDH stage.
A look across the twenty-year development history of the ODM industry reveals that it has no longer been a traditional foundry, especially for the top-tier ODM vendors. As an example, Huaqin, Longcheer and Wingtech have now become the top three global integrated service providers of smartphone ODM.
While the smartphone ODM business is booming, the wearables market surged dramatically around 2017 with AIoT smart products such as smartwatches, TWS headsets, and AR/VR products popping up everywhere. The major top-tier ODM vendors quickly grabbed the market and embarked on a multi-category ODM development phase, while relying on their R&D, production and delivery capabilities in the smartphone market to promote the development of more smart products.
Source: Longcheer Prospectus
As the ODM model further matures, its advantages are getting increasingly noticeable. As of this writing, it is learned that smartphone shipments from ODM vendors accounted for 40% of the overall smartphone market shipments in 2022. The growing proportion year by year indicates that the value of ODM is being recognized and valued by more and more prestigious brands.
Also, along with the development and application of such technologies as big data, artificial intelligence and cloud computing, the IoT trend of interconnection of smart products is ever more evident. The top global brands have all laid out a full range of consumer electronics products covering smartphones, tablets and AIoT products. Brands are progressively devoting their R&D efforts to flagship product development. As for the main product line, they choose to partner with ODM vendors to customize cost-effective, reliable hits with high quality.
ODM speaks for itself in terms of its value to the industry. It has long ceased to be a mere IDH manufacturer or foundry, but rather works intensively with brand customers for product R&D and customization to provide products with more value and competitive edge to the industry.
Longcheer is a representative enterprise in the ODM industry in this process. Following the industry trend, it has not only consolidated and expanded its market position and market share in traditional ODM categories such as smartphones and tablets, but also become a trusted partner of smart product brands and technology companies in AIoT products such as smartwatches, AR/VR, and TWS headsets. The company collaborates with its customers to explore product innovation and development, extending the boundaries of its ODM business.
Since 2020, Longcheer has developed its "1+Y" development strategy, with "1" representing its core product, smartphones, and "Y" smart products with huge market potential, such as tablets, smartwatches, AR/VR gear, TWS headsets and automotive electronics. Moreover, the company leverages its strengths in product R&D and design, rapid and mass manufacturing, supply chain management and semiconductor industry incubation to provide one-stop service for ODM technology companies, covering integrated hardware and software R&D and design, supply chain management and import, product production and mass delivery, to contribute more value to the market.
For example, data from Counterpoint shows that Longcheer shipped 108 million sets of smartphones in 2021, accounting for 21% of global smartphone ODM/IDH shipments and ranking second in the world. That makes it a leading technology company in the development and manufacturing of smart products.
As of 2022, Longcheer's smartphone shipments ranked first among ODM vendors worldwide, according to the latest IDC data. Longcheer's sound development also serves as a microcosm of that of the ODM industry.
In addition, according to Counterpoint, shipments of the "three major pieces" of global smart hardware (smartphones, tablets, laptops) remained above 1.7 billion sets after 2015, and are expected to hit more than 1.9 billion sets after 2025, with market sales exceeding $660 billion in 2022.
And as global consumers rely increasingly on smartphones and digital lifestyle, the market demand for emerging smart hardware (such as smart wearables, smart home and the like) is rising rapidly and expected to be in full swing in the next five years. Emerging smart hardware (including smartwatches, TWS headsets, XR, and smart speakers) shipments and sales are projected to grow at a CAGR of 22% and 23% from 2021-2025, according to Counterpoint. Overall, the era of 5G and the Internet of Everything (IoE) is just around the corner, bringing huge growth potential to the smart hardware market.
As such, ODM vendors such as Longcheer, Huaqin and Wingtel will see a huge market space and scale. With their expansion and a more stable business model, Longcheer and Huaqin have initiated their listing on the main board of SSE.
Policy-wise, according to the SSE and SZSE, the registration-based IPO system will be fully implemented, highlighting the features of the main board's large-cap blue chips and further clarifying the positioning of the main board. The SSE main board market has gathered a host of backbone enterprises and industry leaders after years of development, and the market has gained relatively abundant knowledge of the main board. Upon full implementation of registration-based IPO system, the main board positioning highlights the features of large-cap blue chips, supporting mainly sophisticated enterprises with a mature business model, stable business performance, large scale, and industry representation.
In short, both Longcheer and Huaqin are embracing a favorable IPO opportunity.
Intelligent manufacturing upgrades following vigorous R&D inputs, and ODM vendors help accelerate the localization of the industry chain
China's first-tier ODM vendors, such as Longcheer, Huaqin and Wengtai, have grown into comprehensive ODM service providers for smart products, as indicated above. The ODM industry has a high technical threshold judging from its qualitative and quantitative changes.
That's because smart products, after decades of evolution, feature complex functions such as mobile communication, large-screen display, audio and video playback, sports and health data monitoring; are highly integrated in form; cover RF, antenna design, baseband, optical and audio technology, structure, software, simulation and other professional technologies; and include smartphones, tablets, AIoT and many other complex product series.
Simply put, delivering a smart product means that ODM vendors need to finish the entire process of product definition, product solution development and design, key material selection and customization, software and hardware customization, product testing and certification, supply chain management, manufacturing, and product delivery.
Obviously, as an industry representative, Longcheer provides a reference for the development of ODM industry.
Besides amassing strong capabilities in product-level solution design, hardware innovation design, system-level software platform development, lean production, supply chain integration and quality control, it has also laid out its smart products covering smartphones, tablets and AIoT products. For example, Longcheer spent over RMB1 billion on R&D in 2021.
Source: Longcheer Prospectus
More importantly, Longcheer, leveraging its strong product design and supply chain integration capabilities, has accelerated the introduction of domestic supply chain and the process of homemade substitutes by involving itself deeply in the selection and development process of domestic semiconductor components, which is fully reflected in the supply chain and smart manufacturing.
For example, ODM vendors need to manage hundreds of suppliers and thousands of components in the supply chain. To ensure production quality and efficiency, as well as the traceability of the production process, ODM companies are required to digitize the whole process of supply chain management and manufacturing. That means they must be able to develop a management system compatible with hundreds of suppliers and thousands of materials, and scientifically design the business flow, supply flow and process flow.
Beside that, smart manufacturing technology also poses a high threshold in terms of manufacturing and product delivery. Smart product manufacturing involves dozens of complex processes, with strict testing procedures and high technical thresholds. ODM vendors are required to enable real-time data collection, intelligent control and process collaboration of multiple subjects, processes and devices, and ultimately achieve automated, large-scale, and efficient product production and delivery with high yield. In this regard, Longcheer and Huaqin have also invested and deployed in smart manufacturing.
For example, Longcheer has built smart product manufacturing centers in Huizhou and Nanchang, and laid out overseas manufacturing centers in India and Vietnam. With long-term production experience and technology iteration innovation, the company has acquired such technologies as precision assembly, automated production line design, intelligent inspection and flexible production and quick line change, driving the production center towards intelligent manufacturing, automatic inspection and flexible production capacity.
It can be seen that the contributions made by the first-tier ODM vendors that have developed into a platform to the domestic semiconductor and mobile phone industry chain cannot be ignored. As far as the terminal smartphone brands are concerned, in addition to Apple and Samsung, the world's top-tier mobile phone brands are mainly made by domestic manufacturers. ODM vendors owe a great merit to the huge shipments of Huawei, OPPO, Vivo, Xiaomi, Glory and other brands, while further boosting the development of the whole industry chain.
This is reflected in the procurement of the top five suppliers of Longcheer. Each year, they purchase numerous screens, cameras, main chips, functional chips, memory chips and so on, which undoubtedly contributes largely to the development and even the rise of mobile phone manufacturers in the domestic industry chain. Particularly, Longcheer, Huaqin and other top-tier ODM vendors have now developed multi-category smart products, providing stronger support to the industry chain.
Small and medium-sized suppliers, on the other hand, face considerable difficulties in joining the top-tier mobile phone brand suppliers directly. In this case, ODM vendors are more willing to offer them a chance to verify their products and even guide their R&D design, thus helping small and medium-sized suppliers to upgrade their technology and production capacity. For this reason, leading ODM vendors play a big part in the localization process of the supply chain.
As a whole, the development history of China's top-tier ODM vendors such as Longcheer and Huaqin can be an epitome of the current ODM industry development. As Longcheer and Huaqin rapidly grow into multi-category integrated ODM vendors, they become vital to the development and rise of the supply chain and will strongly promote the development of semiconductors in China. With a further clarification of the blue-chip features of the main board, Longcheer and Huaqin are expected to continue to expand their scale and production capacity backed by capital, contributing more to the localization of the cell phone and semiconductor industry chain.