It is said that in Taiwan's consumer electronics industry on the treasure island, there are two companies that can "arm wrestle" with Apple Inc: one is Taiwan Semiconductor Manufacturing Co Ltd, a famous chip contract manufacturing leader, which relies on advanced processes to maintain its position in the industry; the other is a lens company that ordinary people often use but know little about: Largan Precision.

Liguang's products are used for mobile phone lenses. Generally speaking, the lens module of mobile phone is composed of lens, filter, CMOS sensor and FPC substrate, among which the most expensive and technology-intensive are CMOS sensors and lenses. The more high-end the lens, the higher the profit: the gross profit margin of Daliguang is as high as 70% all the year round-a level that is still a long way from Maotai's Maotai technology, but also enough to make a lot of manufacturing counterparts angry.

Players in the field of mobile phone shots include Taiwan company Dali, Yujingguang, Japanese company Kantatsu, and mainland company Sunny Optical. Big Liguang can not only put pressure on its peers, but also can often change Party An into Party B. From the era of iPhone3G, Da Liguang began to supply Apple Inc and basically controlled the production of high-end mobile phone lenses, whether Huawei's high-end lenses or iPhone's ancestral 12 million-pixel lenses.

Apple Inc also wants to support other enterprises and weaken Daliang, but for a long time, the effect is very little. For example, in 2013, Apple Inc launched iPhone5S, but because of the higher requirements for the thinness of the lens module, Apple Inc could only hand over the iPhone5S lens to Da Liguang, but the iPhone5C lens to Yu Jingguang. Unfortunately, due to the downturn in iPhone5C sales, the yield of Yujingguang has always been difficult to break through. In the end, Apple Inc had to give the follow-up iPhone5C order to Da Liguang.

The ability of Da Liguang to "get stuck in the neck" is evident. So why can a seemingly insignificant component on a mobile phone create an optical giant with a market capitalization of hundreds of billions and stuck at the top of the industry chain? Exploring this question is of great enlightening significance to the mainland electronics manufacturing industry, which is in the climbing stage.

This article will focus on the following three questions:

1. How does Da Liguang rise?

two。 Where does Da Liguang's advantage come from?

3. Where is Sunny Optical's chance of anti-overtaking?

Let's move on to the text.

When it comes to lenses, most of you think of Leica, Zeiss, Nikon and Canon. The first two are German, and the last two are Japanese. These companies are unshakable in the DSLR, camera and other fields. They occupy the "glass lens camp", while the companies mentioned earlier, such as Da Liguang and Sunny Optical, occupy the "plastic (resin) lens camp." The rise of Da Liguang is precisely due to the explosion of plastic lenses.

The main raw material of the glass lens is glass, which has high refractive index, high transmittance and lower dispersion, and more importantly, the production process is complex and needs continuous grinding, and many links rely on the experience and training of the "old master", so it is difficult to achieve a high degree of standardization. Therefore, the German and Japanese departments, which emphasize rigor and craftsman spirit, have naturally become the main competitors.

The plastic lens can not beat glass in parameters, but it is better than low cost, not easy to aging, and one-time molding, high degree of production automation, high degree of standardization, easy to mass production.

If the downstream is only a high-end product such as a DSLR, then there is nothing wrong with plastic lenses. But fortunately, mobile phones are on the rise. In 2003, however, high-end phones represented by Nokia, Motorola and Samsung were all equipped with cameras. But for a long time, taking pictures was just an accessory function of a mobile phone, just like a laptop camera, which was "necessary but not necessarily frequently used" and made do with one. Therefore, low cost becomes the first choice.

Plastic cameras just meet the needs of this product. Therefore, enterprises such as Dali Liguang have also been involved in the field of optics. From 1998 to 2002, Dali's income increased sixfold. During this period, there are also many competitors in the field of plastic lenses, but Daliguang not only "got up early", but also "firmly went to the market": continued research and development in the field of plastic lenses on mobile phones.

After listing in 2002, Dali successfully developed a 3 million-pixel triple optical zoom lens, which stuck the upper position of the plastic lens.

Compared with high-end glass lenses, mobile phone lenses are still not a big business. Even today, for example, Samsung's high-end phone S20Ultra, whose lens module costs as much as $107.5, can only be a friend-level lens on a SLR camera. So, at the time, other companies were reluctant to bet too much. Either hesitate on the technological route or hesitate to invest in research and development.

This situation waited until Apple Inc's advent. In 2007, when Apple Inc released the first generation of iPhone, Dali naturally became one of its suppliers, while Japan's Kantatsu (Konica Minolta) and Konica Minolta (Konica Minolta) were eliminated by Apple Inc because of the backwardness of process technology. South Korea's Chabiotech and Kolen manufacturers can only rely on Samsung and LG's "hand-picked" to do business.

Since then, the story has been very clear, Apple Inc's hot sales, let a number of suppliers sit on the income "jet", and Da Liguang also made a lot of money because of the bet and investment on the future of the track. Plastic lenses have also completed a "loser counterattack" against glass lenses: in terms of shipments, smartphones are already the largest category of optical devices, accounting for 75 per cent, while cameras have only 1 per cent, less than 8 per cent of tablets and 4 per cent of PC.

Betting on new products and waiting for Big Brother, Da Liguang's start seems to be based on vision and luck. But Liguang is not just luck. From iPhone3G to today's iPhone12, every generation of iPhone has its shadow. For Apple Inc, the strength of Da Liguang is also an existence that people love and hate.

Apple Inc has always been known for his near-extreme control of the supply chain. On the one hand, Apple Inc hopes that the supplier's technology will continue to improve, but at the same time, Apple Inc does not want to see the supplier's technology reach the "choking" level, resulting in the loss of his bargaining power.

Since choosing Dali to supply lenses in 2007, Apple Inc has been hoping to support a supplier that can compete with Dali, so as to change the situation that Dali is dominant in the lens sector. In 2010, Jade Jingguang, a lens manufacturer also located in Taiwan, entered Apple Inc's industrial chain and shared iPhone4/4S lens orders with Daliguang.

Apple Inc's action then alerted Da Liguang: in 2013, Dali filed a patent lawsuit with the California District Court, accusing Yu Jingguang of "luring" Apple Inc to infringe upon five US patents. At the same time, it was found that eight of its products infringed upon Dali patents. Not only the location was chosen in the location of Apple Inc's headquarters, but also in June, when Apple Inc suppliers stepped up their stock preparation, the meaning of beating Apple Inc was obvious.

The lawsuit lasted three years, and in 2016, Da Liguang and Yu Jingguang reached a settlement. Da Liguang dares to shock the tiger, in essence, it is the advantage of its own accumulation, coupled with the characteristics of the industry.

(1) Technical barriers: in lens manufacturing, moulds and equipment are the key to yield.Dali Liguang mold is basically self-made, and the automation equipment can also produce part of it by itself. This is also one of the indicators to judge whether a factory is "high-end". Some contract factories look high-end, and as a result, all the equipment is bought, which naturally belongs to the level of fake Foxconn.

For example, in the production of high-end lenses, an injection molding and lens cutting machine can produce 16 lenses a minute, but it takes 30 minutes for one lens to be tested. The inspection machine built by Daliguang itself has greatly improved the automation level of inspection, and most other manufacturers have to wait for the lens to be assembled and re-check at the expense of the good rate.

(2) Patent barriers: Dali continues to invest in research and development.It holds more than 1,000 patents in Taiwan, the United States, Japan and other countries and regions (including pending patents). Most of these patents are in the field of lens design. Da Liguang has patented all the technologies that are easy to produce, and can only force other companies to try their best to make a detour, resulting in either high cost or low yield.

After 2013, Daliguang launched patent lawsuits against competitors such as Yujingguang, Advanced Optical and Samsung Electronics, in an attempt to slow down other manufacturers' catch-up and try to license patents. Most of these lawsuits ended in victory.

Relying on patent barriers, Da Liguang enjoys excess profits alone.

(3) scale barrier: in the field of lens foundry, production capacity is the key to yield. The greater the output, the higher the yield.It is easy to form a situation in which the strong are always strong. Although Japanese manufacturers have advantages in technology accumulation, their production capacity is the biggest deficiency.

On the other hand, the shipping cycle of iPhone is often as long as more than one year, which gives Dali enough time to gradually improve the yield. On the other hand, most mobile phone brands have a short shipping cycle, so it is difficult for suppliers to raise the yield to a stable and profitable level in a short time, further strengthening the barriers of Liguang.

For example, the previous article talked about the leapfrogging of Yujingguang, but after that, Apple Inc turned to support the Japanese manufacturer Kantatsu and let Kantatsu replace Jade Jingguang in 2016, winning 20% of Apple Inc's orders, but mostly focused on low-margin products such as front-facing cameras and Mac lenses. The production of high-end lenses still depends on Daliguang.

To sum up.Compared with Taiwan and mainland manufacturers, Dali has a technological advantage; compared with Japanese and Korean manufacturers, Dali has a capacity advantage. The technical and scale barriers brought about by the layout in advance, coupled with the wealth-building movement of Apple Inc's industrial chain, shaped this Chinese Taiwan stock king whose share price once exceeded NT $6000.

However, with the rise of the semiconductor industry chain in the mainland, the industry pattern is also undergoing new changes.

In September 2018, the dominant position of Da Liguang in the field of mobile phone lenses was challenged by mainland manufacturers for the first time: Sunny Optical's lens shipments surpassed that of Da Liguang for the first time that month. In March of the same year, the footage of Samsung's flagship Galaxy S9 was also handed over to Sunny Optical. Before that, most of Samsung's mobile phone lens suppliers were South Korean local brands such as Kolen and Sekonix.

Sunny Optical's start is similar to that of Da Liguang. Except for optical lenses, Sunny Optical earns most of his income from lens module business. In 2004, Sunny Optical launched the "famous supporting role" strategy, that is, to work as a worker for large companies such as Sony Group Corp, Kodak and Nokia, and quickly gained a foothold in the field of lens modules.

The so-called lens module can be simply understood as purchasing lenses, CMOS sensors and FPC substrates from suppliers, assembling them into complete lenses and selling them to mobile phone brands.

Although it seems that the technology is complex and the process is sophisticated, it is essentially a common type of contract manufacturing with "German equipment and Chinese manpower". The gross profit is not high and the market concentration is low. One of the more famous is Oufeiguang, which was mercilessly kicked out of the supply chain by Apple Inc, with a gross profit margin of only about 10 per cent.

There is also money to be made as a module, but whether to stop here or not is the choice of the company's different destiny. Sunny Optical doesn't just want to be a "beater". During the 2008 financial crisis, Shunyu bought a 54.9% stake in South Korea Power Optics to acquire some of its technology in the field of high-end lenses. In 2013, Shunyu acquired the Shanghai mobile lens production base of Japanese lens maker Konica Minolta, bringing a series of patents into his arms.

Long-term R & D investment and several technology mergers and acquisitions have helped Sunny Optical successfully win the market share of the vast majority of domestic mobile phone lenses, including Huawei. The market pattern of Dali Liguang doing high-end high gross margin and Shunyu doing middle-and low-end low gross profit (gross margin is about 40%, which is not low) is gradually taking shape, which is also a common distribution of the consumer electronics industry on both sides of the strait.

However, compared with Taiwan Semiconductor Manufacturing Co Ltd's advantage in the high-end process that is difficult to catch up with, Da Liguang's advantage in the high-end lens has some hidden dangers:

(1) Apple Inc's tricks are deep: although Da Liguang is dominant and Yujingguang cannot help it, Apple Inc will not give up support to other suppliers.The rumor of "Shunyu entering Apple Inc's supply chain" is also looming. In January this year, Guo Mingyi, the first person of Guoxue and Tianfeng International analyst, once again revealed that the main iPhone lens suppliers in the future were Da Liguang, Yujingguang and Sunny Optical.

(2) the technology iteration slows down: with the increasing demand for image quality of mobile phone cameras, the number of mobile phone lenses is increasing, from 3P (Plastic, that is, the number of plastic sheets) to 5p to 8p.But on the one hand, the number of lenses has increased, and the technical difficulty has also increased exponentially. At present, the manufacturing process of 8p lens is firmly in the hands of Da Li Guang, but the mass production of 9p\ 10p is still difficult.

On the other hand, the room for simple lenses is limited. 8p is already considered as the top match in the industry. with the increase of lenses, it is not so attractive to consumers, and the marginal effect is decreasing. Just like eating steamed buns, the first three tastes good, and then no matter how much it is, it will even become a burden (such as a substantial increase in costs).

At present, Sunny Optical has achieved mass production of 7p lenses, and Shunyu is also clinging to Da Liguang in the 6P market, where the competition between middle and high-end lenses is the fiercest. In other words, from a lens point of view, when the first place is unable to move forward on the finish line, it will be much less difficult for the latecomers to catch up.

(3) Technical route change: due to the mass production difficulties faced by plastic lenses, glass-plastic hybrid lenses have become a new technical route.Because the glass lens has good light transmittance and high refractive index, the effect of one glass lens is roughly equal to that of two plastic lenses. A 7p lens, thinned through 5P+1G (Glass) or 3P+2G, also gives manufacturers room for "corner overtaking".

In 2017, LGV30 first adopted the glass-plastic hybrid lens scheme, and Glory also adopted the 6P+1G lens scheme in Glory 20Pro and Glory V30Pro in 2019. Compared with plastic, glass lens is difficult to polish and mass production. It can also be said that everyone has come to a new starting line.

However, I wonder if, like many bosses of Taiwan enterprises, who have reduced their desire to struggle and began to enjoy happiness after decades of struggle, Dali Liguang has not made much effort in glass-plastic mixing, and it is still focusing on the field of plastic lenses. Sunny Optical, on the other hand, has continuously invested in research and development and has achieved mass production of glass-plastic hybrid mobile phone lenses.

Lin Enping, the head of Da Liguang, has four big characters at the door of his fine house, "just meditate," saying that he should learn to clear zero at all times. However, judging from industrial developments and share prices that have been falling since NT $6000, it is not clear whether they can withstand the challenges of companies such as Sunny Optical in the face of new technology trends.

Sunny Optical's process of narrowing the gap with Da Liguang step by step is actually a microcosm of the gradual rise of the mainland's optical industry.

In lens manufacturing, Sunny Optical has become a sample of industrial upgrading; on CMOS chips, Weir shares hit the high-end market, Geke Weiwei stood firm in the middle and low-end market; in the lens module business, Oufeiguang, Sunny Optical and Qiu Titanium Technology held on to the top three.

And go back to the present.The camera growth brought by new energy vehicles will also be a new increment.. Relying on the advantages of localization, domestic optical enterprises will also usher in opportunities. The wave of new products is the "password" that Da Liguang succeeded as a challenger, and it will also be a successful "password" for these challengers on the mainland.

From the perspective of industrial upgrading, the optical industry also provides a feasible path for the domestic manufacturing industry to get rid of the low-end processing that depends on human costs.In the field of consumer electronics, whether it is technological breakthrough, mass production or yield improvement, every link requires long-term R & D investment and patience. Only in this way can we get rid of the embarrassment of the "division of labor chain" and form the competitiveness of the "value chain".