As a critical link in Apple's supply chain, Lens Tech, which produces glass for the iPhone, iPad and iWatch, saw a dwindling net profit amid the weakening appetite for iPhones in China
Lens Technology (300433:SH), one of the key suppliers of Apple (AAPL: NASDAQ), recently disclosed its 2021 financial report, revealing an operating revenue of CNY 45.286 billion, up 22.60% YoY and a dwindling net profit of 2.088 billion, down 57.36% YoY.
For the 2021 fiscal year, the company's performance declined quarter on quarter, with net profit for each quarter dropping from CNY 1.206 billion in Q1 to CNY 1.102 billion in Q2, and further to CNY 989 million in Q3. The year ended with the firm posting a net loss of CNY 1.2099 billion for Q4.
Regarding the severe decline in business performance, Lens Technology indicated that net income was mainly offset by a general and administrative expenses increase of 67% to CNY 2.75 billion and a 52% rise in R&D spending to CNY 1.56 billion.
Established in 2006, Lens Technology found success by partnering with Apple, becoming one of the tech giants in China.
Its main business is the cover glass manufacturing, which accounts for over 82% of its total revenue. The product is the protection on the outermost layer of screens. Large-sized cover glass makes up around 15% of Lens Tech’s total revenue, while medium- and small-sized cover glass takes around 66%.
Apple's iWatch, iPad, along other Chinese brands such as Huawei and OPPO's wearables and tablet products are the main buyers of Lens glasses. Consequently, the booming demand for smartphones and the success of the Apple Watch drove Lens Tech's share price through the roof.
However, with the ceiling of the consumer electronics industry, the company's stagnant progress in expanding business scope can hardly sustain its growth, which posed significant challenges to this once shining business star.
Over the years, the company has demonstrated an increasing reliance on Apple. From 2018 to 2020, its top five customers accounted for around 80% of sales, of which, revenue from Apple accounted for 46.97%, 43.07% and 54.97% of the company's total revenue, respectively.
The company has also admitted that if its major customers experience a decline in product sales, its operating results may be adversely affected in the short term.
To minimize this excessive reliance on Apple, Lens Technology, along with several Apple contractors, such as Luxshare Precision (002475.SZ), has strived to diversify and expand its targeting consumers and business scopes.
Particularly, the company has vigorously begun to develop business in the fields of photovoltaics and new energy vehicles, including providing in-vehicle central control screens, rearview mirrors, windshields and other auto parts for companiessuch as Tesla and NIO.
Yet, as of the first half of 2021, Lens revealed that revenue from this business line only accounted for a relatively small percentage, without specifying the numbers.
Lens Technology's direct and indirect competitors include BYD Electronics, LianChuang Electronic Technology and Suzhou Victory Precision Manufacture.