There are more and more Chinese vendors accepted into Apple’s supply chain. But they still need to strive to gain market shares of core component supplies in the long run, according to Jeff Pu, Managing Director of Haitong International(海通国际), a leading Chinese securities company. 

Jeff Pu talked about the Chinese suppliers in a late April video interview with JW Insights. Here are the excerpts of the transcripts of the interview. 

Apple’s annual supplier reports suggest that the number of Chinese suppliers has been increasing. All of its low-cost parts like optics and acoustics devices are from the Chinese mainland vendors. 

Looking forward, the trend will develop further, from supplying low-cost components to supplying key components in the future. So they need to focus on key components that account for a relatively high portion of the total cost. There have been many positive signals in recent years. 

For example, Luxshare-ICT(立讯精密), which focuses on system assembly, bought Wistron(纬创)’s factory and naturally entered iPhone’s supply chain. It is expected to supply more products to Apple from next year.

As for component parts like panels and displays, BOE(京东方) joined iPhone 12’s OLED supplier list last year. It might supply OLED for one model this year. But, we expect it to get a few more models for iPhone 15 to be launched next year because it’s very active to cooperate with Apple. 

As for other key components, YMTC(长江存储) has recently entered iPhone’s flash memory supply chain. It might supply for iPhone SE and iPhone 14 series. Its technology is growing fast, so it will be able to supply key components.

And for camera modules, Wingtech(闻泰科技) acquired OFILM(欧菲光)’s production line, and it will be able to get more orders in the years to come. 

So it’s very positive that Chinese manufacturers will play a more important role in Apple’s key component supplies in the next five years. Currently, Chinese players supplying key components such as panels, system assembly, and flash memory are still in a very early stage with a single-digit market share. There is a lot of room for growth in the next five years.

But Chinese vendors still need to further improve quality and production efficiency for system assembly to compete with the current largest supplier Foxconn.

Chinese mainland vendors supplying flash memory to Apple should be a positive sign. But they still have to narrow the technology gap with top manufacturers like Samsung, SK Hynix, and KIOXIA.  It is likely that YMTC will produce flashes with 200 layers by 2023, narrowing its gap with top manufacturers in the semiconductor area.

Although Apple uses OLED displays, it uses LTPO technology with a higher frame rate for its high-end products. So Chinese vendors still need to keep pushing technology development to boost market shares.