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Apple supplier Luxshare plans camera module IPO as next leap

Chinese company's growth threatens rivals in Taiwan and South Korea

TAIPEI -- China-based AirPods assembler Luxshare-ICT is planning to list a camera module maker it recently acquired from Taiwan's Lite-On Technology in Hong Kong within the next two years, according to sources.

"Luxshare's goal is to challenge the market positions of Chinese camera module suppliers Sunny Optical and O-film Tech in the coming years, grabbing a bigger slice of the smartphone industry," an executive familiar with the company's plans told the Nikkei Asian Review. AirPods are wireless earphones developed by Apple.

"Luxshare plans to debut the shares of the camera module unit in Hong Kong in the next one to two years," said another source who works in the smartphone supply chain.

Lite-On sold its camera module division to Luxshare's newly established subsidiary for $360 million in June. In the deal, the Hong Kong-registered LuxVisions Innovation agreed to take over the division's manufacturing facilities, 5,000 employees, clients and supplier relationships, technology and intellectual property. Lite-On, in turn, now owns a 10% stake in LuxVisions.

Lite-On's camera module unit has been the key supplier to major Chinese smartphone companies like Huawei Technologies, Xiaomi, Oppo and Vivo. It makes annual revenues of 38 billion to 40 billion New Taiwan dollars ($1.2 billion to $1.3 billion).

However, fierce competition from Sunny Optical and O-film has led to losses for Lite-On's camera module segment since the second half of last year. Sharp and LG Innotek, the key suppliers of iPhone camera modules and 3D sensing modules, are also feeling the increasing threat from their Chinese counterparts, analysts said.

Traded as Luxshare Precision Industry, the company is known for its precise execution and cost management capability, which will help turn the newly acquired camera module business around, said James Wei, an analyst at Yuanta Investment Consulting. "With the advanced technologies purchased from Lite-On, we foresee Sunny Optical and O-film will start feeling the heat from Luxshare from now."

Luxshare will also want to chase more business from Apple. The industry is increasingly crowded, especially as the smartphone market has become saturated. Last year, global smartphone shipments shrank 0.3% on the year to 1.46 billion units, the first decline in the industry, according to IDC. The research house expects the industry to see another 0.2% contraction in shipments this year.

Luxshare did not respond to a request for comment.

The Dongguan-headquartered Luxshare is one of the fastest-growing Chinese suppliers in the tech industry. Chairperson Grace Wang founded her own business in 1998 after working at Foxconn Technology Group, formally known as Hon Hai Precision Industry, rising through the ranks from factory worker to manager over a decade. In 2004, Wang established Luxshare as a connector supplier to Foxconn.

Like Foxconn, Luxshare grew through mergers and acquisitions over the years and was propelled onto the list of the top 200 Apple suppliers in 2013. Its 2017 revenue jumped nearly 400% to 22.82 billion yuan ($3.3 billion) compared with 2013, while its net profit also ballooned almost 400% to $1.69 billion yuan, from 340 million yuan, over the same period.

In just four years, Luxshare enlarged its presence in the Apple supply chain by providing various components like connectors and speakers. It then grabbed orders from Taiwanese supplier Inventec to become a second assembler of AirPods in November last year. Luxshare is the first Chinese company on Apple's supplier list to assemble a product for the U.S. company.

Apple CEO Tim Cook took a tour of Luxshare's factory in Kunshan while visiting China last December. It was a rare move, since he tends to tour more established Taiwanese suppliers' plants but rarely goes out of his way for Chinese ones. Cook called Wang's progress through the ranks "an extraordinary example of a Chinese dream being realized."

The rapid growth of Luxshare is a jolt to the market, as its expansion could reshape the supply chain, ending Taiwanese suppliers' decadeslong dominance. Another high-level source, who works for an Apple supplier, told Nikkei that Luxshare could soon pose a threat to his company.

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