In the fiercely competitive landscape of the smartphone industry, many people are aware of prominent brands such as Samsung, Xiaomi, Honor, and OPPOHowever, a significant portion of the innovation and production behind these devices is often obscured by the spotlight on these giantsAs competition intensifies, an increasing number of brands are opting to outsource their product development to Original Design Manufacturers (OEMs), Original Design Manufacturers (ODMs), and Joint Design Manufacturers (JDMs). This shift allows these companies to enhance their product competitiveness and accelerate their market responsiveness.

Since the late 20th century, ODMs have become an indispensable part of the global electronic manufacturing ecosystemTheir quiet but substantial contributions can be observed across the supply chain from smartphones to computers and even servers

One such powerhouse is Huakin Technology, often referred to as the behind-the-scenes hero of this industryAs of 2023, Huakin Technology has claimed the top spot in the global smartphone ODM ranking with a commanding market share of 27.9%.

The year 2023 has also seen Huakin adopting a robust "buy and expand" strategyRecent reports indicate that Huakin has acquired 80% of Easyroad Technology International through a cash purchase, with plans to finalize the acquisition of Nanchang Spring and Autumn ElectronicsThese moves are aimed at fortifying their position in the AI PC segment, which has been witnessing growing demand.

The Rise of Huakin Technology

To truly appreciate Huakin Technology's rise, we must journey back to 2005. In a hotel in Shanghai's Pudong district, a small group of ten was huddling together, focused on pioneering a circuit board

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This humble beginning marks the inception of Huakin TechnologyAt that time, China was experiencing a surge in mobile phone solutions, with numerous companies such as Dexin, HimTong, and Longqi stepping onto the stage of phone designHuakin Technology was among those early entrants offering Integrated Design and Hardware (IDH) services for feature phones.

Initially, Huakin focused on the development of PCBAs (Printed Circuit Board Assemblies). As competition within the IDH model heated up, Huakin pivoted towards a comprehensive ODM model that included design and manufacturing servicesThis timely transition allowed the company to build a robust R&D system and an efficient managerial frameworkThey formed firm collaborations with emerging Chinese smartphone brands and honed their ability to release differentiated products rapidly.

Starting in 2015, Huakin began diversifying its portfolio, extending its reach into AIoT products, TWS (True Wireless Stereo) earbuds, smartwatches, and rings

Between 2019 and 2020, the company's revenue skyrocketed from 35.3 billion RMB to 59.87 billion RMB, with Samsung emerging as Huakin's largest client, accounting for nearly one-third of its revenueHuakin transformed into the unsung hero supporting Samsung's operations.

An examination of Huakin's financials reveals consistent growth in revenue and profits over the past five years, with the most significant increase occurring between 2019 and 2020. In 2023, the company's net profit experienced a 5.8% growth compared to 2022, underscoring a robust financial standing.

Looking at the gross margins, the wearable technology sector has exhibited the most rapid growthSpecifically, the gross margins for laptops, tablets, and smart wearable products have shown a general upward trajectoryIn contrast, the server segment has seen fluctuating gross margins, with a rapid rise observed in 2021.

Huakin's top clients include industry giants like Samsung, OPPO, Xiaomi, and ASUS

Over the last four years, the cumulative sales from its top five clients accounted for 72.21%, 68.51%, 65.43%, and 64.57% of Huakin's annual revenueNotably, the top client's revenue contribution has hovered around 30% during these periods.

The fluctuations within Huakin's top clients reflect prevailing market trendsVice President and Secretary of the Board, Wang Zhigang, elaborated on this, stating that the changes among top clients constitute a strategic structural adjustment made proactively by Huakin Technology.

The restructuring strategies relate to both product lines and client portfoliosIn the past five years, Huakin has witnessed significant growth in non-phone segmentsAs a smartphone-centric company, it has repositioned its smartphone business to account for only 35% of its overall revenue

This strategic diversification allows Huakin to emerge as one of the few ODMs in the industry covering a wide range of fields, including smartphones, tablets, wearables, lithium batteries, servers, and automotive electronics.

Moreover, Huakin is actively optimizing its client structure, with the proportion of revenue from the top five clients decreasing from 70% to 60%. By reducing dependency on a single client, the company enhances its resilience during market fluctuations, ensuring stable growth overall.

Four Steps to Becoming a Top ODM

In 2023, Huakin Technology reported a remarkable revenue of 85.34 billion RMB and a market valuation of 54.4 billion RMB, establishing itself as a leading ODM in ChinaBut how did Huakin achieve top ODM status? Wang Zhigang asserted that the company embodies the principles represented by the acronym ODMM.

The first "O" stands for Operation, denoting Huakin's efficient operational capabilities

The company continuously enhances its supply chain management and boasts high operational efficiency metrics, including impressive inventory turnover ratesCurrently, about 300 to 400 digital IT software engineers are dedicated to software development, optimizing global clients' business and improving operational efficiency.

The second "D" stands for Development, highlighting Huakin's core competency in research and developmentThe company has extended its core technologies into multiple product categoriesBy fortifying its R&D efforts, Huakin has effectively leveraged the RF, antenna, structure, and stacked technologies accumulated in mobile phones across various product domainsAdditionally, Huakin has established an X-Lab for foundational technology development in acoustics, optics, thermals, and electromagneticsThis initiative bolsters its R&D capabilities while continuously shortening development cycles and boosting efficiency.

The third "M" represents Manufacturing, focused on advanced manufacturing capacities

Consumer electronics products demand efficient mass deliveries while catering to diverse global client needs with flexibilityHuakin has invested extensively in R&D and manpower to balance the demands for flexibility and rigidity in productionApproximately 20% of the equipment involved in complete assembly, packaging, and assembly processes is self-developed, underscoring Huakin's commitment to bolster its advantages in intelligent manufacturing.

The final "M" stands for Mechanical, referring to precision structural componentsHuakin continues to integrate upstream vertical supply chains by proactively acquiring structural component manufacturers, which have increased its self-supply ratioCurrently, 40% of the structure components in Huakin's smartphone production are sourced internally, significantly enhancing both cost and product competitiveness.

Today, Huakin Technology has evolved from its initial PCBA model to a global smart hardware platform known as “2+N+3,” encompassing smart devices like smartphones and laptops, consumer electronics, as well as enterprise-grade data center and automotive electronic products.

The company's client base spans globally renowned manufacturers

In the smartphone sector, Huakin's clients include Samsung, OPPO, Xiaomi, Vivo, and Lenovo; in the tablet and laptop sectors, cooperation with Samsung, Amazon, Lenovo, Acer, ASUS, and Xiaomi is quite fruitful; and in server technology, Huakin has become one of the first ODMs in mainland China to achieve shipments of NVIDIA’s H800 servers.

Huakin's expansive footprint across multiple sectors is reaching a vibrant bloom.

Strategic Positioning in Emerging Markets and AI

With an eye for opportunity, ODMs, including Huakin, have the unique advantage of being closely connected with both upstream suppliers and downstream clients, allowing them to make informed market predictionsLooking ahead to 2024, Wang Zhuigang identified three promising directions for growth: notebooks, servers, and automotive electronics.

In the notebook sector, Huakin Technology's market share has been on a steady rise

Having entered the notebook market in 2015, Huakin has established stable partnerships with clients based on mainstream products, breaking the current oligopoly in the industry and achieving annual shipments exceeding ten million units.

Moreover, the advent of AI PCs has become a hot topicAccording to Counterpoint's report, global PC shipments increased by 3% in the first quarter of 2024, driven by several factors: a relatively low market base in the first quarter of 2023, the marking rise of AI PCs, gradual rebounds in shipments across diverse industries, and a new round of equipment replacement cycles.

Wang believes in the potential of AI PCs, stating: “The PC market is highly mature, and AI's influence revolves around enhancing user experience through software and ecosystem changes

Users will have a virtual assistant that streamlines tasks in various scenarios, increasing work efficiency in meetings and office workThe trend of AI PCs is certain; however, we need to observe the penetration rates over the next one to two years closely.” He also indicated that AI PCs would require new hardware specifications to support voice control, imaging, gesture recognition, and machine interactions.

In the server and switch sector, as the AI wave surges, global demand for data center construction and, consequently, the equipment needed for servers and switches continues to escalate.

Huakin has seen outstanding growth in the AI server division, experiencing several folds of growth in 2022 and 2023. The company has released next-generation data center products, including the Taihang Series and Qilian Series

For instance, the H8230 4U8 card AI server was one of the first to be fully compatible with NVIDIA's L20 GPUs and received NVQUAL certificationHuakin has demonstrated stable delivery capabilities for large quantities to partners and clientsAdditionally, Huakin has sustained its competitive edge in AI product deliveries, with the NVIDIA H20 server being introduced to top-tier internet firms promptly, resulting in significant shipments during the second quarter.

Further elaborating on AI strategies, Wang emphasized, “AI's demand for computing resources is continuously rising from both global and national perspectivesThe need for AI servers based on infrastructure will persist as wellHuakin is among the few companies capable of researching and designing both ARM and x86 architectures, catering to clients' customized developments in computing architecture.”

With the increasing global demand for AI computing resources, alongside Huakin's strong R&D capabilities and supply chain integration, Huakin's server and switch market share will likely expand significantly.

In the realm of automotive electronics, Huakin remains optimistic

The company entered the automotive sector in 2019 and established the automotive electronics division in 2020, leading to significant year-on-year growth of 110% in the automotive electronics business.

Wang points out that although the revenue share from automotive electronics remains relatively small at the moment, the future growth potential is substantialHe believes that long-term, the automotive electronics segment could become a robust pillar within Huakin's overall business structure.

Commenting on the automotive industry, Wang noted, “In the domains of intelligent cockpits and driving technologies, our core technologies hold significant relevanceHowever, the automotive industry poses distinct challenges due to specific regulations, which we respect immensely.”

Currently, Huakin Technology boasts flagship products in intelligent cockpits, vehicle control, smart connectivity, and intelligent driving, addressing customer needs across various electronic and electrical architecture trends, while fulfilling diverse verticals in smart driving and cockpit technologies.

Wang concluded on an optimistic note about the three new business sectors: notebooks, servers, and automotive electronics, anticipating these will form the pillars of Huakin’s rapid growth in the future.

Conclusion

In the age of AI, Huakin Technology positions itself as a digital infrastructure provider, instrumental in supplying tech companies with all-encompassing digital solutions that encompass both software and hardware

This strategy paves the way for Huakin to venture forth into a new horizon within the ODM industry.

In May of this year, Huakin was included in the CSI 300 Index, marking its rise as a newcomer starRecently, it announced the cash acquisition of an 80% stake in Easyroad Technology InternationalThis group of subsidiaries serves notable clients, including Apple, fulfilling orders that range from various Apple products to specialized accessoriesIf Huakin successfully concludes this acquisition, it will effectively tap into Apple's supply chain.

Additionally, Huakin is set to acquire Nanchang Spring and Autumn Electronics, further enhancing its parts development capabilities, improving product competitiveness and profit marginsThis integration is expected to reinforce Huakin's position in AI PC technology.

Huakin Technology is rising with remarkable momentum in the ODM sector, broadening its business dimensions and strengthening its capabilities