If Goertek wants to hitch a ride with Xiaomi, it has to pay more.

Go all out. Anyway, Goertek must catch up with this wave of the AR trend.

On the evening of August 8th, Goertek Inc. invested another hefty sum of $100 million (718.42 million yuan) through its subsidiary in a cross - border investment in Plessey, a British Micro - LED giant.

This is another layout by Goertek in the upstream of the AR/VR industrial chain after it acquired two precision manufacturing assets under Hong Kong Lianfeng for HK$10 billion in July this year.

Micro - LED is generally regarded as the ultimate solution for the next - generation display technology and also a technological high - ground that must be conquered to develop consumer - grade AR glasses.

For Goertek, after suffering losses in the "metaverse" and facing performance fluctuations due to over - dependence on Apple, it doesn't want to play a pure OEM role passively in this wave of the AR trend.

Undoubtedly, as the next - generation computing platform, the combination of AR/VR and AI technology is an inevitable trend. AI can enhance the perception ability, interaction experience, and content generation efficiency of AR/VR devices, thus expanding their application scenarios. However, the AR/VR industry itself is still in its early stage of development, with low market penetration, limited user acceptance, and an unclear profit model.

Ultimately, the figures on the financial statements will provide an answer in the next few years: Is this a successful breakthrough for Goertek or a more expensive tuition fee?

01 Lessons from the Metaverse

In the AR field, Goertek has stumbled. The short - lived trend called the "metaverse" once put Goertek in a rather passive position.

To understand the "pain" brought about by the metaverse, we must go back to 2020.

That year, the world came to a standstill due to the pandemic, but a VR headset called Oculus Quest 2 was sold out on online channels. Its brand owner was Meta, which was still called Facebook at that time, and the global exclusive OEM manufacturer was Goertek.

Screenshot from Baidu Encyclopedia

Meta had high ambitions for the metaverse. Its founder, Mark Zuckerberg, said that he hoped to transform Meta into a metaverse company in about five years, and the name - changing move further confirmed Meta's ambition to go all - in on the metaverse.

It was a honeymoon period pursued by the capital market. Goertek's stock price soared from more than ten yuan to a historical high of 58.43 yuan, and its market value exceeded 180 billion yuan.

However, a structural risk had already been buried behind this order feast.

The relationship between Goertek and Meta was not simply that of "client and contractor". In this game, there was another key player - Pico, which made the situation more complicated.

This Chinese VR startup founded by Zhou Hongwei had been deeply bound to Goertek since its inception. Goertek was not only Pico's earliest OEM factory but also an important institutional shareholder. According to relevant media reports, there was a close relationship between Zhou Hongwei and Jiang Bin, the actual controller of Goertek Inc. Zhou Hongwei himself had been deeply involved in the development of Goertek Inc. and led its gaming business. Therefore, he had more than once publicly thanked Goertek for its strong support in the supply chain.

In this way, the problem became more complicated. Pico and Meta's Oculus were direct competitors in the market. In layman's terms, they were so - called "rival companies".

Thus, a delicate situation emerged: Goertek, the world's largest VR OEM factory, was both the "royal arsenal" of Meta, the global market leader, and the "behind - the - scenes shareholder" and "chief nanny" of its challenger, Pico.

This game of self - conflict can be covered up by huge dividends during the high - growth period of the industry. However, when the tide recedes, all problems will eventually surface.

In August 2021, ByteDance acquired Pico for a sky - high price of 9 billion yuan. This deal was regarded as ByteDance's ticket to enter the metaverse and also made the triangular relationship among Goertek, Pico, and Meta even more complicated.

ByteDance's takeover did not, as expected, enable Pico to launch a strong impact on Meta. Instead, a long - term internal integration began.

A former early - stage Pico employee once revealed to the media that after the acquisition, multiple forces emerged within Pico: the "veteran faction" led by founder Zhou Hongwei, who understood the product; the "executive faction" parachuted in by ByteDance, who were good at pulling data for growth; and a small number of the "factory faction" transferred from Goertek, who were responsible for production and the supply chain.

The "veteran faction" insisted on user experience but did not understand ByteDance's "brute - force approach"; the "executive faction" pursued ROI and shipment volume but lacked patience with the technical details and hardware costs of VR; while the "factory faction" was caught in the middle, having to follow Pico's product definition and meet ByteDance's strict requirements for cost and efficiency.

The ultimate result of this long - term internal strife was that Pico was never able to fully accelerate in catching up with Meta. IDC wrote in its "Q4 2021 Global AR/VR Headset Market Quarterly Tracking Report" that the global VR headset shipment volume in 2021 was 10.95 million units, with Oculus accounting for 78% of the market share and Pico ranking third with a 4.5% share.

After more than a year of catching up, Pico not only failed to help ByteDance realize its metaverse dream but also spread news of various layoffs and contractions in 2023.

If it were just the demise of ByteDance's metaverse dream, Goertek could still rely on Meta to continue participating. However, the seriousness of the problem lies in that Meta, as the biggest promoter of the metaverse concept, couldn't hold on at this critical moment. Since 2023, Meta has launched four rounds of layoffs, cutting nearly 30,000 employees in total, and shifted its focus to the artificial intelligence and smart glasses sectors.

Fortunately, Goertek later successfully obtained an order for Apple's Vision Pro, which prevented the production line of AR headsets and other devices from shutting down directly.

02 Apple's "Shackles"

If the failure in the metaverse was an unexpected "natural disaster", then the dependence on Apple has almost run through Goertek's development.

The title of "No. 1 in the Apple supply chain" was once Goertek's most dazzling medal but also its biggest burden. It was no exaggeration to say that its success and failure both depended on Apple.

Since supplying a small microphone for the iPod in 2010, Goertek has spent ten years deeply binding itself to Apple. Its product lines cover almost all of Apple's core acoustic and optical components, such as the acoustic modules of AirPods, the speakers of iPhones, and the SIP packaging of Apple Watches.

Conceptual diagram of AirPods | Source: Byte - made

In 2021, the revenue from Apple accounted for 42.5% of Goertek's total revenue. That year, Goertek's net profit reached 4.275 billion yuan, setting a new historical high.

Meanwhile, Apple also brought extreme dependence and weak bargaining power to Goertek.

Apple's supply chain management strategy is known for its strictness and cold - bloodedness. It uses large orders as bait to drive suppliers to invest heavily in expanding production lines. At the same time, it uses the "diversified procurement" strategy to constantly whip all suppliers, maintaining a certain dynamic involution.

Apple has very strict requirements for product yield. If the yield cannot meet the standard during the trial production process, Apple will quickly switch suppliers, causing many "Apple supply chain" companies to always be on high alert, fearing that they will be kicked out by Apple accidentally.

Over time, companies in the "Apple supply chain" have all suffered from "Apple dependence syndrome" to varying degrees. The other two of the three major A - share Apple supply chain companies, Luxshare Precision and Lens Technology, are in a similar situation to Goertek.

In 2022, the incident of Goertek being kicked out of the AirPods Pro 2 supply chain was the most real manifestation of this cruel rule.

Just because of the yield problem, Apple mercilessly transferred this order worth billions of yuan to its top competitor, Luxshare Precision. As soon as the news came out, Goertek's stock price plummeted, and its market value evaporated by more than 70 billion yuan within just one month.

In 2023, Goertek's annual performance was not ideal. According to the annual financial report data, during the reporting period, the company achieved an operating income of 98.574 billion yuan, a year - on - year decrease of 6.03%; the net profit attributable to shareholders of the listed company was 1.088 billion yuan, a year - on - year decrease of 37.8%; and the non - recurring profit - adjusted net profit was 860 million yuan, a year - on - year decrease of 47.16%.

This is the price of being in the "Apple supply chain". It can make you rich overnight and also make you penniless overnight.

To meet Apple's extreme cost - squeezing requirements, Goertek had to transfer a large amount of production capacity to Vietnam. However, the efficiency of Vietnamese workers and the maturity of the supply chain are far inferior to those in China. According to a third - party industry report, the product yield of Lens Technology's Vietnam base, also an Apple supplier, is 5 to 8 percentage points lower than that in China.

These hidden costs ultimately have to be borne by the suppliers themselves.

Making a living at the mercy of others. This is the unknown bitterness behind the halo of the "No. 1 in the Apple supply chain".

03 Betting on AR

Haunted by the "ghost" of the metaverse and bound by the curse of the "Apple supply chain", Goertek needs to come up with a better solution.

The atmosphere in the boardroom must have been solemn. The 2023 financial report with a sharp decline in net profit forced Goertek to make a change.

Goertek must escape from the OEM fate built with orders and profits.

AR has become one of the few strategies to break the deadlock and pull it out of the quagmire.

This time, the "big shot" that Goertek has chosen is not Meta, which is far away in California, but Xiaomi, which is right at hand.

On the evening of June 26th, Lei Jun, the founder of Xiaomi Group, who speaks with a Hubei - accented Mandarin, released Xiaomi's first consumer - grade AR glasses.

IDC predicts that the global smart glasses market will ship 12.05 million units in 2025, a year - on - year increase of 18.3%. Among them, audio glasses and audio - shooting glasses without display functions are expected to ship 5.47 million units, a year - on - year increase of 101.9%.

Screenshot from IDC

The core optical module of this product is exclusively supplied by Goertek.

This is not just a new order but also a complete strategic shift.

In the previous wave of the VR trend, Meta played the role of a pure "product definer" and "brand owner". It firmly held technological R & D and the software ecosystem in its own hands and only outsourced the production and manufacturing process completely to OEM factories like Goertek. The relationship between the two was simply "you place an order, and I produce".

In contrast, Xiaomi offers a new possibility.

Xiaomi's "Mi supply chain" model, an open - ecosystem construction strategy centered on "investment + empowerment", involves Xiaomi investing in ecosystem companies through funds such as Jinmi and Shunwei. This approach allows Xiaomi to exert influence while avoiding excessive interference, thus stimulating the independent innovation ability of the invested companies.

Lei Jun once said that Xiaomi has laid out the relevant industrial chain in an investment - banking way, forming a complete ecosystem. This methodology is the result of Xiaomi's more than ten years of hard work.

For Goertek, this means that it will no longer be just a passive "executor" but will have the opportunity to become an active "participant". It can be more deeply involved in the product definition and R & D process and transform the technology it has accumulated in the optical and acoustic fields over the years into real product strength.

However, betting on AR is still a high - stakes gamble.

AR technology, especially Micro - LED and optical waveguides, is still not fully mature. High costs, low yields, severe heat generation, and insufficient battery life... Each problem is a mountain standing in the way of consumer - grade products.

However, Goertek has learned lessons with real money from Pico's "self - conflict" and Apple's "merciless abandonment". Therefore, when Goertek decides to board the AR ship, it needs to change the game.

According to the 2024 annual report, at least 4 out of the 9 R & D projects that Goertek Inc. is promoting are related to AR and AI glasses.

Recalling the past, when Goertek invested in Pico, although it was bought by a big - name like ByteDance, Goertek suffered a loss. It not only lost control of Pico but also found it difficult to deal with both Meta and ByteDance because of "straddling two boats".

From Apple's "golden handcuffs" to the "mirage" of the metaverse, Goertek has paid a high enough tuition fee. This time, it resolutely chooses to board the AR ship, even though there are still rough seas ahead.

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This article is from the WeChat official account "Source Media and Information". Author: Keji de Ke. Republished by 36Kr with permission.