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At the end of last year, consumer electronics giant Apple Inc. launched its first smartphone with a dual lens camera – the iPhone 7 Plus – and the lenses for the new model were made exclusively by Taiwan-based Largan Precision Co.

Because of its dual camera lenses, Largan posted earnings per share of NT$63 in the fourth quarter of 2016, the highest quarterly EPS ever for any company listed on the Taiwan stock exchange. Because of its dual lenses, Largan’s stock price has remained entrenched at well above NT$1,000 a share (a rarity on the Taiwan stock exchange), with UBS Securities recently setting a target price for the stock of NT$6,180. And finally, because of its dual lenses, Morgan Stanley has forecast that Largan will have after-tax net earnings per share of NT$272 for 2017.

“First quarter gross margin was 70.9 percent, setting a new high,” said Largan CEO Adam Lin, and it would have been higher if not for exchange rate losses, which cost the company an amount equal to its paid-in capital. But earnings per share still came in at a solid NT$36.4, remaining the highest of any company listed in Taiwan.

Father and Son: A Legend Takes Shape

In June 2016, Largan was ranked fourth among Japanese business media Nikkei’s 300 most influential companies in Asia, and set Taiwan stock market records for stock price, earnings per share and period of time with the highest priced stock. How has Largan gone on such an unprecedented, record-setting run that may never be matched?

The Largan legend begins with a photo showcasing a father and son sitting side by side – Largan founder Scott Lin, who was born in 1933, and Adam Lin, who was born in 1960. The two bear a close resemblance, and their dispositions and fates are eerily similar. The father quit his job in the public sector to start a business at the age of 47, and the son decided to end his career as a doctor at the age of 46 to learn the family business from scratch. The father weighs his words very carefully, the son is downright laconic; the father is conservative, the son low-profile; and the father is very strict, admonishing people to never show mercy, while the son is very tough, unafraid to sue others.

The two also have passions for technology, the father for technology itself in pursuit of excellence, the son for manufacturing processes, meticulous in his approach.

When 47-year-old Scott Lin started his business with NT$1 million, he laid down three rules on day one that have stood the test of time – no contracting, no purchase of technology, and no poaching of talent from other companies.

He studied books on optical lenses and immersed himself in lens design technology, starting by drawing designs on paper. During the initial phase of his career journey, he carried four suitcases with him touring camera factories around Taiwan and global optics shows to learn the business. He wrote letters to Kodak for seven years before getting his first order, which helped build Largan’s foundation.

Lin’s insistence on home-grown R&D was arduous, and while he eventually received his first order, most patents for glass lenses remained in the hands of the Japanese as always, representing a huge obstacle that seemed unconquerable.

Consequently, when smartphones with plastic camera lenses began hitting the market, Lin made the bold move to abandon glass and throw everything into plastic lenses.

“Competitors thought we were too bold, essentially throwing caution completely to the wind. But what I knew was that it was the only opportunity,” says Largan’s founder of abandoning the past and developing plastic lens technology from nothing.

“I’m not very good at doing business, but our strength is that our technology is good,” says Lin, who has always relied on technology rather than contacts to survive. “Compared with entertaining customers, I prefer to focus my attention on technology development,” he says.

Lin may have seemed overly demanding in his obsession with technology and insistence on quality, but his thinking was similar to Apple founder Steve Jobs, who said, “Be a yardstick of quality. Some people aren’t used to an environment where excellence is expected.”

Largan eventually rode its home-grown technology and high yield rates to become the dominant player in Taiwan’s optical lens field. According to Nikkei, the company has established itself as the global leader in smartphone camera lenses with a global market share exceeding 30 percent and more than 460 technology patents.

“Specializing in high-performance lenses has helped Largan avoid cost-cutting competition, enabling it to maintain its average net profit ratio at the 40 percent level over the past five years,” Nikkei wrote, in explaining how Largan has upended Japan’s past dominance of optical lens technology. Its “high production yields and product quality have helped the company best competitors in profitability.”

If it was Scott Lin who opened Largan’s doors to the plastic lens world, then it was Adam Lin who has allowed the business to flourish and led Largan into the dual-lens age.

The dual lens camera used on the iPhone 7 Plus – consisting of a 12-megapixel wide angle lens and a 12-megapixel telephoto lens – was Adam Lin’s signature creation that dazzled the market and set the stage for the takeoff of dual lens cameras this year.

The iPhone 8 line, to be introduced in the second half of 2017, is expected to include two models with dual lenses and also be equipped with a 3D sensing front camera, features that non-Apple brands will likely try to imitate. The Photonics Industry & Technology Development Association estimates that sales of dual lens cameras will increase two- to three-fold this year.

Largan ships about 40 percent of its lenses to Apple and has established itself as one of Apple’s most technologically proficient suppliers, bringing the company huge benefits. CitiGroup Global Markets Taiwan Securities has estimated Largan’s earnings per share to surge between 2017 and 2019 from NT$235 to NT$354 and NT$423, respectively.

Yield the Key in Dual Lens Era

“Making two dual lenses uniform is a challenge; finding two randomly chosen lenses that are identical is also a challenge,” Adam Lin said the first time he spoke publicly about the difficulty of designing high-quality dual lenses and meeting the stringent depth perception demands of a 3D sensor camera.

At Largan’s first quarter results conference call in April, analysts tried to get to the bottom of whether the company’s success was due to its design patents or its manufacturing processes that bring those designs to life.

Pressing Adam Lin on this question, one broker asked how important patents were to Largan’s overall competitive edge, wondering if competitors could make lenses as well as Largan even if they acquired or licensed patented designs.

“Patents are just doors that open the way to designs. Manufacturing processes and how to master them, that’s the main area of competition in the lens industry,” Lin answered.

A 12-megapixel lens requires six lenses to be stacked no more than 5 millimeters high. Every lens has two faces and their axes must be precisely aligned – within a margin of error of only plus or minus 0.002 millimeters by Largan’s standards. The more lenses used in the stack, the degree of difficulty rises exponentially and the yield rate plunges.

“The yield rate of every step in the manufacturing process has to approach 100 percent for the company to have a gross margin of 70 percent,” says Yuanta Securities Investment Consulting Co. analyst Jeff Pu.

Even if every individual process has a yield rate of 90 percent, which would seem pretty good, the finished product with five processes ends up with a yield rate of only 45 percent (i.e. a defect rate of 55 percent).

As Fubon Securities Investment Services Co. analyst Dany Wu explains, that’s why other companies in the lens industry supplying high-quality lenses can lose money.

Those companies can produce a high-quality lens, but their yield rates determine their profitability, and because yield rate is reflected in gross margin on a company’s financial statement, investors and analysts zero in on that indicator, according to Wu. Largan has had a gross margin exceeding 70 percent the past two quarters, two to three times higher than that of its main rivals, setting new company highs.

2016 was an important year for Largan’s revenue to scale new heights. The share of 10-megapixel lenses in the company’s product mix rose to 70-80 percent, and the introduction of high-resolution lenses announced Largan’s arrival as the dominant player in the high-end camera lens market.

Even now though, Adam Lin feels the company’s manufacturing process still has room for improvement. “I’m not satisfied with the yield rate,” he says, shaking his head. “Our competitors are all very strong. All we can do is to run a little faster.”

As Largan’s competitors race to catch up on more standard “six-element” (or six-layer) dual lenses, Adam Lin confirmed that Largan is working on even more advanced “seven-element” lenses.

Though Largan may describe its efforts as “running a little faster,” the company’s competitors see it as “leaving them in the dust.” An executive at a Chinese optical factory admitted privately, “Largan is a rival that we will never be able to surpass.”

Largan’s home-grown technology is the envy of the lens industry, but in a world with increasingly few secrets, why hasn’t that technology leaked out?

It’s partly because of Largan’s mentoring system, which Adam Lin says involves one experienced worker nurturing one new worker and developing technology and talent in house.

Lin does not put a lot of stock in educational backgrounds, preferring to hire graduates of universities and colleges in central Taiwan where the company’s operations are based. Many Largan workers get their first jobs at the company, and they are treated both as employees and family, making it easier to keep technology in house.

There has been the occasional crack, however, and in 2013, Largan sued a former employee for stealing trade secrets and taking them elsewhere.

Though Largan won the case, it tightened its internal controls by imitating Coca-Cola’s approach to prevent technology from leaking out. Not only did it limit knowledge of sensitive information to only a few people, it also made each department independent, strictly controlled access, did not allow smartphones into company facilities, and even limited the number of employees allowed to send e-mails outside the company.

And when a breach does occur, Adam Lin has even been willing to sue a customer like Samsung.

“Patents are not protective, only offensive. They are used to sue or to set up mutual authorizations,” says an unforgiving Lin, who has won every lawsuit his company has filed, helping Largan’s home-grown technology reign supreme in the global optical lens industry.

Two Brothers: Succession and Zen Buddhism

The second picture describing the Largan legend is of the older and younger brother in the family. When Scott Lin handed over the company to his sons in 2010, he made his older son Lin En-chou chairman and younger son Adam Lin CEO.

Only two years apart, the two brothers do not look much like each other; Lin En-chou takes more after his mother while Adam Lin takes more after his father. Where the older brother has a more easy-going disposition, the younger brother is tough and unyielding, yet nobody has had a greater influence on the younger Lin than Lin En-chou.

Lin En-chou began studying Buddhism intensively when he was in college and introduced his younger brother, who was studying at Kaohsiung Medical College (now Kaohsiung Medical University) at the time, to that world. The two took on Zen Buddhism teacher Hung Wen-liang as a mentor and learned the “Soto” zen style of sitting meditation. It remained an interest of both brothers after graduating.

“Meditation is a big help to me in managing the company because meditation calms me down and makes it less likely for me to be influenced by outside factors. When you talk about the stock price, it doesn’t really mean much to me,” the younger Lin said to reporters at a Lunar New Year gathering with the media.

Now, Adam Lin meditates for an hour every day and night, and on days off he gets together with his brother to practice Zen meditation.

Competition on the Horizon?

The third picture chronicling the Largan legend is one of the new factory currently being built in its Taichung base. But as workers are busy constructing Largan’s new facility there, workers with Japanese high-performance lens factory, Kantatsu Corporation, are busy building added capacity for the rival Hon Hai Group (Foxconn) in Japan and China.

Nikkei reported in April that Sharp intends to double its capacity at its LCD panel plant in Kameyama in western Japan’s Mie Prefecture to make parts for smartphone cameras. Sharp President Tai Jeng-wu said a new plant is also being built at Kantatsu’s facility in Lianyungang in China’s Jiangsu province that should come on line in the summer of 2018 and increase capacity 2.4-fold.

Forty percent owned by Hon Hai-subsidiary Sharp, Kantatsu is the third lens supplier after Largan and Taiwan-based Genius Electronic Optical Co. to be nurtured by Apple and is one of the few vendors in the world capable of production lenses of 12 megapixels or higher.

“Largan is a potential rival,” said Hon Hai Chairman Terry Gou publicly at the beginning of 2017. From Sharp increasing its investment in Kantatsu to Hon Hai investing in an Israeli dual lens company and increasing capacity, Kantatsu seems to be preparing for a showdown.

Could Kantatsu’s charge threaten Largan? Citigroup Global Markets technology analyst Arthur Lai doubts it, believing it is unlikely for Kantatsu to budge Largan from its perch atop the high-end lens sector in the short run based on Kantatsu’s anticipated capacity and yield rate in 2018.

But Genius Electronic Optical could begin making a run at Largan’s dominance, according to KGI Securities analyst Kuo Ming-chi, who is renowned for accuracy on all matters Apple.

“Genius Electronic Optical received Apple certification in the first quarter, and it could take about 10-20 percent of the high-resolution wide angle lens market this year,” Kuo said.

Major Growth Engines of the Future

As others in the field try to catch up on dual-lens production, Adam Lin revealed that some Largan customers have begun designing multiple lens and even 10-lens camera systems.

Just as dual-lens systems are taking off in the marketplace, multiple-lens systems, automotive lenses and contact lenses represent Largan’s three major growth engines of the future. Much like three glimmers of light next to two glistening light beams, these engines are slowly unveiling themselves, hoping to extend Largan’s legendary aura as Taiwan’s stock market king.



Translated from the Chinese by Luke Sabatier