Apple is expected to enlist a Chinese manufacturer to produce its premium iPhone models, breaking Foxconn’s hold on production after worker protests over Covid-19 curbs erupted at its megafactory in Zhengzhou last year.
The company is set to sign its first big order with Luxshare Precision, a competitor to Taiwanese rivals Foxconn and Pegatron, said three people familiar with the situation.
Luxshare has already been producing small amounts of the iPhone 14 Pro Max at its plant in Kunshan, a city northwest of Shanghai, to compensate for lost production at Foxconn since November last year, said two people with direct knowledge of the matter.
The iPhone 14 Pro transferred order represents a coup for Luxshare, which has steadily been winning an increasing share of Apple’s business. Foxconn had been solely responsible for delivering new iPhone Pro models, but Luxshare has finally proved it can assemble the most sophisticated devices.
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Apple’s ties to China have become closer in recent years as Chinese contract manufacturers win orders at the expense of Taiwanese partners. Goertek and Wingtech, assemblers of AirPods and MacBooks, have benefited, while Foxconn has attempted to reduce its reliance on China by establishing plants in India, Vietnam and the US.
The disruption at Foxconn has caused shortages of iPhones and threatens to break Apple’s 14-quarter revenue growth streak. Foxconn said this week that the Zhengzhou factory had ramped up production to fulfil 90 per cent of the initial targets in December.
“Foxconn has no bargaining power,” said Ivan Lam, an analyst at Counterpoint. “Taking orders for high-end iPhones is a testament to the [Luxshare] assembly plant, which could open their way for more diverse clients,” said Mr Lam.
Foxconn and Pegatron declined to comment. Apple and Luxshare did not immediately respond to a request for comment.
Apple has been working to diversify its supply chain away from Foxconn. But even for the veteran assemblers, which at present make basic iPhone models, it is difficult to produce the latest models.
Luxshare was able to produce the high-end phone this year because of significant investment from Apple, said employees and experts.
“With Apple’s dedicated investment, including increasing staffing in supply chain management, it only took Luxshare a few months to deliver the last-minute orders,” said an Apple employee in China. The employee said it usually took Foxconn six months to revamp production lines for new iPhone models.
Eddie Han, an analyst with Isaiah Research, said Apple’s “strong” investment in the company was crucial for mass-producing the Pro models.
Founded by former Foxconn worker Grace Wang, Luxshare has been expanding its footprint in Apple’s supply chain for years. It assembles everything from AirPods to iPhones, but, until now, it has struggled to win orders of the iPhone premium models.
Luxshare’s annual revenues have surged from less than $2 billion (€1.9 billion) in 2016 to $24 billion (€23 billion) in 2021, as Apple has become the company’s biggest partner. In that period, margins decreased from 8.6 per cent to 5.1 per cent, reflecting the competition for contracts.
Luxshare’s share price has fallen 44 per cent over the past year, dragged down by a global tech rout. Foxconn’s shares are down 22 per cent.
– Copyright The Financial Times Limited 2023
