Apple iPhone units are assembled by contract manufacturers like Foxconn, Wistron and Pegatron. All three companies are based out of Taiwan which means that no iPhone has ever been produced by a company headquartered in mainland China. That is, until now. According to Bloomberg, Luxshare Precision Industry Co. has acquired the part of Wistron that assembles the iPhone. Luxshare is located on the mainland and some analysts believe that this move will put Apple in a more favorable light as far as Beijing is concerned.
Tsai Ming-fang, an industrial economist at Taipei-based Tamkang University says that by adding Luxshare as an official iPhone assembler, Apple will be able to lower its employment costs which are cheaper on the mainland than in Taiwan. Tsai says, "Apple is introducing Luxshare into the iPhone assembly business to further reduce its costs, while this reflects that Taiwanese companies are starting to (get) rid of Apple businesses that are low-margin. This shift may further push Taiwanese companies to decamp from China as margins continue to slip as contract manufacturing becomes more standardized." Investors foresee the two remaining Taiwan based iPhone assemblers, Foxconn and Pegatron, losing some of their iPhone assembly revenue to Luxshare. Pegatron shares lost nearly 4% today while Foxconn shares slipped 1.4%.
Apple has been looking to broaden the locations where it assembles the iPhone and other products. The company has said that it would like to move 20% of iPhone production out of China so that it won't get caught up in any import tax that the U.S.might impose against products shipped into the states from Chinese factories. Limited iPhone models are being churned out in factories located in India and there is speculation that Apple will eventually turn to Vietnam to manufacture its most important product.
Luxshare is not an unknown company as far as Apple is concerned. It is the world's biggest manufacturer of Apple's wireless Bluetooth AirPods. The latter is one of the tech giant's most popular devices and is part of its fast-growing Wearables, Home, and Accessories business along with the Apple Watch. Luxshare was able to acquire two Wistron units in Eastern China including the one factory where the latter assembled the iPhone. Wistron was responsible for only 5% of total iPhone handsets manufactured last year and its profit margin on these devices was just 0.2% last year.
Luxshare reportedly purchased the two factories for the U.S. dollar equivalent of $470 million. With regulatory approval, the transaction is expected to close by the end of the year. Talking about Luxshare, Bloomberg Intelligence analysts Matthew Kanterman and Nathan Naidu said that the deal "may now give it the scope to push on to gain share of iPhone assembly. It’s likely that Apple will support its partner and provide it with allocations over time, as the iPhone maker likely wants to further diversify its supply chain beyond just two main partners." BI also expects that Luxshare will be able to begin the production of iPhone units by 2023. Pegatron could lose anywhere between 3% and 4% of its revenue when all of the dust settles. As for Foxconn, Bloomberg Intelligence says that the manufacturer has enough diversity so as not to be affected by any changes Apple makes to iPhone production.
Apple's iPhone assemblers have to deal with a major redesign this year that replaces the rounded sides for flat ones giving the iPhone 12 series a look similar to the iPhone 4. In addition, thanks to the coronavirus, the supply chain might have to pick up some speed in order for Apple to release its new models in late September as usual.