Apple Supplier Foxconn Sets Up Task Force To Beat Rival Luxshare


Luxshare, China’s iPhone manufacturer, rises in the race against Foxconn as U.S.-China feud speeds the supply chain shift. Let’s read the complete story.

Taiwan’s Foxconn is the front runner when it comes to assembling Apple’s iPhones. However, the company is growing more cautious of a smaller rival from China, an electronics manufacturer, LuxshareOpens a new window . Apple’s iPhone assembler Foxconn has put together a “task force” to defend itself against incursions by Luxshare. The Chinese rival, sometimes referred to as “little Foxconn”, is believed to pose a severe threat to Foxconn’s dominance.

According to sources, the project of setting up the task-force was put to action by Terry Gou, Foxconn’s founder. Foxconn focused on keeping an eye on Dongguan-based competitor Luxshare, which is now gaining ground in the iPhone assembling market. The task force has been keenly looking into Luxshare’s technology, plans for expansion, hiring and business strategy, and if the company is supported by a Chinese government entity.

Luxshare made 62.5 billion Yuan in revenue last year, which is only 5% of Foxconn’s total revenue. The company is less known internationally. However, it is at the crucial juncture of becoming the first mainland China-headquartered firm to assemble iPhones. With this, the electronic manufacturer poses a severe threat to the ‘iPhone assembler’ market, predominantly ruled by Taiwanese manufacturers. 

As the U.S.-China trade ties have intensified at the backdrop of coronavirus, there has been substantial pressure on global supply chains. The increasing friction and tech feud between economic giants has prompted Beijing to develop and strengthen local tech firms to counter the bigger tech giants. Luxshare’s growth trajectory corroborates these efforts.

One of the sources said, “Luxshare is set to rise. It’s just a matter of how fast it could be. It makes sense for China to build up its own supply chain, and Luxshare is in line with that state policy.”

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Taiwan Manufacturers Battle ‘Red Supply Chain’

Analysts opine that a fast-growing cluster of mainland companies (Chinese firms) with apparent government support have increasingly taken control over the work of manufacturing products for Apple and other global firms with the rise of China’s “red supply chain”. A report by Market Intelligence & Consulting Institute, a think tank supported by the Taiwan government, mentionedOpens a new window , “Facing the rise of the red supply chain, the threat of Taiwan manufacturers being replaced continues to increase.”

Luxshare acquired Opens a new window two China-based subsidiaries of Foxconn rival Wistron, including one iPhone plant, in a $474m deal in July 2020. The deal puts assembly of the iPhone, the centerpiece of global technology manufacturing, in the hands of a Chinese company for the first time. Previously, Luxshare was best known for making Apple’s AirPods.

According to another source, Foxconn regarded Luxshare as a “formidable opponent”, and said it has been conducting extensive research on the opponent, with the aim to “defeat it completely.” Citing the sensitivity and graveness of the issue, the sources who have direct knowledge of the matter and are familiar with Foxconn’s thinking, declined to be categorically named.

As per the public records, Luxshare is majority-owned by Grace Wang and her brother Wang Laisheng. However, its minority shareholders include a state-owned Chinese investment company, Central Huijin Investment Ltd. The investment company has a 1.38% stake in Luxshare.

In addition to this, Luxshare has also received over 1 billion Yuan ($148.80 million) in government subsidies from 2016 to the first half of this year, as per the calculation of Reuter’s financial reports. Roughly, about half of that sum came in 2019 alone. 

Foxconn told Reuters that the task force described in this story is “not grounded in facts,” and there were “no meetings or any other contact.” The company said, “There have also been no other extraordinary actions taken by the management team.” Foxconn did not elaborate any further. Luxshare declined to comment on the matter. Reuters requested Apple to comment; however, Apple did not respond to the request either.

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The Rise of Luxshare, China’s Homegrown iPhone Manufacturer

Luxshare’s journey up Apple’s value chain has been driven by a series of acquisitions of smaller components makers.  The company started manufacturing connector cables for iPhone and MacBook through a 2011 acquisition of its Dongguan neighbor, Lanto Electronics. This led them to make acoustic components for the iPhone and eventually manufacture air pods.

The company’s revenue has risen with its advance up Apple’s value chain; sales in 2019 hit 62.5 billion Yuan, up 75% year-on-year. Luxshare’s revenue roughly amounts to 5% of Foxconn’s revenue, formally called the Hon Hai Precision Industry. The investors bet on the company’s prospects, as the company has lifted its market value to roughly $20 billion above the Taiwan firm’s $39 billion market capitalization.

According to Morningstar Research, Luxshare now gets 58% of its revenue from Apple. The company’s July 2020 acquisition of Wistron’s iPhone plants in Kunshan is its most significant deal to date. Fubon Research said that the acquisition could help Luxshare capture up to 30% of iPhone production within the next five years. 

Another couple of sources familiar with Foxconn said that Luxshare had also been actively poaching from Foxconn. One of the sources said that Luxshare offered 500,000 Yuan ($75,009) cash upfront as a relocation subsidy for a senior Foxconn employee to move their family from Taiwan to China.

David Collins, a manufacturing consultant based in Taipei and Kunshan, says that Chinese firms look at two aspects of Foxconn, namely, its legacy status and its move away from China as an open opportunity to seize it. “Foxconn’s share price is down roughly 50% from two years ago. They see blood in the water”, he said.

As Taiwan’s top dog races against the Chinese local firm, it will be an interesting battle to see. The face-off between the two may change the supply chain landscape for Apple in the years to come. 

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