In a Supply Chain Matters published blog in November 2020, Added Developments Concerning Apple’s Supply Network, we highlighted for readers a late October report from The Economic Times indicating that Foxconn, Apple’s top iPhone contract manufacturer has established a corporate task force to fend-off the growing clout of Dongguan China based Luxshare Precision Industry as an alternate, wholly based China CMS provider.  The report indicated that Luxshare, best known for producing Apple AirPods, acquired two iPhone assembly factories in July that formerly belonged to contract manufacturer WistronFoxconn subsequently denied the existence of such a task force after the report broke.

At the time, our perspective was the linkage to ongoing trade tensions related to China that increasingly looked aimed toward the de-coupling f China’s domestic high-tech manufacturing capabilities from those of deemed foreign sources which include Taiwan, the U.S. and other countries. Reference is sometimes made to China’s ‘red supply chain”, where firms with apparent direct government support increasingly take on more of the manufacturing services for Apple and other global firms.

Apple iPhone 12 supply chain challenges

Now there has been a new development.

Last week, Nikkei China Tech reported that Luxshare Precision will be making an estimated $926 million investment in a supply component for the Apple iPhone which was part of CMS provider Pegatron.  In a securities filing, Luxshare indicated that it will take a stake in Pegatron’s Casetek Holdings. This unit produces advanced metal casings, a crucial component in producing iPhones. The China based CMS provider will own 48 percent of the entity when the investment is completed. Castek itself will reportedly hold 46 percent ownership while the remaining percentage will rest with the unit’s employees and executives.

Reportedly, an informed source indicated to Nikkei that: “Following the strategic investment, Luxshare will hold two-thirds of Castek’s assets and employees in China, including the company’s biggest casing plant in Jiashan, which handles all of Casetek’s business with Apple.

The investment follows Luxshare’s prior reported $283 million investment in iPhone camera producer Cowell, reportedly becoming this supplier’s biggest investor.

 

Pegatron Developments

In our published blog in November, we further made note that Pegatron’s Board of Directors approved a $150 million investment to build manufacturing facilities in India, expanding its current operations in Vietnam and is further considering a potential production presence in the United States. According to a published report by Taipei Times, the new factory in India is expected to begin production in the second half of the year 2022. Pegatron’s CEO reportedly further indicated that there is “client demand” for U.S. based production as well, and that the possibility is “under investigation.”

The latest Nikkei report reinforces such moves noting that last week the company indicated in a security filing last week that it will acquire land in India for $14 million, and will also build a manufacturing facility in Vietnam, and suggesting that such moves are a sign of a speed-up in efforts to diversify a more global manufacturing services presence. The premise is that these accelerated moves are at the direction or influence by different Pegatron’s customers.

 

What it Means

We continue to highlight these related because they point to various moving parts related to shifting sands and indeed a decoupling of high-tech and consumer electronics supply networks over the coming months and years. High tech and consumer electronics supply management teams need to continue to pay close attention to such developments and their implications for various industry players.

The one manufacturer to watch is indeed Apple, and whether this icon will indeed establish a supply network segmentation strategy that support both China product demand, and one that supports other major regional product demand. The company continues to navigate a geo-political trade tightrope.

 

Bob Ferrari

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