Trade war between U.S. and China and the Covid-19 crisis have intensified pressure on global supply chains
Apple’s top iPhone assembler, Taiwan-based Foxconn, has set up a task force to fend off the growing clout of Chinese electronics manufacturer Luxshare, which it believes poses a serious threat to its dominance, three sources with knowledge of the matter said.
The project was initiated by Foxconn’s founder Terry Gou, according to one of the sources, to target Dongguan-based Luxshare, which is little-known internationally but is poised to become the first mainland China-headquartered firm to assemble iPhones – a turf until now dominated by Taiwanese manufacturers.
The task force, which the sources say was created last year, has been looking into Luxshare’s technology, expansion plan, hiring strategy and whether the company – which currently makes only 5% of Foxconn’s revenue – is supported by any Chinese government entity.
While the U.S.-China trade war and the coronavirus crisis have intensified pressure on global supply chains, an increasingly acrimonious tech feud between the economic giants has also prompted Beijing to strengthen efforts on creating world-leading local tech firms – and Luxshare’s growth trajectory fits into that mould.
Luxshare is set to rise, it’s just a matter of how fast it could be, one of the sources said. It makes sense for China to build up its own supply chain and Luxshare is in line with that state policy.
That state policy, analysts say, is gaining traction with the rise of China’s “red supply chain”, where Chinese firms with apparent government support increasingly take on the work of manufacturing products for Apple and other global firms.
Facing the rise of the red supply chain, the threat of Taiwan manufacturers being replaced continues to increase, Market Intelligence & Consulting Institute, a think tank backed by Taiwan government, wrote in a September report.
Luxshare, whose chairwoman was once a worker at Taiwanese Apple supplier Foxlink, acquired two smaller factories belonging to Taiwanese iPhone assembler Wistron in China in July. Previously, Luxshare was best known for making Apple’s AirPods.
One of the sources called it a “formidable opponent”, and said Foxconn has been conducting extensive research on Luxshare, aiming to “defeat it completely.”
The sources, who have direct knowledge of the matter and are familiar with Foxconn’s thinking, declined to be named citing the sensitivity of the issue.
Public records reveal that while Luxshare is majority-owned by Grace Wang and her brother Wang Laisheng, its minority shareholders include state-owned Chinese investment company Central Huijin Investment Ltd, which has a 1.38% stake.
Luxshare now gets 58% of its revenue from Apple, according to Morningstar Research.
The company’s July acquisition of Wistron’s iPhone plants in Kunshan marks its most significant deal yet, which Fubon Research said could help Luxshare capture up to 30% of iPhone production within the next five years.
David Collins, a manufacturing consultant based in Taipei and Kunshan, says that Chinese firms see both Foxconn’s legacy status, coupled with its move away from China, as prime opportunity to usurp it. Foxconn’s share price is down roughly 50% from two years ago.
The articles are for information purposes only and Precise Investors shall not be held responsible for any errors, omissions or inaccuracies within it. Any rules or regulations mentioned within the website are those relevant at the time of publication and may not be the most up-to-date.
Precise Investors does not endorse any of the products or services that appear on it or are linked to it and are not liable for any action that you may take as a result of the content of this website, or losses or damage you may incur doing so.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.
Please remember that investments of any type may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.