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TAIPEI / SHANGHAI: Apple’s top iPhone assembler Foxconn, based in Taiwan, has established a task force to defend itself against the growing influence of Chinese electronics manufacturer Luxshare, which it believes poses a serious threat to its dominance, three sources with knowledge of the matter. He said.
The project was started by Foxconn founder Terry Gou, according to one of the sources, to target Dongguan-based Luxshare, which is little known internationally but poised to become the first mainland China-based company. in assembling iPhones, a territory so far. dominated by Taiwanese manufacturers.
The task force, which sources said was created last year, has been looking into Luxshare’s technology, expansion plan, hiring strategy, and whether the company, which currently generates only 5% of Foxconn’s revenue, it has the backing of some entity of the Chinese government.
While the US-China trade war and the coronavirus crisis have intensified pressure on global supply chains, an increasingly bitter technology dispute between economic giants has also prompted Beijing to strengthen efforts to start up global supply chains. world-leading local technology, and Luxshare’s growth trajectory fits that mold.
“Luxshare will increase … it’s just a question of how fast it could be,” said one of the sources.
“It makes sense for China to create its own supply chain and Luxshare is in line with that state policy.”
RED SUPPLY CHAIN
That state policy, analysts say, is gaining ground with the rise of China’s “red supply chain”, with Chinese companies with apparent government support increasingly taking on the job of making products for Apple and other global companies.
“Faced with the rise of the red supply chain, the threat of Taiwanese manufacturers being replaced continues to grow,” the Market Intelligence & Consulting Institute, a think tank backed by the Taiwanese government, wrote in a September report.
Luxshare, whose president was once a worker at Taiwanese Apple supplier Foxlink, acquired two smaller factories owned by Taiwanese iPhone assembler Wistron in China in July. Previously, Luxshare was best known for making Apple’s AirPods.
One of the sources called him a “formidable opponent”, and said Foxconn has been conducting extensive research on Luxshare, with the goal of “defeating him completely.”
The sources, who have direct knowledge of the matter and are familiar with Foxconn’s thinking, declined to be identified 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 Chinese state investment company Central Huijin Investment Ltd, which has a 1.38% stake.
Luxshare has also received more than 1 billion yuan ($ 148.80 million) in government subsidies from 2016 to the first half of this year, a Reuters calculation of its financial reports shows. About half of that sum came in 2019 alone.
Foxconn told Reuters in a statement that the working group described in this story “is not based on fact” and that “there were no meetings or any other contacts.”
“There have also been no other extraordinary actions taken by the management team.” He did not elaborate.
Luxshare declined to comment. Apple did not respond to a request for comment from Reuters.
‘BLOOD IN THE WATER’
Luxshare was founded in 2004 by Grace Wang, who told Taiwan’s Business Today in July that she was once a worker at Foxlink, owned by Gou’s brother TC Gou.
Its rise up Apple’s value chain has been driven in part by the acquisition of smaller component manufacturers, starting with making connector cables for the iPhone and Macbook through the 2011 acquisition of its Dongguan neighbor, Lanto Electronics, then by manufacturing acoustic components for the iPhone, and eventually by manufacturing airpods.
The company’s revenue has grown in line with its advancement through Apple’s value chain: Sales in 2019 reached 62.5 billion yuan, up 75% year-on-year.
That’s roughly 5 percent of Foxconn’s revenue, formally called the Hon Hai Precision Industry, although investor bets on the company’s prospects have raised its market value to roughly $ 20 billion above the capitalization of The Taiwanese company’s $ 39 billion market.
Luxshare now gets 58 percent of its revenue from Apple, according to Morningstar Research
The company’s July acquisition of Wistron’s iPhone plants in Kunshan marks its largest deal yet, which Fubon Research says could help Luxshare capture up to 30 percent of iPhone production over the next five years. .
Two of the sources familiar with Foxconn said Luxshare had also been poaching for Foxconn. In one case, one of the sources said, Luxshare offered 500,000 yuan (US $ 75,009) in cash upfront as a relocation allowance for a senior Foxconn employee to relocate his family from Taiwan to China.
David Collins, a Taipei and Kunshan-based manufacturing consultant, says Chinese companies see Foxconn’s legacy status, along with its estrangement from China, as an excellent opportunity to usurp it.
“Foxconn’s stock price has dropped about 50% in the past two years. They see blood in the water.”
(Reporting by Josh Horwitz in Shanghai and Yimou Lee in Taipei; Edited by Brenda Goh and Shri Navaratnam)
