Apple reportedly looking to Pegatron in supply chain diversification away from Foxconn

Purported shell of low-cost iPhone, which will reportedly be manufactured by Pegatron.

Apple is reported to be bolstering ties with partner supplier Pegatron, while at the same time lessening its reliance on manufacturing monolith Foxconn, which up to now has been responsible for producing a bulk of the Cupertino company's devices.

According to people familiar with the shift, Apple is looking to grow its supply chain in light of increasing competition from rival handset makers, and to diversify risk after Foxconn fumbled the iPhone 5 rollout by shipping out units with nicks and scratches, reports The Wall Street Journal.

In addition, Pegatron is likely to offer more attractive production deals as it tries to garner a bigger slice of Apple's substantial consumer electronics business. The publication notes Foxconn's previous advantage of scale has "waned" due to steps taken to fix the factory working conditions, a result of increased scrutiny from labor watchdog groups.

Apple CEO Tim Cook is also said to be a catalyst in the move away from Foxconn. Sources said late Apple cofounder Steve Jobs and Foxconn Chairman Terry Gou had a special relationship as "two leader with a hero complex." Cook still has strong ties to Gou, however, and has known the manufacturing mogul before taking coming to Apple in 1998.

Foxconn, in its growing heft as the world's largest electronics contract company, was also getting more difficult for Apple to control, with incidents such as changing component sourcing without notifying Apple, people familiar with the matter said. At the same time, Foxconn became frustrated with the growing complexity of Apple products, such as the iPhone 5, which is difficult to make in the volumes Apple needed.

The WSJ said Pegatron will be the primary manufacturer of Apple's much rumored low-cost iPhone, though other reports have claimed that Foxconn will be handling a bulk of the initial orders. KGI analyst Ming-Chi Kuo noted in March that Pegatron and Foxconn would almost split production of the low-cost iPhone, while the former would take a bigger share of legacy models like the iPhone 4 and 4S.

Most recently, Pegatron was reported to be readying a massive 40,000-worker hire for the second half of 2013, rekindling rumors that a less expensive iPhone is in the offing.

Follow AppleInsider on Google News

37 Comments

paxman

said about 10 years ago

I know Apple's move away from component manufacture has been credited to Tim Cook and this in turn has been credited as one of the key elements to Apples return to profitability, but it seems Apple is now big enough to create a new company dedicated to providing some key components for its devices. No need to be wholly owned, just controlled by Apple. The effort it must take to change supplier must be enormous and very costly.

Just thinking aloud here.

jobsisgod

said about 10 years ago

I hope iPhone prices remain at their current reasonable levels. I'd pay more, but I don't want to if I don't have to. Is Pegatron a sweatshop too? As much as I'm against the mistreating of workers there's a lot to be said about cheap labor. It's what built this country (the US) and helps developing countries to employ and feed their families while at the same time getting us our iDevices at affordable prices. Either way, a shift away from Foxconn to give Apple some diversification is a good thing. It's good to have people competing for Apple's business.

teaearlegreyhot

said about 10 years ago

"Foxconn's previous advantage of scale has "waned" due to steps taken to fix the factory working conditions, a result of increased scrutiny from labor watchdog groups." I think this statement is just loaded with political and social import.... It is almost implying that Apple is punishing Foxconn for the improved working conditions by taking their business elsewhere. Doesn't sound very Apple-like. "Foxconn, in its growing heft as the world's largest electronics contract company, was also getting more difficult for Apple to control.... Foxconn became frustrated with the growing complexity of Apple products, such as the iPhone 5" This I believe! Well Foxconn, there is a phrase along the lines of "Adapt or perish" that's worth keeping in mind.

SpamSandwich

said about 10 years ago

I find it bizarre that Apple hasn't committed to advanced robotic assembly plants yet. Seems to me that would be something that would be clearly in line with their expectations of absolute secrecy and top quality. And the last time they actually operated their own assembly lines? Was it the original (black and white screen) Macintosh? Please make it happen, folks.

jobsisgod

said about 10 years ago

Quote:

Originally Posted by TeaEarleGreyHot

"Foxconn's previous advantage of scale has "waned" due to steps taken to fix the factory working conditions, a result of increased scrutiny from labor watchdog groups."

I think this statement is just loaded with political and social import.... It is almost implying that Apple is punishing Foxconn for the improved working conditions by taking their business elsewhere. Doesn't sound very Apple-like.

"Foxconn, in its growing heft as the world's largest electronics contract company, was also getting more difficult for Apple to control.... Foxconn became frustrated with the growing complexity of Apple products, such as the iPhone 5"

This I believe! Well Foxconn, there is a phrase along the lines of "Adapt or perish" that's worth keeping in mind.

Apple isn't taking their business elsewhere because working conditions have improved at Foxconn. Apple is diversifying because Foxconn isn't continuing to be competitively priced. The reason for the rise in cost is irrelevant to the decision. With multiple suppliers Apple will have a bigger advantage as multiple companies compete for their business as well.