Hon Hai Precision Industry, better known as Foxconn, has long been Apple’s biggest manufacturing partner, with around 60-70% of its revenue coming from the Cupertino company. But local rival Pegatron is hoping to change that.
By offering Apple more competitive prices and sacrificing its profit margins, Pegatron appears to be securing iPhone and iPad assembly orders that would have normally gone straight to Foxconn.
What’s more, it’s though that Pegatron will play a big part in manufacturing Apple’s rumored low-cost iPhone after the company announced it will increase its number of workers in China by up to 40% in the second half of 2013.
“Pegatron posts a long-term risk to Hon Hai because as it catches up on margins by supplying more components, it can provide more aggressive pricing,” Daiwa Capital analyst Birdy Lu told Reuters. “Hon Hai’s margin uptrend is not a guarantee.”
According to analyst averages, Foxconn will post a net profit of T$18.76 billion ($638.24 million) for the first quarter of this year, which is 26% higher than the net profit it saw during the same period last year. However, it’s only half of the record T$36.97 billion Foxconn saw in the previous quarter.
Some of that decline has been blamed on decreasing demand for the iPhone, which Foxconn has come to rely on following its tremendous success in recent years. The device has recently seen increasing competition — particularly from Samsung’s Galaxy smartphones, which continue to be big sellers.
The fact that Apple hasn’t launched a new product since last fall also doesn’t help its manufacturing partners.
Pegatron is already an Apple partner, and it’s mainly tasked with assembling older devices, such as the iPhone 4 and the iPhone 4S. But the company is involved with iPad mini production.
Pegatron’s revenue grew 29% during the first quarter of this year — compared with the same period last year — while its net profit rocketed 81% to T$2.31 billion ($78.59 million). Foxconn, on the other hand, saw revenue slide 19.2%.
“Hon Hai would see a flat revenue this year at best… while Pegatron has great growth potentials because it is going from nothing to something,” HSBC analyst Jenny Lai told Reuters. “But Hon Hai’s margins would improve, benefitting from getting more component orders.
Foxconn is said to be betting on Apple’s rumored television. It recently purchased a 37.6% stake in Sharp for $840 million to secure large LCD panels, which it will be hoping will one day make their way into the “iTV” — if Apple ever makes one.