Apple wants to lessen its reliance on world’s biggest manufacturer

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Foxconn employees accused of $43 million iPhone scam
Tim Cook meeting a worker on the Foxconn production line.
Photo: Apple

For better or worse, Foxconn has long been the contract manufacturer most associated with Apple — but Apple is looking to reduce its reliance on the company, a report published Wednesday claims.

Nikkei Asian Review notes that Apple is pushing one of its Chinese AirPods assemblers to make a “major investment” in an iPhone and MacBook metal casing provider. This could help make it a viable alternative to Foxconn, the world’s biggest electronics contract manufacturer.

The report notes that:

“Luxshare-ICT, a fast-rising Chinese tech company known for its aggressive growth strategy, has been in talks with Catcher Technology, the world’s second-largest metal casing provider, for more than a year and has recently entered a deeper round of negotiations, said one of the people who is familiar with the situation.”

If the deal comes off, this would give Apple another single-point-of-contact company it could deal with for a large amount of device manufacturing. Nikkei claims that Luxshare could wind up picking up a big chunk of iPhone production. Currently, Foxconn accounts for more than 50% of iPhone production. It has held onto this share of the market since Apple debuted the iPhone in 2007.

Diversifying the supply chain

However, Apple is supposedly keen to lessen its current reliance on Foxconn. Foxconn is one of many companies in the Apple supply chain that suffered problems during the coronavirus pandemic, when it rocked China at the start of 2020. But Apple’s decision here likely has a lot more to do with pricing. Apple has long worked worked to diversify its supply chain. This allows it to better maintain its gross margins, since companies will undercut each other to secure larger percentages of Cupertino’s orders.

“Apple is encouraging Luxshare to make the investment. The rationale is to raise a competitive Chinese assembler to counterbalance the Taiwanese assemblers,” a source familiar with the current talks told Nikkei. “The more qualified suppliers Apple has, the more bargaining power it will own.”

Apple analyst Ming-Chi Kuo first mentioned Luxshare joining Foxconn and other contract manufacturer Pegatron in the iPhone supply chain earlier this year. Kuo wrote that: “If Luxshare Precision can enter the ‌iPhone‌ assembly business, it is expected to reduce Apple’s new ‌iPhone‌ development and supply risk.”