Apple supplier Luxshare unnerves Foxconn as U.S.-China feud speeds
supply chain shift
Send a link to a friend
[October 26, 2020] By
Yimou Lee and Josh Horwitz
TAIPEI/SHANGHAI (Reuters) - Apple's <AAPL.O>
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 <002475.SZ>, 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."
RED SUPPLY CHAIN
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 <2392.TW>, 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 has also received over 1 billion yuan ($148.80 million) in
government subsidies since 2016 to the first half of this year, a
Reuters calculation of its financial reports shows. Roughly half of that
sum came in 2019 alone.
[to top of second column] |
Foxconn Chairman Liu
Young-way speaks at an event presenting the company's new
technologies in Taipei, Taiwan October 16, 2020. REUTERS/Yimou
Lee/File Photo
Foxconn told Reuters in a statement the task force described in this story is
"not grounded in facts" and there were "no meetings or any other contact."
"There have also been no other extraordinary actions taken by the management
team." It did not elaborate.
Luxshare declined to comment. Apple did not respond to a Reuters request for
comment.
'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, T.C. Gou.
Its journey up Apple's value chain has been driven in part by acquiring smaller
components makers, starting with the manufacturing of connector cables for the
iPhone and Macbook through a 2011 acquisition of its Dongguan neighbour Lanto
Electronics, then by making acoustic components for the iPhone, and eventually
by manufacturing airpods.
The company's revenue has risen in tandem with its advance up Apple's value
chain - sales in 2019 hit 62.5 billion yuan, up 75% year-on-year.
That's roughly 5% of Foxconn's revenue, formally called Hon Hai Precision
Industry, although investor bets on the company's prospects have lifted its
market value to roughly $20 billion above the Taiwan firm's $39 billion market
capitalisation.
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.
Two of the sources familiar with Foxconn said Luxshare had also been actively
poaching from Foxconn. In one case, one of the sources said, Luxshare offered
500,000 yuan ($75,009) cash upfront as a relocation subsidy for a senior Foxconn
employee to move family from Taiwan to China.
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. They see blood in
the water."
(Reporting by Josh Horwitz in Shanghai and Yimou Lee in Taipei; Editing by
Brenda Goh & Shri Navaratnam)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |