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

Posted:
in General Discussion edited January 2014
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.

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


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.
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Comments

  • Reply 1 of 37
    paxmanpaxman Posts: 4,594member


    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.

  • Reply 2 of 37
    jobsisgodjobsisgod Posts: 31member
    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.
  • Reply 3 of 37
    "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.
  • Reply 4 of 37
    SpamSandwichSpamSandwich Posts: 30,834member


    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.

  • Reply 5 of 37
    jobsisgodjobsisgod Posts: 31member

    Quote:

    Originally Posted by TeaEarleGreyHot View Post



    "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.

  • Reply 6 of 37
    isaidsoisaidso Posts: 750member
    A phone with a video screen and a camera, that I cannot stand-up on it's side or on it's end, is almost (not quite), but almost pointless to me.
  • Reply 7 of 37
    paxmanpaxman Posts: 4,594member

    Quote:

    Originally Posted by isaidso View Post



    A phone with a video screen and a camera, that I cannot stand-up on it's side or on it's end, is almost (not quite), but almost pointless to me.


    The iPhone's ability to do is very limited. 

  • Reply 8 of 37
    charlitunacharlituna Posts: 7,205member
    Anyone else wondering if the source for this is Pegatron. What better way to make yourself look better than to be gaining/gaining more of Apple,'s business
  • Reply 9 of 37
    sockrolidsockrolid Posts: 2,788member


    Originally Posted by AppleInsider View Post



    Apple is reported to be bolstering ties with partner supplier Pegatron, while at the same time lessening its reliance on manufacturing monolith Foxconn ...


     


    Apple: "Hey Foxconn.  We're going to do a deal with Pegatron.  Care to make a counter offer?"


     


    Foxconn: "Nope.  You need us too much."


     


    Apple: "OK.  We'll talk later.  Guaranteed."


     


    [Foxconn's revenues drop due to their other OEM businesses declining: HP and Dell PCs, Sony and Microsoft gaming consoles, and Amazon Kindle devices.  All built by Foxconn.]


     


    Foxconn: "OK, OK, Apple.  We'll deal.  We need you after all."

  • Reply 10 of 37
    jobsisgodjobsisgod Posts: 31member

    Quote:

    Originally Posted by charlituna View Post



    Anyone else wondering if the source for this is Pegatron. What better way to make yourself look better than to be gaining/gaining more of Apple,'s business


     


    Doubtful.  This is the nature of using sweatshops as suppliers.  Foxconn has received enough business and made enough money that the workers are now able to ask for more pay and better working conditions.  When that happens the company then starts to look for other suppliers, Pegatron in this case.  This will be a huge boost to the local economy near Pegatron as is reflected by the 40,000+ jobs that Apple will be creating by using them as a supplier.  Eventually the pay and working conditions will improve and Apple will likely need to look elsewhere to obtain an affordable supplier.  It's worth noting that this chain involves Apple improving local economies everywhere they go.  These people are living in poverty conditions and could very likely starve or turn to crime in order to survive if Apple wasn't there to help them.  image

  • Reply 11 of 37
    tsunami78tsunami78 Posts: 22member

    Quote:

    Originally Posted by isaidso View Post



    A phone with a video screen and a camera, that I cannot stand-up on it's side or on it's end, is almost (not quite), but almost pointless to me.


     


    Sooooo... why are you reading and commenting on an article that's about a company that's primary line of business is something that is pointless to you?

  • Reply 12 of 37
    asciiascii Posts: 5,941member


    Pattern of American companies overseas:


     


    (1) Offshore work to save money


    (2) Foreign company observes all your know-how and stabs you in the back


    (3) Change to different offshore company


    (4) Rinse and repeat

  • Reply 13 of 37
    pedromartinspedromartins Posts: 1,333member


    Who would have guessed that this is the reason for Foxconn's "worries", and not lack of demand for the best products in the world by a huge margin?


     


    Yes, there's sarcasm there.

  • Reply 14 of 37

    Quote:

    Originally Posted by paxman View Post


    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.



    I know from experience that having two suppliers competing for your business keeps them both hungry and their pencils sharp. Also, it's smart to not have all your production in one geographic area and subject to local weather/seismic and political condition.

  • Reply 15 of 37
    tsunami78tsunami78 Posts: 22member

    Quote:

    Originally Posted by SpamSandwich View Post


    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.



     


    I totally agree.  It would seem like a smart move to invest in a couple of production facilities at key points in the supply chain.  I don't think Apple should try to get back too deep into the component game, but especially given the leaks that come out of foxconn it seems to make sense that final product assembly and key design elements could be kept in house.  Robotics plants can be retooled fairly quickly for different/new products, so it would seem like a perfect fit now.  C'mon apple, use some of that $140B to insource some of your production.


     


    As an aside Samsung, their biggest competitor, is also a HUGE and profitable component supplier.  These two companies are competing in more and more markets, yet Samsung is Apple's largest supplier.  Insourcing some of those critical components would give them greater control while also helping starve their competitor.

  • Reply 16 of 37
    realisticrealistic Posts: 1,130member

    Quote:

    Originally Posted by SpamSandwich View Post


    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.



    They would be constantly upgrading an retooling the robots at least yearly due to changes, upgrades, new models. Not sure robotics would be economical with the short product lives.


  • Reply 17 of 37

    Quote:

    Originally Posted by isaidso View Post



    A phone with a video screen and a camera, that I cannot stand-up on it's side or on it's end, is almost (not quite), but almost pointless to me.


    Search engines are your friend. There are multiple sources for such a thing. I got mine from Verizon, but anyone with half a brain can find them most places.


     


  • Reply 18 of 37
    maestro64maestro64 Posts: 4,476member

    Quote:

    Originally Posted by SpamSandwich View Post


    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.



    That is because manufacturing in China it is job program for its billions of people. In China a manufacturer can not automate something a human can otherwise do. If a human can do it then a machine can not. However, you can still automate if they still allow humans to press the buttons to make it work or load material into the machines.


     


    It will be interesting to see for the products they plan to make in the US how much is actually fully automated over people doing the work.

  • Reply 19 of 37
    tbelltbell Posts: 3,146member

    Quote:

    Originally Posted by ascii View Post


    Pattern of American companies overseas:


     


    (1) Offshore work to save money


    (2) Foreign company observes all your know-how and stabs you in the back


    (3) Change to different offshore company


    (4) Rinse and repeat



     


    Somebody gets it. Apple invested 100 million in Samsung back in the 90s. Dell 200 million. Now look at it. 

  • Reply 20 of 37

    Quote:

    Originally Posted by tsunami78 View Post


     


    I totally agree.  It would seem like a smart move to invest in a couple of production facilities at key points in the supply chain.  I don't think Apple should try to get back too deep into the component game, but especially given the leaks that come out of foxconn it seems to make sense that final product assembly and key design elements could be kept in house.  Robotics plants can be retooled fairly quickly for different/new products, so it would seem like a perfect fit now.  C'mon apple, use some of that $140B to insource some of your production.


     


    As an aside Samsung, their biggest competitor, is also a HUGE and profitable component supplier.  These two companies are competing in more and more markets, yet Samsung is Apple's largest supplier.  Insourcing some of those critical components would give them greater control while also helping starve their competitor.



    Apple does insource some components such as their batteries. They are also doing some advanced work on NAND memory in in's factories in Israel. Apple also owns it's own CPU/GPU design company. In all cases Apple bought a specific company that had on staff all the important technical engineers and production equipment. You really can't just set up a new company from scratch to even make something a basic as a resistor. 


     


    One element of owning a component company is one of matching production to your need. Especially if you don't intend to supply other customers with components, like Apple. Apple has found that it is most profitable to buy up hugh amounts of future production of limited components, such as they did several years ago with NAND memory. They also have found that if they make a component themselves, they also secure a secondary partner that can supply their overage needs on the spot market. Apple is very shrewd about their buying, even more so then what I've explained.


     


    Finally, it will be interesting to find out who the new nine companies Apple bought so far in 2013.


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