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Foxconn to Lose Top-Tier iPhone Assembly Allocation for First Time

Daniel Nenni

Admin
Staff member
In a blow to Foxconn, Apple is expected to hand key iPhone 16 production responsibilities to Luxshare, significantly boosting the supply chain partner's profit growth over the next two years, according to Apple analyst Ming-Chi Kuo.

iPhone 16 Mock Header 1


In his latest Medium blog post, Kuo said Apple has already given Luxshare new product introduction (NPI) approval for next year's iPhone 16 Pro Max, which is a significant win for the supplier, given that Foxconn has consistently won the highest-end iPhone assembly NPI in previous years.

The approval followed Apple's decision to transfer some iPhone 14 Pro Max orders from Foxconn to Luxshare to diversify supply and mitigate risk, following the protests and riots that broke out in Foxconn's largest iPhone factory in Zhengzhou, China, in November 2022.

Luxshare's production yield improvement schedule for the iPhone 14 Pro Max subsequently proved better than expected, leading Apple to award NPI to the company for the 2024 model. That means Apple believes Luxshare's R&D and production capabilities have reached the level of a first-tier supplier, according to Kuo.

The analyst believes that Apple will now negotiate with the Indian government to help Luxshare set up production lines in India, with the possibility of floating the idea of a joint venture to offset concerns from investors about the geopolitical situation being unfavorable for the assembler.

Luxshare's iPhone business should see significant profit growth, says Kuo, with the company expected to ship 45–50 million iPhones in 2023, up from approximately 20 million in 2022, indicating Apple's increasing faith in and reliance on the assembler.

Apple wants to triple its iPhone production capacity in India within the next two years, as part of a larger plan to diversify its supply chain out of China and into other parts of the world. According to one report, Apple has instructed Foxconn, Pegatron, and Wistron, three of its biggest suppliers, to increase their capacity and manpower in the country.

As things stand, production allocation for next year's iPhone 16 series is allocated to Luxshare (iPhone 16 Pro Max), Foxconn (iPhone 16 and iPhone 16 Pro), and Pegatron (iPhone 16 Plus).

 
The complexity of final assembly has greatly been reduced over the years, due to the ever increasing amount of integration in the design, leaving much less room to negotiate for sizable profit margins.

So Foxconn likely couldn't put in a competitive bid that's still profitable for mainland assembly work due to increasing labor costs.

The interesting part is the increasing share of India in that final assembly, and why Foxconn's factories in India didn't win the business.

It seems like there are diseconomies of scale when all the component factories are too far for a business day trip, so that's one possible reason.

I'm also not sure what the breakeven point is to justify the hassle but I think the labor cost savings alone couldn't explain it. And the geopolitical reason is more likely to motivate moving to Vietnam. Most probably there are some generous subsidies by the Indian state governments to attract business.

Or perhaps more accurately that the various provincial governments in China stopped giving the previously more attractive subsidies.
 
Interesting that Foxconn is a Taiwanese company and Luxshare is Chinese. Conspiracy theorists might say that is motive. ;)

It's not a big secret to anybody close to Apple that it largely only been buying time for itself in China by progressively larger bribes.

You don't sign $276B secret investment deals to a country which amounts many times less than that in sales.


I firmly believe this is a signal that Chinese officials just became much more greedy.
 
It's not a big secret to anybody close to Apple that it largely only been buying time for itself in China by progressively larger bribes.

You don't sign $276B secret investment deals to a country which amounts many times less than that in sales.


I firmly believe this is a signal that Chinese officials just became much more greedy.
I'm increasingly convinced every large company that entered China signed these kind of agreements.

Though in this case Apple earned almost as much in sales ~$249 billion according to the article you linked. Plus they got the political advantage of a nominally socialist government looking the other way during the many labour disputes that arose with Apple's suppliers and contractors. So I think it's fair to say Apple got at least as much as they put in, probably more.
 
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